Tax Demand Order Based on Different Grounds from GST Notice: Madras HC Directs New Proceedings

The Madras High Court in its ruling set aside the Goods and Services Tax ( GST ) demand order issued completely on a different basis from the Show Cause Notice ( SCN ). Fresh proceedings are ordered by the court.

Madras High Court addressed a discrepancy between a tax order and the initial SCN, leading to the decision’s repeal. The order on 23.06.2023 was contested because it deviated substantially from the premise shown in the show cause notice received by the applicant.

An intimation on 24.11.2022 has been received before the applicant, along with the SCN dated 29.12.2022. Answering that the applicant elaborated itself as a distributor of Aircel Limited, underlining their incapability to execute business after the closure of operations of Aircel in February 2018. Towards such communications, the following order is issued levying a tax obligation surpassing the initially estimated amount.

The counsel of the applicant said the discrepancy, highlighting that while the SCN referenced a tax obligation of Rs. 8,27,252 established on alleged sales suppression, a liability of Rs.14,97,072 is been levied under the final order by comparing GSTR 3B return and GSTR 2A. A significant ITC reversal from the petitioner’s ledger complicated the case.

The petitioner’s reply to the intimation invalidated their entitlement to Input Tax Credit, explaining the validity of the order, Government Advocate, Mr. V. Prashanth Kiran contended.

A Single bench of Justice Senthilkumar Ramamoorthy on the intimation analysis along with the following SCN, witnessed that the initial communication summoned the applicant to justify a tax obligation of Rs. 8,27,252, forecast the presumption of sales suppression.

Read Also: Madras HC: The Clustering of GST Show Cause Notices Contradicts the Intent of Section 73

The tax load from the final order gets enhanced to Rs 14,97,072 along with an equivalent penalty. From the premise of sales suppression, the impugned order gets diverged.

The court stresses that when the tax authority has planned to revise the tax assessment complying with the reply of the applicant issuing a fresh show cause notice(SCN) was imperative. Debit from the electronic credit ledger of the applicant, of Rs. 7,52,047/-, highlighted the irregularities wrapping the impugned order. Consequently, the court concluded that the impugned order did not contain legal validity.

The Court via issuing the amended SCN before the applicant set aside the order on 23.06.2023, allowing the respondent to commence fresh proceedings.