Om Shankar Metal v. Assistant Commissioner, CGST & Ors.

What happened

Om Shankar Metal, a sole proprietorship trading in metal and industrial commodities, was audited under section 65 of the Central Goods and Services Tax Act, 2017 for 1 July 2017 to 31 March 2023 (Form ADT-01 of 17 December 2023). An audit memo of 3 April 2024, revised on 4 June 2024, alleged irregular availment of input tax credit, mainly on supplies from suppliers whose registrations had been cancelled retrospectively and on delayed payments to suppliers beyond 180 days, and proposed tax of ₹69,44,262 with interest of ₹46,42,274. Before any show cause notice the proprietorship deposited ₹66,14,525 as tax, ₹1,77,226 as interest and ₹9,92,179 as penalty through Forms DRC-03, and Form ADT-02 of 18 June 2024 and Form DRC-01A of 23 July 2024 followed. A show cause notice was then issued, and an ex parte order-in-original of 31 January 2025 under section 74 and Form DRC-07 of 2 February 2025 were passed. The department said that the show cause notice was uploaded on the GST portal and that a notice of 8 January 2025 fixing personal hearings on 13, 14 and 15 January 2025 was sent to the registered address and e-mail address, and that the petitioner did not appear. The petitioner said that it was given no hearing, that the e-mail address in the department's earlier communications was different from the one to which the department says it sent the notice, that no fraud, wilful misstatement or suppression was identified, that a penalty equal to the tax is contrary to section 74(5) to (7) when the tax, interest and penalty had been deposited before the show cause notice, that the interest was not quantified, that Form DRC-07 overstated the demand by ₹76,06,706 by not giving credit for the amounts deposited, and that the order bore a document identification number generated under the customs stream. The department answered that the benefit of paying a 15% penalty under section 74(5) was not available because the applicable interest had not been discharged.

Questions before the court

• Should the High Court examine under Article 226 an ex parte order under section 74 of the CGST Act, passed allegedly without a personal hearing and imposing a penalty equal to the tax after tax, interest and a 15% penalty were deposited, or relegate the taxpayer to the appeal under section 107?

Why the court ruled this way

The Court noted that an alternative remedy does not oust the writ jurisdiction, particularly where natural justice is breached, so the petition was maintainable because its principal grievance was an ex parte order passed without a personal hearing, but maintainability is distinct from the exercise of jurisdiction, which is invoked sparingly and not where the grievance is factual and can be examined by the appellate authority (paragraph 11). The department relied on the notice of 8 January 2025 said to have been sent to the registered address and e-mail address, and on a copy of its own dispatch register, which the Court considered not sufficient to establish service because the record held no e-mail or postal receipt (paragraphs 12–14). The petitioner disputed that address and produced earlier e-mails from the department sent to a different one (paragraph 15), but whether the notice was dispatched and received is a question of fact needing the registration particulars and the history of any change to the e-mail address on the portal, and it should not be decided for the first time in writ jurisdiction (paragraph 16). On the penalty, the order recorded the deposit and appropriation of the tax, the 15% penalty and the interest but confirmed a penalty equal to the tax on the sole observation that proof of payment of the full interest was missing, did not consider section 74(5) to (7), did not quantify the interest or the payment against it, did not reconcile the 15% appropriation with the 100% penalty and recorded no specific finding of fraud, wilful misstatement or suppression, but examining this required the audit memos and Forms ADT-02, DRC-01A and DRC-03, which would amount to adjudicating disputed facts, and the appellate authority can do that together with the objections on Rule 37, Form DRC-07 and the document identification number (paragraphs 17–18).

Controlling point

The High Court will not use its writ jurisdiction to decide disputed questions about service of the hearing notice and about the penalty equal to the tax under section 74, and relegates the taxpayer to the appeal under section 107, where the appellate authority can examine all the objections.

Order and next steps

The Court declined to exercise its writ jurisdiction and relegated the petitioner to the appeal under section 107. It gave the petitioner liberty to apply under section 14 of the Limitation Act, 1963 for exclusion of the time for which the petition remained pending, which the appellate authority is to consider in accordance with law, left the appellate authority free to examine the petitioner's objections, including service of the notice of personal hearing, independently and on their merits, clarified that its observations are confined to maintainability and the mode of disposal and are not an opinion on the merits, and disposed of the petition with the pending application.

Practical implications

A taxpayer who says that a section 74 order was passed without effective notice can expect the High Court to send contested questions of service and penalty to the section 107 appeal, so it should keep the portal and e-mail records showing where notices were received and file the appeal promptly, asking for exclusion of the time spent in the writ petition under section 14 of the Limitation Act.

Limits of this ruling

• The Court did not decide whether the notice of personal hearing was served, whether section 74 or the penalty equal to the tax was rightly applied, or any other issue on the merits, and it did not call on the department to produce further documents. The observation that the dispatch register alone does not establish service was made while deciding to leave the question of fact to the appellate authority.