GST Law Does Not Mandate Three-Month Gap Between Notice And Adjudication Order: Madras High Court

The Madras High Court on 17 July held that GST law does not require a mandatory three-month gap between issuance of a show cause notice and passing of an adjudication order, clarifying that the three-month requirement only applies to the period between issuance of the notice and expiry of the statutory limitation period for passing the order.

Justice Senthilkumar Ramamoorthy partly allowed writ petitions filed by Raj Machine Tools challenging two GST assessment orders for the financial year 2021-22, holding that the provision does not prescribe any fixed interval between the show cause notice and the adjudication order. He observed:

“Sub-section (2) is intended to ensure that the show cause notice preceding adjudication is issued not less than three months before the limitation period for adjudication expires. It does not, however, follow that there should be a mandatory three month interval between the show cause notice and the order of adjudication.”

Raj Machine Tools challenged the assessment orders, arguing that the authorities passed them in violation of the statutory timeline. It contended that GST law required the authorities to maintain a minimum gap of three months between issuance of the show cause notice and passing of the assessment order.

It also pointed out inconsistencies between the two assessment orders. It submitted that while one order alleged wrongful availment of input tax credit on exempt supplies, the other treated the same supplies as taxable.

Relying on the Bombay High Court's decision in AM Market Places Private Limited v. Union of India, the petitioner argued that the assessment orders should be set aside. It also offered to deposit 25% of the disputed tax demand in one matter if the Court remanded both cases for fresh consideration.

The State opposed the petitions, arguing that the provision only requires the authorities to issue a show cause notice at least three months before the expiry of the limitation period for passing the adjudication order. It contended that the law does not mandate any three-month interval between the notice and the order. It also raised an objection regarding delay in filing the petitions.

The Court accepted the Revenue's interpretation of the provision but found merit in the petitioner's challenge to the contradictory assessment orders. It observed that one order treated the input tax credit as wrongly availed on exempt supplies, while the other treated the same supplies as taxable. It added:

“There should be a reasonable interval between the show cause notice and the order of adjudication so as to provide a reasonable opportunity to the tax payer. A mandatory three month interval between the show cause notice and the order of adjudication cannot be read into the provision.”

Accordingly, the High Court set aside both assessment orders and remanded the matters for fresh consideration, subject to Raj Machine Tools depositing 25% of the disputed tax demand in one of the cases after adjusting any recoveries already made. It directed the assessing officer to pass fresh orders within three months from the date of such payment and ordered the lifting of the bank attachment upon compliance with the condition.

For the Petitioner: Mr. S. Satheesh Kumar for Mr. Suresh T.

For the Respondent: Ms. Amirta Poonkodi Dinakaran, Government Counsel (Tax)