A GST show-cause notice has been quashed by the Madras High Court. The notice was issued against GAIL (India) Ltd., holding that proceedings u/s 76 of the CGST Act cannot be invoked where the tax collected has already been duly deposited with the Government.
The bench of Justice D. Bharatha Chakravarthy held that the foundational requirement for invoking Section 76, the collection of tax and failure to deposit it, was absent. Even the Show cause notice (SCN) itself acknowledged that the amount collected from customers matched the amount deposited with the Government by the transmission vertical.
The case is related to the SCN dated August 17, 2020, issued by the GST authorities alleging that GAIL had breached Section 76 of the Central Goods and Services Tax Act, 2017, by collecting an amount representing tax from customers but failing to remit the same to the Government. The notice proposed the recovery of Rs 14.63 crore, including interest and penalty.
GAIL, a public sector undertaking, is in the sale and transmission of natural gas, stated that its business operations were framed into two parts- trading and transmission, each containing separate GST registrations.
While the natural gas sale was within VAT (as it stays outside GST), GST was applied merely to the transmission services. The company mentioned that the GST element concerning transmission was duly paid by its transmission part, and the trading part only recovered the same as a reimbursement from customers as part of the overall sale price.
It was claimed by the department that since both parts were deemed as “distinct persons” under the GST law because of separate registrations, the trading part’s GST collection without remitting the same leads to a breach of section 76.
The Court highlighted that section 76 is for addressing cases where tax collected is incorrectly retained and not to penalise procedural or structural arrangements within the same entity when there is no loss to the revenue. It said that these proceedings could not be used to explain double taxation or to overlook actual tax payments incurred via another valid registration.
The Court acknowledged a previous ruling by GST authorities in Gujarat concerning similar circumstances, where the proceedings against GAIL were dismissed. The conclusion reached was that the amounts collected were only reimbursements and that the tax obligation had already been discharged.
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The Court held that while it typically does not exercise writ jurisdiction at the show cause notice stage, exceptions apply when the notice is issued without jurisdiction or is founded on predetermined conclusions. Considering that this case involved a straightforward legal question and had been pending for several years, the Court found it appropriate to intervene.
The High Court quashed the impugned SCN, bringing relief to GAIL and citing the scope of Section 76 of the CGST Act for cases that have internal business structuring and tax reimbursement procedure.
| Case Title | Gail (India) Ltd. vs. The Additional Commissioner |
| Case No. | W.P.(MD)No.13152 of 2020 and W.M.P.(MD)No.11033 of 2020 |
| For Petitioner | Mr.Joseph Prabakar |
| For Respondent | Mr.AR.L.Sundaresan, and Mr.R.Gowrishankar |
| Madras High Court | Read Order |
