GST Demand Notice Struck Down as Premature While Appeal is Still Pending

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Case Name

Abhishek Gumber, Proprietor of M/s AG Enterprises v. Commissioner of GST, New Delhi

Case No.: W.P.(c) 9629/2022 & CM No. 28733/2022

Court Name: High Court of Delhi

Key Takeaways

1. A demand notice cannot be issued while an appeal against the underlying adjudication order is still pending — doing so is premature and legally unsustainable.

2. The tax department cannot jump ahead in the recovery process before the appellate authority has had a chance to decide the matter.

3. The court protected the taxpayer’s right to have his appeal heard before being subjected to recovery proceedings.

4. The revenue department is not permanently barred — they can issue the demand notice again once the appeal outcome is known.

5. This case reinforces the principle that procedural fairness matters in GST proceedings — you can’t skip steps just to protect revenue interests.

Issue

Can the GST department issue a demand notice for tax, interest, and penalty when the taxpayer’s appeal against the underlying adjudication order is still pending before the appellate authority?

The short answer the court gave: No, it cannot — at least not at this stage.

Facts

• Abhishek Gumber runs a business called M/s AG Enterprises and had filed a refund claim of ₹12,71,426/- under GST.

• The tax authorities issued a Show-Cause Notice (SCN) dated 08.02.2021, invoking Section 73/74 of the Central Goods and Services Tax Act, 2017 and Rule 92(3) of the CGST Rules, 2017.

• After going through the process, the adjudicating authority passed an order dated 12.05.2022, which rejected Abhishek’s refund claim. The reason? The authority concluded that the refund was based on forged Input Tax Credit (ITC) — meaning the ITC claims used to justify the refund were allegedly fake.

• Naturally, Abhishek wasn’t happy with this. He filed an appeal against this adjudication order on 26.05.2022 — just about two weeks after the order was passed. That appeal was still pending before the appellate authority.

• But here’s where things got complicated: Even while the appeal was pending, the GST department issued a fresh Demand Notice dated 14.06.2022 (in Form GST DRC-01A, Reference No. ZD070622007441U). This notice demanded:
• Tax: ₹12,56,640/-
• Interest: ₹4,52,390/-
• Penalty: ₹12,56,640/-
• Total: ₹29,65,670/-

• Abhishek challenged this demand notice before the Delhi High Court, arguing it was illegal and premature.

Arguments

Petitioner’s Side (Abhishek Gumber):

• The SCN dated 08.02.2021 had already been adjudicated through the order dated 12.05.2022. So the matter had already gone through one round of proceedings.
• An appeal has already been filed (on 26.05.2022) against that adjudication order, and it is still pending.
• Issuing a fresh demand notice while the appeal is pending is premature and improper — the department is essentially trying to recover money before the appellate authority has even had a chance to weigh in.
• The petitioner gave up his prayer for costs, showing he just wanted the demand notice set aside, not to punish the department.

Respondent’s Side (Commissioner of GST):

• The respondent confirmed that the adjudication order had been passed and that an appeal was indeed pending.
• The demand notice dated 14.06.2022 was issued to protect the interests of the revenue — essentially, the department wanted to make sure it could recover the money if the appeal was dismissed.
• The department relied on Section 73(5) of the CGST Act and Rule 142(1A) of the CGST Rules as the basis for issuing the demand notice.
• Ms. Bansal (counsel for the department) also drew the court’s attention to Section 75 of the CGST Act, specifically sub-section (4), arguing that the demand notice was issued in consonance with this provision.

Key Legal Precedents & Provisions

This judgment doesn’t cite prior case laws (it’s a short order), but it does reference several important statutory provisions. Let me explain each one:

Section 73 of the CGST Act, 2017

Deals with determination of tax not paid/short paid or erroneously refunded (non-fraud cases)

Section 74 of the CGST Act, 2017

Similar to Section 73 but applies to fraud/suppression cases

Rule 92(3) of the CGST Rules, 2017

Relates to the order rejecting a refund claim

Section 73(5) of the CGST Act, 2017

Allows the proper officer to issue a statement of tax dues

Rule 142(1A) of the CGST Rules, 2017

Relates to the issuance of Form DRC-01A (pre-notice communication)

Section 75 of the CGST Act, 2017

General provisions relating to determination of tax — the court said the department can use this after the appeal is decided

The court essentially said: Section 75 and its rules are the right tools, but they can only be used after the appeal outcome is known — not while the appeal is still pending.

Judgment

The Petitioner (Abhishek Gumber) won — at least for now.

What Did the Court Decide?

The Delhi High Court, comprising Hon’ble Mr. Justice Rajiv Shakdher and Hon’ble Ms. Justice Tara Vitasta Ganju, held as follows:

1. The impugned demand notice dated 14.06.2022 is set aside. It was found to be premature given that the petitioner’s appeal against the adjudication order was still pending.

2. The court acknowledged that if the refund was indeed based on forged ITC, then Abhishek would be liable to pay tax, interest, and possibly penalty — but only if and when the adjudication order is upheld by the appellate authority.

3. The revenue department is not permanently stopped from recovering the dues. They are free to invoke Section 75 of the CGST Act and the attendant rules once the appeal is decided and clarity is obtained on the outcome.

4. The writ petition was disposed of and the pending application (CM No. 28733/2022) was closed.

In Simple Terms:

The court basically said — “The tax department jumped the gun. Wait for the appeal to be decided first, and then you can issue your demand notice if you win the appeal.”

FAQs

Q1: Why did the court set aside the demand notice?

Because the petitioner had already filed an appeal against the adjudication order, and that appeal was still pending. Issuing a demand notice at this stage was considered premature — the department was trying to recover money before the appellate process was complete.

Q2: Does this mean Abhishek Gumber doesn’t have to pay anything?

Not necessarily. The court only said the demand notice was premature right now. If the appeal is dismissed and the adjudication order is upheld, the department can come back and issue a fresh demand notice under Section 75 of the CGST Act.

Q3: What was the demand notice based on?

The demand notice (Form GST DRC-01A) was based on Section 73(5) of the CGST Act and Rule 142(1A) of the CGST Rules, and it demanded a total of ₹29,65,670/- (tax + interest + penalty).

Q4: What was the original dispute about?

Abhishek had claimed a GST refund of ₹12,71,426/-, but the adjudicating authority rejected it, saying the refund was based on forged Input Tax Credit (ITC) claims.

Q5: Can the tax department issue the demand notice again in the future?

Yes! The court explicitly gave the department liberty to trigger the process under Section 75 of the CGST Act once the appeal outcome is known. So this is not a permanent win for the petitioner.

Q6: What is Form GST DRC-01A?

It’s a pre-notice communication form under Rule 142(1A) of the CGST Rules, used by the tax department to inform a taxpayer of the tax, interest, and penalty they are expected to pay before a formal show-cause notice is issued.

Q7: What is the significance of Section 75 of the CGST Act here?

Section 75 contains general provisions for the determination of tax. The court said this is the correct provision for the department to use — but only after the appeal is resolved, not while it’s still pending.

1. The substantive prayers that have been sought by the petitioner in the instant writ petition are extracted below:

“(i) Issue a writ or order in the nature of certiorari or any other writ thereby setting aside Demand Notice dated 14.06.2022 [Form GST DRC – 01A] – Reference Number:

ZD070622007441U, (“impugned Demand Notice”) issued by the Respondent, wherein demand has been raised on Petitioner to deposit tax amounting to Rs. 12,56,640.00/- along with interest amounting of Rs. 4,52,390/- and penalty

amounting to Rs. 12,56,640/- thereby totally amounting to Rs.29,65,670/-, issued by Sh. Pritam Singh, Sales Tax Officer Class II, AVATO, Ward No.80, Delhi State, Government of National Capital Territory of Delhi, Department of Trade and Taxes, Vyapar Bhawan, IP Estate, New Delhi – 110002; and/or

(ii) Grant costs to the Petition in favour of the Petitioner”

1.1. Mr Chinmaya Seth, who appears on behalf of the petitioner, says that he does not wish to press the second prayer, which concerns costs.

1.2. The statement of Mr Seth is taken on record.

2. The principal plea of the petitioner is that a show-cause notice (SCN)

issued earlier i.e., SCN dated 08.02.2021, has already been adjudicated by

the concerned authority, via the order dated 12.05.2022.

2.1. Concededly, via the aforementioned adjudication order, the refund

claim lodged by the petitioner was rejected.

2.2. We may note that the petitioner had sought a refund of Rs.

12,71,426/-.

3. According to Mr Seth, the adjudicating authority concluded that the

refund was founded on forged input tax credit [in short „ITC‟] claim and the

same had to be rejected.

3.1. As noted above, the order dated 12.05.2022 was predicated on the SCN

dated 08.02.2021, which adverted to Section 73/74 of the Central Goods and

Service Tax Act 2017 [in short “Act”] and Rule 92(3) of CGST Rules 2017

[in short “Rules”.]

3.2. Mr Seth informs us that an appeal has been lodged against the

adjudication order. We are told that the said appeal was lodged on

26.05.2022.

4. Ms Ayushi Bansal, who appears on behalf of the respondent, affirms

the aforesaid position i.e., the fact that the adjudication order has been

passed and an appeal has been lodged by the petitioner before the concerned

appellate authority.

4.1. Ms Bansal says that impugned demand notice dated 14.06.2022 has

been issued to protect the interests of the respondent i.e., the revenue.

4.2. To be noted, the impugned demand notice dated 14.06.2022 refers to the

provisions of Section 73(5) of the Act and Rule 142(1A) of the Rules.

4.3. Ms Bansal, though, in support of her plea, has drawn our attention to

Section 75 of the Act. It is contended by Ms Bansal that the impugned

demand notice has been issued in consonance with the provisions of sub-

section (4) of Section 75 of the Act.

5. We have heard the learned counsel for the parties in the matter for

some time.

5.1. The record shows that the matter was listed before the Court for the

first time on 29.06.2022. On the said date, the Court had issued notice in the instant writ petition. The coordinate bench, via the very same order, placed the matter before the roster Bench (which is the instant bench) today i.e., on 06.07.2022.

6. Although, counter-affidavit has not been filed in the matter, the stand

of the respondent/revenue has been articulated, as recorded hereinabove, by

Ms Bansal.

7. It is clear that once the petitioner‟s refund claim was rejected on the

ground that it was founded on forged ITC, the petitioner would be liable to

pay tax, interest and perhaps also penalty, in the event the adjudication order is sustained.

7.1. The fact that an appeal has been preferred by the petitioner, which is

pending adjudication, persuades us to hold that, at this stage, the impugned

show-cause notice is premature.

7.2. In the event the appeal were to be dismissed, it would then be open to

the respondent/revenue to take recourse to Section 75 of the Act and the

attendant rules framed thereunder.

8. Therefore, the impugned demand notice dated 14.06.2022 is set aside,

with liberty to the respondent to trigger the process under Section 75 of the Act and the attendant rules, once clarity is attained with regard to the

outcome of the pending appeal lodged by the petitioner.

9. The writ petition is disposed of, in the aforesaid terms.

10. Consequently, the pending application shall stand closed.

RAJIV SHAKDHER, J

TARA VITASTA GANJU, J

JULY 6, 2022