Failure to Comply with GST Procedural Requirements before Filing Appeal: Bombay HC directs to issue Defect Memo to rectify Errors [Read Order]

In a recent judgment, the bench comprising Justice Jitendra Jain and Justice G.S. Kulkarni of the Bombay High Court instructed the Commissioner (appeal) to issue a defect memo to the petitioner-exporters, indicating the procedural mistakes made by them. Additionally, the court directed the Commissioner to provide the petitioners with the chance to rectify those errors. The Petitioner JEM Exporter is engaged in the business of exporting mobile handsets. The Petitioner is registered under the Central Goods and Services Tax Act (CGST Act), 2017 as a sole proprietor. The petitioner submitted an application for refund application of Input Tax Credit (ITC) on export of goods and services for the period February 2020 and January 2020. Subsequently, the petitioner received summons under section 70 of the CGST Act and served on the Petitioner to conduct inquiry about contravention of provisions of the CGST Act and the Rules. Further, common notice was issued under Section 74 of the CGST Act, Section 74 of the Maharashtra GST Act, 2017 and section 20 of the IGST Act, 2017 to the Petitioner and IJM Exporters. The said show cause notice referred to the refund application made by the Petitioner. In the said show cause notice, it was alleged that IJM Exporters has availed ITC on goods purchased from non-existing entities and passed on said ITC to the Petitioner since IJM Exporters have sold the goods to the Petitioner, who has made a claim for refund of ITC on export of the goods purchased from the IJM Exporters. Also, the Petitioner was required to show cause why the GST registration should not be cancelled under section 29(2) of the CGST Act, 2017 and ITC amounting to Rs.1,01,72,874/- should not be demanded along with interest and penalty in SCN issued. The Petitioner filed an appeal with the Commissioner (Appeal), challenging the same on various grounds stated in the Appeal Memo. However, the Commissioner (Appeal) confirmed the GST registration cancellation stating that the pre-deposit for filing the appeal has not been made by the Petitioner and furthermore, the appeal is not signed as per Rule 26 and, therefore, the Appeals are liable to be rejected. The Commissioner (Appeal) also observed that the proprietor of IJM has created a syndicate with intent to evade payment of CGST by wrongly availing ITC in one firm and utilizing the same in another firm for availing refund claim on account of export. The Petitioner submitted that the procedure prescribed under the rules has not been followed, but on the contrary, a demand of Rs.1,01,02,741/- has been raised in addition to interest and penalty. Similarly, section 29 of the CGST Act, 2017 provides for cancellation or suspension of registration and Rules 21A, 22 and 23 of the CGST Rules prescribes the procedure to be followed for cancellation/suspension of the Registration, which was not followed by the authorities. The Respondents submitted that the Petitioner has purchased goods from IJM and the suppliers of IJM have been found to be non-existent, therefore, the ITC claimed by the Petitioner is not genuine and consequently, the Petitioner is not entitled to the refund. The Respondents also justified the cancellation of registration on the ground that the Petitioner has furnished false information with regard to filing of GSTR-1 and GSTR-3. Further contended that the plea taken by the Petitioner that proper procedure for cancellation of registration and processing of refund application having not been followed, was not taken before the lower authorities The bench observed that the Commissioner (Appeal) was not justified in deciding the matter on merits after having come to a conclusion that the appeal is to be rejected on the ground of no proof of pre-deposit, failure to file certified copy of the order and the appeal not having been authenticated as per rule 26(2)(a) of the CGST Rules. Further noted that the justice cannot be denied for failure to comply with the procedure without giving an opportunity to the Appellant to rectify the procedural defects. The High Court viewed that the Commissioner (Appeal) ought to have issued a defect memo calling upon the Petitioner to produce the proof of pre-deposit of tax as per section 107(6) of the CGST Act, 2017, for filing the certified copy of the order and for authentication of the appeal memo as per rule 26(2)(a). The Commissioner (Appeal) having not given an opportunity to the Petitioner for curing the procedural defect was not justified in rejecting the appeal. This would be contrary to the principle of natural justice. In the case of United Bank of India Vs. Naresh Kumar & Ors , the Supreme Courthas observed that substantive rights should not be allowed to be defeated on technical grounds of procedural irregularity so as to ensure that no injustice is done to any party. The High Court stated that “If the Appellant is not directed on non-supply of certified copy of adjudication order then such an order would be in violation of principle of natural justice. “. After considering the submissions of the both the parties, the High Court issued following: Sets aside order in appeal and restored the same back to Commissioner (Appeal)Instructed Commissioner (Appeal) to issue a Defect memo to the Petitioner pointing out the procedural defect in the appeal and would give adequate opportunity for rectifying the same.If the petitioner rectifies, the commissioner of appeals will pass necessary orders considering the rectifications. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

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