GSTAT Kolkata: Section 74 demand quashed for absence of mandatory show cause notice

Background of the dispute

The case before GSTAT Kolkata, titled Partha Tribedi Vs Vivek Ranjan, arose from proceedings initiated under the West Bengal Goods and Services Tax Act, 2017 and the Central Goods and Services Tax Act, 2017. The assessee, Shri Partha Tribedi, proprietor of M/s Tribedi Enterprise, challenged an appellate order dated 25.07.2023 passed by the Joint Commissioner of Revenue, State Tax, Raiganj Circle, Raiganj, under Section 107 of the CGST/WBGST regime.

The appeal before GSTAT was filed under Section 112(1) of the Central Goods and Services Tax Act, 2017, assailing the affirmation of tax, interest and penalty demands raised under Section 74 of the WBGST Act, 2017, without issuance of any statutory show cause notice (SCN).

The hearing before the Tribunal took place through hybrid mode.

Facts leading to the demand

Search and seizure at assessee’s premises

  • A search and inspection was carried out by the State tax authorities on 18.11.2021 at the registered office of the assessee located at Bachamari Govt. Colony, Old Malda, in the district of Malda, West Bengal.
  • The assessee was found dealing in wholesale trade of Zarda, Pan Masala, Mamy Poko Pants, Neutrella (Soya Nuggets) and similar goods.
  • According to the department, records of outward supplies of Pan Masala and Zarda were being maintained on rough scrap papers instead of in proper statutory records.
  • When questioned, the assessee allegedly stated that the seized documents pertained to M/s Tribedi Uddoge, and that he had no connection with that concern.
  • The department seized:
    • Scrap papers treated as incriminating documents, and
    • Electronic devices, including pen drives, from the assessee’s possession.
  • On the basis of these materials, the department claimed to have detected tax evasion of a large quantum on the part of the assessee.

Crucially, no statutory show cause notice was issued to the assessee before proceeding to demand assessment under Section 74.

Summons and adjudication without SCN

Instead of initiating proceedings through an SCN, the proper officer issued a summons requiring the assessee to appear on 02.01.2022. The assessee did not appear on that date but later presented himself on 29.01.2022, explaining that illness had prevented appearance on the earlier date.

The adjudicating authority observed that the assessee had not produced documentary evidence to rebut the allegation of tax evasion. Proceeding without issuing any SCN, the officer determined tax liability by passing an order in Form GST DRC-07 on 25.03.2022, containing the following demand details:

**Demand as per Form GST DRC-07 (paragraph 5 of the order)😗*

  1. CGST @ 14% on turnover of Rs. 4,275,900.00 (Place of supply: West Bengal):

    • Tax: Rs. 598,626.00
    • Interest: Rs. 0.00
    • Penalty: Rs. 282,299.00
    • Total: Rs. 880,925.00

  2. SGST @ 14% on turnover of Rs. 4,275,900.00 (Place of supply: West Bengal):

    • Tax: Rs. 598,626.00
    • Interest: Rs. 0.00
    • Penalty: Rs. 282,299.00
    • Total: Rs. 880,925.00

  3. Cess @ 60% on turnover of Rs. 4,277,883.00 (Place of supply: West Bengal):

    • Cess: Rs. 2,566,730.00
    • Total: Rs. 2,566,730.00

Regarding interest, the adjudicating authority expressly recorded that interest computation was still pending and that any amendment to the demand would be intimated to the assessee later by e-mail/phone, granting him time to represent his case. The DRC-07 was issued with Memo No. 4432 dated 25.03.2022.

First appeal before Joint Commissioner

Grounds of challenge before appellate authority

The assessee filed an appeal under Section 107(1) of the CGST Act, 2017 before the first appellate authority. The principal contentions were:

  • Non-issuance of statutory show cause notice under Section 74:
    • The assessee argued that no SCN had been served, which amounted to a breach of principles of natural justice.
  • Dispute on factual findings in DRC-07:
    • The assessee contended that he was engaged only in the business of Pan Masala and had no other line of business, and therefore the facts and turnover figures reflected in DRC-07 were not correct.

On these premises, the assessee sought annulment of the adjudication order.

Findings of the first appellate authority

By order dated 25.07.2023, the Joint Commissioner dismissed the appeal and upheld the adjudication. The key conclusions were:

  • The authority held that there was no existing entity by the name of Tribedi Trader or Tribedi Uddoge, as claimed by the assessee.
  • The search and seizure were conducted at the assessee’s office, and incriminating documents (scrap papers, pen drives, etc.) were seized from there.
  • The authority confirmed that the assessee had suppressed outward supplies of Zarda and Pan Masala and was liable to pay tax, interest and penalty.

The appellate order also revised and detailed the liability, observing that the assessee, “with a reason of fraud,” had suppressed outward supplies of Zarda & Pan Masala of Rs. 42,56,414.00, computed as Rs. 42,75,900.00 (unearthed) minus Rs. 19,486.00 (disclosed in return for March 2022).