Order date – 23 March 2023

Parties – M/S Maa Mahamaya Alloys Pvt. Ltd. Vs State Of U.P. And 3 Others

Facts –

• The petitioner, M/s MAA MAHAMAYA ALLOYS PVT. LTD.,  purchased material which is duly reflected on the department's portal, including GSTR-3B.
• The Deputy Commissioner, inspected the registered business premises on 29.09.2018, and accordingly a drew a panchnama on alleging that the petitioner had improperly accounted for the goods and had failed to declare the excess stock found during a search conducted by the department.
• An order was passed without issuance of any show cause notice, levying a tax liability of Rs.26,10,000/-, along with a penalty of Rs.26,10,000/- and a fine of Rs.25,000/-, totalling Rs.52,45,000/-.

Issues –

• Whether tax can be assessed/ determined in exercise of powers under Section 130 of the GST Act?
• Whether penalty can be levied only on the allegations that at the time of verification of goods, the goods in excess were found at the premises?
• Whether the service of notice as claimed by the respondent satisfies the requirement contemplated under Section 169 of the GST Act?
• Whether the valuation of goods can be done based on eye estimation alone and on the basis of production capacity and/ or the consumption of electricity etc?

Order –

• The Court observed that the entire exercise undertaken by the department was unsustainable  as it had quantified the tax and levied the penalty based solely on the search conducted under Section 130 of the Act, without resorting to the provisions of Section 74.
• It also held that the penalty levied was unsustainable as the department had failed to establish any intent on the part of the petitioner to evade payment of tax.
• In terms of Clause (a) of Section 169(1), a service of serving SCN would be completed only when it is tendered to the taxable person or on his Manager or authorized representative. Serving on the Accountant of the firm is neither contemplated nor provided for under Section 169(1)(a) and thus, the service as claimed by the Counsel for the respondent on the Accountant cannot be held to be a valid service, thus, on that count also, the entire proceedings are liable to be quashed.
• In the present case, the valuation of the goods is required to be done in terms of the mandate of Section 15(1) read with Section 15(2) and read with Section 15(3). In the said Section 15 or the Rules framed thereunder, there is no prescriptions for valuation of the goods on the basis of eye estimation as has been done by the department and has been repelled by the appellate authority. 
• The appellate authority has erred in repelling the valuation done on the basis of eye estimation, however, has proceeded to value the goods (although differently) at the appellate stage without resorting to the mandate and manner prescribed in Section 15 read with the Rules, thus, on that count also, the impugned order is not sustainable.
• Hence, the petition is allowed with the relief to the petitioner that the amount shall be refunded subject to the outcome of the demand quantified under Section 74 of the Act in accordance with law.