How is an unjustified tax demand challenged?

An unjustified tax demand under GST or any tax law can be contested through established mechanisms provided under the CGST Act, 2017, and the Indian Constitution. Taxpayers can challenge such demands by appealing to higher authorities or courts, emphasizing procedural errors, lack of evidence, or wrongful application of the law.

Legal Framework

1. Constitutional Provisions

• Article 14: Right to equality, ensuring fair treatment in taxation and dispute resolution.
• Article 265: No tax shall be levied or collected except by the authority of law.
• Article 226: High Courts have the power to issue writs for challenging unconstitutional or arbitrary tax demands.
• Article 136: Supreme Court can intervene in exceptional cases under its special leave jurisdiction.

2. Provisions Under the GST Law

• Section 73 of the CGST Act, 2017:
  • Covers tax demands without the invocation of fraud, suppression, or willful misstatement.
  • Notice must be issued within 3 years from the due date of filing annual returns.
• Section 74 of the CGST Act, 2017:
  • Addresses tax demands involving fraud, willful misstatement, or suppression of facts.
  • Notice must be issued within 5 years from the due date of filing annual returns.
• Section 107: Provides for appeals to the first appellate authority against adjudicating authority orders.
• Section 112: Allows appeals to the GST Appellate Tribunal.
• Section 117-118: Appeals to High Courts and Supreme Court.

Process to Challenge Unjustified Tax Demands

1. Respond to the Show Cause Notice (SCN)

• If a taxpayer receives a notice under Section 73 or 74, they must respond with evidence and legal arguments against the demand.
• Taxpayers should ensure their reply is thorough, addressing procedural lapses and providing factual correctness.

2. Filing Appeals

• If dissatisfied with the order passed by the adjudicating authority, taxpayers can escalate the matter:
  • First Appellate Authority (Section 107):
    • Appeal must be filed within 3 months of receiving the order.
    • Pre-deposit of 10% of the disputed tax amount is mandatory.
  • Appellate Tribunal (Section 112):
    • Appeal must be filed within 3 months of the first appellate order.
    • Additional 20% of the disputed tax must be pre-deposited.
  • High Court (Section 117):
    • Appeal can be filed on substantial questions of law.
  • Supreme Court (Section 118):
    • Only in cases of national importance or substantial legal questions.

3. File a Writ Petition

• Taxpayers can directly approach the High Court under Article 226 if:
  • The tax demand violates fundamental rights.
  • The demand is arbitrary, illegal, or without jurisdiction.
  • No alternative remedy is adequate or effective.

4. Seek Relief through Revision or Rectification

• Revision (Section 108):
  • Taxpayers can request the Commissioner to review the adjudicating authority’s order.
• Rectification (Section 161):
  • Errors apparent on the record can be corrected.

Grounds to Challenge an Unjustified Tax Demand

1. Violation of Principles of Natural Justice:
   • No proper hearing was granted.
   • The tax demand was issued without notice.
2. Jurisdictional Errors:
   • The authority issuing the demand lacks jurisdiction.
3. Incorrect Interpretation of Law:
   • Wrong classification or misapplication of GST rates.
4. Procedural Defects:
   • Failure to follow prescribed timelines or statutory requirements.
5. Absence of Evidence:
   • No proof of tax evasion or liability.

Landmark Cases

1. CCE v. Ultratech Cement Ltd. (2010)

• Issue: Violation of principles of natural justice.
• Judgment: The Supreme Court held that demands raised without proper notice and hearing are invalid.

2. Bajaj Auto Ltd. v. Union of India (2022)

• Issue: Challenge to an arbitrary GST demand.
• Judgment: High Court quashed the demand, stating that notices issued beyond the statutory limitation period are invalid.

3. Calcutta Discount Co. Ltd. v. ITO (1961)

• Issue: Jurisdictional challenge to a tax demand.
• Judgment: The Supreme Court held that the writ jurisdiction can be invoked to challenge demands based on lack of jurisdiction.

4. Vodafone Idea Ltd. v. Assistant Commissioner of GST (2021)

• Issue: Unjustified GST demand for input tax credit reversal.
• Judgment: Bombay High Court quashed the demand, stating it was issued without adequate reasoning or evidence.

5. J.K. Industries v. CCE (2020)

• Issue: Procedural non-compliance in issuing tax demand.
• Judgment: The Tribunal ruled that demands raised without adhering to procedural safeguards under the GST Act are void.

Timeline to Challenge GST Demands

1. Reply to SCN: Within the time specified in the notice (typically 30 days).
2. Appeal to First Authority: Within 3 months from the date of the order.
3. Appeal to Tribunal: Within 3 months from the first appellate order.
4. High Court: Within 180 days from the Tribunal’s order.

Conclusion

Challenging an unjustified tax demand involves leveraging the hierarchical appeal mechanism under the CGST Act, 2017, or invoking writ jurisdiction in exceptional cases. Provisions such as Sections 73, 74, 107, and 112 provide taxpayers with avenues for redressal. Landmark cases like Ultratech Cement and Calcutta Discount Co. highlight the judiciary’s role in upholding fairness and procedural integrity in tax administration.