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February 24, 2023

Revenue Department cannot invent new grounds at the adjudication stage that are outside the scope of SCN

by CA Shivam Jaiswal in GST, GST Circular Notification

Revenue Department cannot invent new grounds at the adjudication stage that are outside the scope of SCN

Fact and issue of the case

The brief facts of the case is that the petitioner is a public limited company engaged in the business of providing interalia goods transportation agency (GTA) services under reverse charge mechanism (RCM) bearing GSTIN 20AAACD2086J2ZZ in State of Jharkhand. The petitioner is registered for the same services vide another registration in the State bearing GSTIN 20AAACD2086J1Z0, but under forward charge mechanism (FCM). The requirement of two registrations stemmed out of the commercial necessity of business, wherein certain customers of the Petitioner were willing to discharge the liability under RCM; whereas others were not so willing. Under the first registration, the liability to pay output tax, was upon the recipient of services, hence there was no output tax liability to be discharged by the petitioner with respect to GTA services supplied and also no ITC for GTA services was availed. Whereas, under the second registration, the Petitioner was regularly paying the GST liability for each tax period (viz. month).

The case of the petitioner is that inadvertently, on account of a bonafide mistake, he deposited an amount of IGST of Rs.2,39,705/- CGST of Rs.83,86,310/- and SGST of Rs.83,86,310/- totaling to Rs.1,70,12,325/- in its electronic cash ledger [Pertaining to the RCM registration] instead of depositing it in the cash ledger of the GSTIN 20AAACD20866J1Z0 [pertaining to FCM registration]. The petitioner again deposited the same amount in the electronic cash ledger of the FCM registration to file GSTR-3B return. As there was double payment and the amount was lying as excess balance in the electronic cash ledger of the petitioner, an application for refund in FORM GST RFD-01 was filed on 18.04.2021.

During course of hearing, pursuant to the order dated 12.01.2023 Mr. S.K. Biswas, Assistant Commissioner, CGST, Jamshedpur, was present. The copy of the assessment records as certified to be true have also been submitted before the court for perusal in terms of the aforesaid order.

Observation by the court

The tribunal has heard learned counsel for the parties and after going through the documents available on record it appears that a show cause notice was issued to the petitioner on 17th May, 2021 on the application for refund filed by the petitioner under Section 54 of CGST Act, 2017 in respect of his Registration GSTIN No. 20AAACD2086J2ZZ. It further transpires that the petitioner herein refuted the allegation of the department given in the show cause notice vide his reply by clarifying among other things that returns in FORM GSTR-3B and FORM GSTR-1 have been correctly filed. However, interestingly, the order in original which was passed pursuant to the reply to the show cause notice did not deliberate with the content of reply but the adjudicating officer has proceeded to pass an order rejecting the refund application on the grounds which were never part of the original show cause notice as indicated in paragraph No.5 herein above. In other words, the show cause notice (Annexure-7) was of different allegation and only after submissions of petitioner’s reply the order in original was passed on the grounds which were never part and parcel of the original show cause notice. For better appreciation, the finding of the OIO can be summarized as under:

(i) Two registrations could not have been obtained by the petitioner within the State of Jharkhand under the same PAN and at the same principle place of business in terms of provision of Section 25(2) of the CGST Act.

(ii) The petitioner could not have availed the option for both the RCM @ 5% GST as well as FCM @ 12% GST, against the outward supply of GTA services.

(iii) Petitioner availed ITC of Rs.7,08,712/- against outward supplied for GTA services charging GST @ 5% RCM by the service recipient, in violation of Notification No. 20/2017-Central Tax (Rate) dt. 05.08.2017.

(iv) As far as the petitioner company’s office bearing GSTIN 20AAACD2086J1Z0 is concerned, it has claimed ITC in excess of Rs.3,34,92,342, which is ineligible in terms of Section 17(1), (2) and (3) of the CGST Act.

(v) On combining the turnover and ITC availed by both the units paying tax under FCM and RCM, it is observed that the petitioner has taken ITC in excess of Rs.4,57,27,369 by virtue of obtaining two registrations, which has resulted in revenue loss.

From the finding as enumerated hereinabove, it clearly transpires that regarding none of the grounds on which the OIO has been passed there is any allegation made in the show cause notice. It is settled principle of law that if an allegation or ground is not made at the time of issuance of show cause notice, the authority cannot go beyond the scope of show cause notice to create new ground at the later stage of adjudication.

It further transpires that the impugned proceedings are also vitiated for violation of principles of natural justice as neither a proper show cause notice has been issued nor any opportunity of hearing was given to the petitioner. It is also now well settled that before adjudicating any issue which is against the interest of assessee; opportunity of hearing should be granted to him. In the instant case, had there been any opportunity given to the petitioner, the respondents might have proceeded to issue a subsequent show cause. At the cost of repetition, it is stated that it is only after the submissions of petitioner’s reply, the Adjudicating Officer decided the refund application on the grounds which were not part of the show cause notice i.e. related to maintaining of two GSTIN number: one under RCM and other under forward charge mechanism (FCM) with two different rates of GST to be charged upon the services being provided.

Though the petitioner has argued on merits of the case but we do not feel it proper to give any finding on merits of the case as the impugned order of adjudication is bad in law for the reasons that it has been passed beyond the scope of show cause notice. It further transpires that even the order in appeal does not deliberate on this issue and simply confirmed the order in original. Thus, since the show cause notice is vague and cryptic in nature and order in original has been passed beyond the show cause notice, both are liable to be quashed and set aside. Consequently, the impugned show cause notice dated 17th May, 2021 and the consequent order in original dated 14.06.2021 and order in appeal dated 08.12.2021, are quashed and set aside. However, the revenue is at liberty to issue a fresh show cause notice and proceed in accordance with law. It is made clear that entire exercise shall be completed within a period of four months from the date of receipt/production of copy of this order; failing which the petitioner shall be entitled to claim refund in accordance with law.

As a result, the instant application is allowed.


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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