In a significant judgment reinforcing procedural compliance under GST laws, the Allahabad High Court has quashed the assessment and subsequent appellate orders against M/S Xestion Advisor Private Limited, a management consultancy firm, due to the failure of tax authorities to issue a mandatory notice under Section 46 of the CGST Act.
Case Overview
The case, titled M/S Xestion Advisor Private Limited vs Additional Commissioner Grade II and Another (WRIT TAX No. 1465 of 2024), revolves around a disputed tax demand of ₹19.8 lakhs. The petitioner challenged the assessment order dated 21.09.2020, issued through Form DRC-07, for alleged non-filing of GSTR-3B returns.
However, crucially, the notice under Section 46, which legally mandates the taxpayer to file pending returns within 15 days before any assessment, was issued only on 25.09.2020, four days after the assessment order had already been passed.
Violation of Natural Justice and Procedural Safeguards
The petitioner contended that the premature assessment deprived them of the statutory opportunity to rectify the default, thereby violating the principles of natural justice and the procedural safeguards enshrined in the GST Act.
Upon reviewing the case records, the High Court bench led by Justice Piyush Agarwal observed that neither the assessing authority nor the appellate authority addressed this critical procedural lapse. The Court emphasized that the issuance of a notice under Section 46 is a mandatory prerequisite for invoking Section 62, which allows for assessment in case of non-filing of returns.
Reference to Precedent: Vinman Constructions Case
The Court cited the precedent set by the Jharkhand High Court in Vinman Constructions Private Limited vs State of Jharkhand (2022), where a similar GST demand order was struck down for non-compliance with the notice requirement. The Allahabad HC reiterated that financial and penal consequences cannot be imposed without strict adherence to procedural due process.
Court’s Verdict and Directions
Finding merit in the petitioner’s plea, the Allahabad High Court ruled:
“The assessment order under Section 62 of the GST Act suffers from a serious lacuna due to the non-issuance of a notice under Section 46. Even the appellate authority failed to address this fundamental flaw. Therefore, the impugned orders are invalid due to violation of the principles of natural justice and statutory procedures.”
The Court quashed both the original assessment order and the appellate order, and remitted the case back to the Deputy Commissioner, State Tax, Noida, directing the issuance of a fresh notice under Section 46 within two weeks. The petitioner has also been directed to appear on the rescheduled date for further proceedings.
Importantly, the Court stated that any amount deposited during the litigation will remain subject to the outcome of the fresh proceedings.
Key Takeaways:
- Mandatory notice under Section 46 of the CGST Act must precede assessments under Section 62.
- Procedural lapses by tax authorities can render demand orders invalid.
- The ruling reinforces the importance of natural justice in GST proceedings.
This judgment strengthens taxpayers’ rights and sets a benchmark for compliance with statutory procedures under the GST framework.