Madras High Court permits restoration of GST appeal on compliance with statutory 10% pre-deposit

Background of the dispute

The Madurai Bench of the Madras High Court in Altec Fabricators Vs Assistant Commissioner (Madras High Court) dealt with a challenge arising from directions issued in a writ petition concerning the quantum of pre-deposit required for pursuing a statutory appeal under the CGST Act, 2017.

The assessee, M/s. Altec Fabricators, had questioned an adjudication order passed in Form GST DRC-07 bearing Reference No. ZD330824285003J dated 30.08.2024, under which the first respondent raised the following tax demand:

  • CGST: Rs.2,61,54,541/-
  • SGST: Rs.2,61,54,541/-

Thus, the total tax demand was Rs.5,23,09,082/- for the relevant period, following scrutiny of the assessee’s statutory monthly returns for the financial year 2019–2020.

In addition to the basic tax demand, the order also reflected:

  • Interest:

    • CGST: Rs.2,18,69,777/-
    • SGST: Rs.2,18,69,777/-
    • IGST: Rs.45,387/-
    • Total interest: Rs.4,37,94,841/-

  • Penalty:

    • CGST: Rs.26,15,454/-
    • SGST: Rs.26,15,454/-
    • Total penalty: Rs.52,30,908/-

The assessee ultimately approached the High Court by way of a writ appeal after the learned Single Judge had directed a pre-deposit of 25% of the disputed tax as a condition for further relief.

Origin of proceedings and show cause notice

Scrutiny of returns and issuance of SCN

The proceedings originated when the first respondent scrutinised the assessee’s GST returns for FY 2019–2020. Pursuant to such scrutiny, a show cause notice dated 27.05.2024 was issued and uploaded on the GST portal.

As recorded, the notice focused on three principal issues:

  1. Reconciliation of E-way Bill turnover with GSTR-01
  2. Reconciliation of turnover reported in GSTR-07 with supplies declared in GSTR-09
  3. Interest liability on account of delayed filing of GSTR-3B

The assessee’s contention before the Court was that the show cause notice was made available only through the GST portal and not served by any alternative mode.

Adjudication under Section 73 of the CGST Act

The assessee submitted that, without granting sufficient time or a proper opportunity to respond to the notice, the first respondent proceeded to finalise the proceedings:

  • By issuing the order in Form GST DRC-07 dated 30.08.2024, and
  • By passing a detailed order dated 22.08.2024 under Section 73 of the CGST Act, 2017.

The cumulative effect of these orders was the confirmation of:

  • Tax demand of Rs.5,23,09,082/- (CGST: Rs.2,61,54,541/-, SGST: Rs.2,61,54,541/-)
  • Interest of Rs.4,37,94,841/-
  • Penalty of Rs.52,30,908/-

The grievance projected by the assessee was that the adjudication was concluded in breach of adequate opportunity principles.

First statutory appeal and controversy on pre-deposit

Appeal before Deputy Commissioner (ST), Trichy

Aggrieved by the order passed under Section 73, the assessee preferred a statutory appeal before the Deputy Commissioner (ST), Trichy, as the appellate authority under Section 107 of the CGST Act.

Under Section 107, the assessee stressed that only 10% of the disputed tax is required as a mandatory pre-deposit for maintaining an appeal. On that basis:

  • Disputed tax: Rs.5,23,09,082/-
  • 10% pre-deposit requirement: Rs.52,30,908/-

The assessee asserted:

  • A sum of Rs.22,45,544/- had already been recovered by the department.
  • Therefore, only the balance of Rs.29,84,365/- remained to be deposited to meet the statutory 10% condition.