GST Penalty Notice Challenged: Know What Calcutta HC Ruled
A recent judgment from the Calcutta High Court has once again brought focus to the legality of penalty notices issued post search operations under GST. In a significant interim relief, the Hon’ble Court restrained the revenue department from proceeding further after a taxpayer challenged the penalty notice citing procedural violations.
This blog explains the background, legal issues, and what this means for taxpayers facing similar notices.
Background of the Case
- Taxpayer received a penalty notice under Section 122 of the CGST Act after a search by the Directorate General of GST Intelligence (DGGI).
- The taxpayer alleged that the notice was issued without issuing a proper show cause notice or giving opportunity to respond.
- A writ petition was filed before the Calcutta High Court, challenging the validity of the penalty notice and subsequent proceedings.
Court’s Observation and Interim Relief
The Calcutta High Court in its interim order:
✅ Observed prima facie procedural lapses in the issuance of the penalty notice.
✅ Emphasized that natural justice must be followed under GST law.
✅ Restrained the department from taking any coercive action, including recovery, until the final hearing.
This aligns with earlier rulings by other High Courts where GST authorities were pulled up for bypassing adjudication procedures.
What Does GST Law Say on Penalty Proceedings?
Relevant Sections:
| Provision | Description |
|---|---|
| Section 122 | Specifies penalties for certain offences like issuing fake invoices or suppressing sales. |
| Section 73/74 | Mandates issuance of a show cause notice before raising any demand or penalty. |
| Rule 142(1A) | Requires serving a notice in Form GST DRC-01A before issuing a formal notice. |
🔍 Violation of these provisions can render the entire penalty proceeding illegal.
Expert View: What Should Taxpayers Do If They Get a Penalty Notice?
CA Arvind Sekhri, GST consultant, advises:
“If you receive a penalty notice post search, check whether a proper SCN and DRC-01A was issued. File a reply and consider legal remedy through writ petition if procedures weren’t followed.”
Step-by-Step: What to Do If You Receive a GST Penalty Notice
- Verify validity: Check if the notice is under correct section and signed by proper authority.
- Check pre-notice compliance: Was DRC-01A served with reasons and opportunity to reply?
- File a reply within time: Use Form GST DRC-06 for response.
- Appeal, if required: File appeal before Commissioner (Appeals) or High Court under Article 226 if SCN is bypassed.
Why This Matters: Upholding Natural Justice in GST
The Calcutta HC order is a strong reminder that tax enforcement must follow due process. Even after a GST search, the department cannot skip the adjudication process.
Key takeaway for businesses: If you get a GST penalty notice without a show cause or DRC-01A, you may have strong grounds to challenge it.
Related Efiletax Blog
👉 How to Respond to GST Show Cause Notices
External Reference
Summary
GST penalty notice challenged: Calcutta High Court stays action after taxpayer claims procedural lapse post search. Know your rights if DRC-01A or show cause notice is skipped.
FAQs
Q1: Can GST authorities issue penalty without SCN?
No, under Sections 73/74, a show cause notice is mandatory. Absence of SCN can be grounds for legal challenge.
Q2: What is DRC-01A in GST?
It is a pre-show cause intimation form under Rule 142(1A), allowing the taxpayer to reply or pay tax before formal proceedings.
Q3: Can I file writ against GST penalty?
Yes. If your fundamental rights (like natural justice) are violated, you can approach the High Court under Article 226.
Conclusion
If a GST penalty notice is challenged for lack of procedure, recent judgments show that courts may restrain revenue action. Efiletax helps you respond to such notices correctly, file replies, or take legal support if needed.