M/S Lari Almira House vs State Of U.P. And 3 Others on 12 April, 2023

1. Outcome
* The writ petitions filed by M/S Lari Almira House were allowed.
* The impugned assessment order dated 24.01.2022, passed under Section 74 of the U.P. G.S.T. Act, was quashed.
* The matter was remanded to the adjudicating authority with directions to pass a fresh order after:
* Supplying a copy of the SIB (State Intelligence Bureau) report to the petitioner.
* Granting a proper opportunity of hearing to the petitioner.
* Allowing the petitioner to file a reply.
* The appellate order dated 30.09.2022, which had dismissed the petitioner's appeal as being beyond the period of limitation, was upheld, as the High Court found no error in its dismissal on that specific ground.

2. Core Issue
The core issue was the validity of an ex-parte assessment order passed under Section 74 of the U.P. G.S.T. Act, where:
1. The assessment was primarily based on an SIB inspection report without providing a copy of said report to the assessee.
2. The assessee was not afforded a mandatory opportunity of hearing.
3. The order lacked corroborative evidence beyond the inspection report to establish tax evasion.
A secondary issue was whether the High Court could review the merits of the original assessment order when the statutory appeal against it had been dismissed solely on the grounds of limitation, thus invoking the principle that the doctrine of merger would not apply.

3. Key Facts
* The petitioner, M/S Lari Almira House, is a registered assessee under the U.P. G.S.T. Act.
* An inspection was conducted by the Deputy Commissioner (SIB) on 20.04.2018, leading to a Panchanama.
* Summons were issued under Section 70, to which the petitioner appeared and filed a reply.
* Subsequently, on 02.09.2021 (approximately three years later), a show cause notice was issued under Section 74, based on the SIB report.
* The petitioner contended that the SIB report, which formed the sole basis of the show cause notice, was neither mentioned as a relied-upon document nor supplied to them.
* Despite seeking an adjournment for the supply of the SIB report, an ex-parte assessment order was passed on 24.01.2022, solely relying on the SIB report.
* The petitioner's appeal against this order was dismissed on 30.09.2022 by the first appellate authority on the ground that it was filed beyond the prescribed period of limitation under Section 104(4) of the U.P. G.S.T. Act.
* The petitioner challenged both the original assessment order and the appellate order before the High Court.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (M/S Lari Almira House):

  • The appellate authority erred in dismissing the appeal on limitation (though this point was not accepted by the court).
  • Even if the appeal was rightly dismissed on limitation, the doctrine of merger does not apply, allowing the High Court to examine the original assessment order under Article 226.
  • The assessment order was invalid as it was based entirely on the SIB report, which was never supplied to the petitioner, violating principles of natural justice and preventing an effective response.
  • The ex-parte order lacked corroborative evidence to prove tax evasion; mere discrepancies in an SIB report are insufficient to levy tax.
  • The department failed to follow statutory requirements for tax assessment, including Sections 7, 12, 13, and 15, regarding supply, time of payment, and valuation.
  • A mandatory opportunity of hearing under Section 75(4) was not provided.

• Revenue (State Of U.P. And 3 Others):

  • The SIB inspection found discrepancies, and the panchnama and search/seizure documents were available to the petitioner.
  • The petitioner had appeared and replied to earlier summons.
  • The petitioner never specifically requested a copy of the SIB report.
  • All important points from the SIB report were adequately mentioned in the show cause notice.
  • The SIB report was based on verified adverse facts found during investigation, not mere eye estimation.
  • The petitioner was given multiple opportunities to present their case but failed to do so, justifying the ex-parte order.

5. Court’s Reasoning
* On Appellate Order and Merger: The Court found no error in the appellate authority's decision to dismiss the appeal on limitation, referencing the Supreme Court's ruling in M.P. Steel Corporation. Crucially, it held that the doctrine of merger does not apply when an appeal is dismissed solely on the ground of limitation, thus allowing the High Court to review the original assessment order under Article 226 on limited grounds.
* On Basis of Assessment and Natural Justice:
* Foundation of Order: The Court noted that the ex-parte order dated 24.01.2022 was solely founded on the SIB report.
* Corroborative Evidence: The Court stressed that powers of scrutiny (Section 61) or search/seizure (Section 67) are merely preliminary steps. The burden lies on the department to establish tax evasion (non-payment, short payment, or wrong ITC availment) by following the procedures of Section 73 or 74. Mere discrepancies in an SIB report or scrutiny of returns are not sufficient; they must be corroborated by further evidence regarding taxable supplies, time of supply, and valuation. The department also bears the burden of proving fraud, wilful misstatement, or suppression of facts.
* Supply of Documents: It is a fundamental principle of natural justice that any document proposed to be relied upon must be provided to the assessee. The SIB report, being the foundation of the order, was admittedly not supplied, rendering the proceedings flawed.
* Opportunity of Hearing: Section 75(4) mandates providing an opportunity of hearing. The impugned ex-parte order did not record that such an opportunity was granted.
* Conclusion: The Court concluded that the assessment order dated 24.01.2022 was unsustainable due to the cumulative effect of these procedural lapses and violations of natural justice: non-supply of the relied-upon SIB report, denial of a mandatory hearing, and lack of corroborative material beyond the unsupplied report.

6. Statutory References
* Constitution of India: Article 226
* U.P. G.S.T. Act (and by implication, relevant provisions of the CGST Act 2017):
* Section 7 (Scope of supply)
* Section 12 (Time of supply of goods)
* Section 13 (Time of supply of services)
* Section 15 (Value of taxable supply)
* Section 61 (Scrutiny of returns)
* Section 61(3)
* Section 67 (Power of inspection, search and seizure)
* Section 70 (Power to summon persons to give evidence and produce documents)
* Section 73 (Determination of tax not paid or short paid for reasons other than fraud etc.)
* Section 74 (Determination of tax not paid or short paid by reason of fraud, wilful misstatement or suppression of facts)
* Section 75(4) (General procedures for determination of tax)
* Section 104(4) (Limitation for appeals)

7. Precedents Cited
* M.P. Steel Corporation vs. Commissioner of Central Excise, 2015(7) SCC 58 (Cited for the principle that the doctrine of merger does not apply when an appeal is dismissed on the ground of limitation).