Simplified Explanation of the Judgment
In a recent judgment, the Patna High Court set aside a tax demand order and bank account attachment issued against a business for allegedly claiming ineligible Input Tax Credit (ITC) under the Bihar Goods and Services Tax (BGST) Act. The petitioner, a sole proprietorship firm, had challenged multiple orders passed by State Tax authorities, including the rejection of ITC, penalty imposition, and coercive recovery actions.
The core dispute arose when the tax authorities disallowed ITC claimed by the petitioner for purchases made from a supplier who failed to file monthly returns (GSTR-3B) for the financial year 2017–18. Based on this, the department concluded that the petitioner wrongly availed ITC and demanded Rs. 8.43 lakhs, later attaching the business’s bank account to recover Rs. 13.30 lakhs through a DRC-13 notice.
The petitioner argued that they had paid the tax amount and received a valid tax invoice from the supplier. They also claimed that no fair opportunity was given to respond, and the order was passed without adequate reasoning.
The Revenue Department’s counsel agreed before the court that the matter could be remanded for fresh adjudication.
The Division Bench, led by the Hon’ble Chief Justice, ruled that even though an alternative statutory remedy existed, the court was justified in interfering because the order was passed ex parte without following the principles of natural justice. It found the proceedings lacked proper notice and reasoning, which resulted in civil consequences for the petitioner.
The court quashed the demand order, the bank account attachment, and associated notices. However, it directed the petitioner to deposit 20% of the demanded amount with the Assessing Officer within four weeks. It also instructed the tax authorities to decide the matter afresh after giving full opportunity for hearing and submission of documents.
Further, the court restrained the department from taking any coercive steps during reassessment and ordered de-freezing of the petitioner’s bank accounts. The matter must now be re-examined within two months from the petitioner’s appearance before the authorities.
Significance or Implication of the Judgment
This judgment reinforces the importance of adhering to the principles of natural justice in tax proceedings. The court emphasized that even if a taxpayer appears non-compliant, authorities must follow due process before taking harsh actions like tax recovery and bank account attachment.
For businesses, this ruling offers a safeguard against arbitrary ITC denial due to a supplier’s default, especially when they possess genuine tax invoices and have made tax payments. For the government, the judgment serves as a reminder to ensure fairness and transparency in assessment procedures.
Legal Issue(s) Decided and the Court’s Decision
- Whether denial of ITC and penalty without fair hearing is valid
→ No. The court held that principles of natural justice were violated. - Whether the tax demand and bank account attachment were legally sustainable
→ No. The orders were quashed as they were passed ex parte and without sufficient reasoning. - Whether the matter can be remanded for fresh decision
→ Yes. The court directed reassessment after giving due opportunity to the petitioner. - Whether coercive recovery action can be taken during reassessment
→ No. The court barred any coercive steps during the reassessment.
Case Title
M/S Sandeep Traders v. State of Bihar & Ors.
Case Number
Civil Writ Jurisdiction Case No. 17286 of 2022
Citation(s)– 2023 (1) PLJR 674
Coram and Names of Judges
Hon’ble The Chief Justice Sanjay Karol
Hon’ble Mr. Justice Partha Sarthy
Names of Advocates and who they appeared for
Mr. Anurag Saurav – for the Petitioner
Mr. Vivek Prasad (GP7) – for the Respondents
Link to Judgment
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