Vinman Constructions Limited Vs State of Jharkhand (Jharkhand High Court)

Jharkhand High Court has set aside an assessment order and the subsequent appellate order concerning M/s Vinman Constructions Limited, highlighting significant procedural lapses by the tax authorities, including the apparent failure to issue a mandatory notice before conducting a best judgment assessment.The case revolved around the Goods and Services Tax liability of Vinman Constructions for the period spanning December 2017 to March 2018. According to the company, which registered under the GST Act in December 2017, no construction work was undertaken during this specific period. However, the company had secured a project loan from Dewan Housing Finance Corporation Limited (DHFL) in December 2017 for business purposes. DHFL levied a loan processing fee of Rs. 16.00 crores, charging GST at 18%, amounting to Rs. 2.88 crores. Vinman Constructions claimed to have paid this input tax and furnished details of this inward supply of services.Despite having paid the GST on the loan processing fee and having no outward supplies or sales during the period due to the absence of work, the company failed to file its GSTR-3B returns within the prescribed time, attributing this to ignorance of the law.The company stated it was surprised to receive a Summary of Order in Form DRC-07 on October 1, 2018, uploaded on its online portal. This summary indicated that an assessment order dated September 28, 2018, had been passed under Section 62 of the Jharkhand Goods and Services Tax Act, 2017 (JGST Act) for the period of July 2017 to March 2018. The order raised a total demand of Rs. 3,30,76,800/-, denying the Input Tax Credit (ITC) of Rs. 2.88 crores claimed by the petitioner and levying an equal amount as tax, along with interest and penalty.Vinman Constructions emphatically contended that while the DRC-07 referenced an assessment order dated September 28, 2018, no such complete order was uploaded to their electronic portal. Upon applying for a certified copy of the proceedings, the company discovered that the assessment order was actually dated August 2, 2018. Tax authorities reportedly claimed the order was mailed on that date, but the company maintained that no such mail containing the assessment order was ever received or served upon them.Following the receipt of the DRC-07 summary, and within thirty days as stipulated under Section 62(2) of the JGST Act, Vinman Constructions filed its GSTR-01 and GSTR-3B returns for December 2017 on October 17, 2018, declaring nil outward supply but claiming the ITC of Rs. 2.88 crores. They subsequently filed nil returns for January, February, and March 2018 on October 26, 2018, also paying applicable interest and late fees. The company also formally requested the Commercial Tax Officer to revise the assessment order based on the returns filed.Aggrieved by the assessment, Vinman Constructions filed an appeal under Section 107 of the JGST Act, depositing the mandatory 10% of the disputed amount, which was Rs. 28,80,000/-. However, the Appellate Authority dismissed the appeal on January 25, 2020. The dismissal was primarily based on the ground that the GSTR-3B returns were filed beyond the thirty-day period stipulated under Section 62(2) of the JGST Act, counted from the date of the assessment order. The department subsequently issued a demand notice and adjusted the blocked ITC of Rs. 2.88 crores against the disputed tax liability.In their petition before the High Court, Vinman Constructions argued that the assessment order under Section 62 was fundamentally flawed because a mandatory notice under Section 46 of the JGST Act was not served before initiating the best judgment assessment. They emphasized that Section 62 permits a proper officer to assess tax liability to the best of their judgment only after the service of a notice under Section 46. The petitioner contended that the issuance of a Section 46 notice is a mandatory prerequisite, and its omission is not a mere procedural irregularity but a fatal defect.In support of this argument regarding the mandatory nature of notice before assessment, the petitioner relied on the Supreme Court decision in the case of Assistant Commissioner of Income Tax Versus Hotel Blue Moon [(2010) 3 SCC 259)], which dealt with block assessment proceedings under the Income Tax Act. The petitioner argued that since they had filed valid returns (albeit belatedly for some periods) after receiving the DRC-07, the assessment order under Section 62 should be deemed to have been withdrawn as per Section 62(2), although liability for interest and late fees would remain.The Jharkhand High Court, after hearing the arguments and considering the facts, including the respondent’s admission that the petitioner had indeed filed returns for the period in question, allowed the writ petition. While the detailed reasoning for the court’s decision was not fully elaborated in the provided text of the judgment snippet, the outcome of setting aside both the assessment and appellate orders indicates that the court found the assessment process against Vinman Constructions to be procedurally irregular, likely due to the lack of the mandatory Section 46 notice or the improper service of the Section 62 order, aligning with the petitioner’s submissions and the principle supported by the cited Supreme Court precedent.The court’s decision effectively nullifies the demand raised in the assessment order. The court noted that it is open for the respondent authorities to accept the returns filed by the petitioner or undertake scrutiny as per law. Regarding the pre-deposit made before the Appellate Authority, the court stated that it is up to the petitioner to approach the Appellate Authority with a proper request for its release, which shall be considered in accordance with law. The blocking and adjustment of the ITC amount by the department against the disputed liability are also likely to be reversed as a consequence of the assessment order being set aside.The ruling reinforces the principle that tax assessments must strictly adhere to prescribed procedures, including the proper issuance and service of notices, ensuring taxpayers are afforded due process before liabilities are determined.