Raj Machine Tools Vs Assistant Commissioner (st) (fac) (Madras High Court)
The petitioner challenged two assessment orders relating to the same assessment period on multiple grounds. The principal contention was that the orders violated Section 73(2) of the applicable GST enactments, which, according to the petitioner, mandated a minimum interval of three months between the issuance of the show cause notice and the assessment order. Reliance was placed on the Bombay High Court’s decision in AM Market Places Private Limited v. The Union of India, particularly paragraphs 4 and 5 of that judgment. The petitioner also contended that the two impugned orders were mutually contradictory. One order proceeded on the basis that the petitioner had wrongly availed input tax credit (ITC) in respect of exempt supplies, whereas the other proceeded on the basis that the supplies were taxable and not exempt. Without prejudice to these contentions, the petitioner agreed to remit 25% of the disputed tax demand relating to one of the assessment orders, after adjustment of earlier recoveries, as a condition for remand.
The respondent submitted that Section 73(2) does not prescribe a mandatory three-month interval between the show cause notice and the adjudication order and also contended that the writ petitions had been filed belatedly.
The High Court interpreted Sections 73(2) and 73(10) together. It held that Section 73(10) prescribes the limitation period for issuance of the adjudication order, while Section 73(2) requires the show cause notice to be issued at least three months before the expiry of that limitation period. The Court observed that the purpose of Section 73(2) is to ensure that the notice is not issued immediately before the limitation period expires, thereby preventing hurried adjudication. It concluded that the provision does not require a mandatory three-month interval between the show cause notice and the adjudication order where the notice itself was issued more than three months before the limitation period. The Court also observed that although a reasonable interval should exist to enable a meaningful response and compliance with principles of natural justice, such a mandatory three-month gap cannot be read into Section 73. Consequently, it declined to endorse the view taken by the Bombay High Court in the cited judgment.
On the second ground, the Court found merit in the petitioner’s contention that the two impugned orders were contradictory because one proceeded on the footing that the supplies were exempt while the other treated them as taxable.
Accordingly, subject to the petitioner remitting 25% of the disputed tax demand in one writ petition, after adjusting earlier recoveries, within thirty days, the Court set aside both assessment orders and remanded the matters for fresh consideration. The proper officer was directed to provide the petitioner a reasonable opportunity of hearing and issue fresh orders within three months from the date of such remittance. The Court clarified that the proper officer would be at liberty to examine whether the supplies were in fact exempt. Subject to compliance with the remittance condition, the bank attachment was directed to be lifted. The writ petitions and connected miscellaneous petitions were disposed of without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
In these two writ petitions, two separate orders pertaining to the same assessment period are assailed on multiple grounds.
2. The first contention of learned counsel for the petitioner is that the orders are in contravention of Section 73(2) of applicable GST enactments. He contends that the said provision mandates a minimum time gap of three months between the show cause notice and the assessment order. In support of this contention, he relies on the judgment of the Bombay High Court in AM Market Places Private Limited v. The Union of India, W.P.No.7941 of 2025, order dated 17.01.2026. In particular, he relies on the reasoning at paragraphs 4 and 5 of the said order. His second contention is that the two orders are contradictory. He points out that impugned order dated 13.11.2025 in W.P.No.25946 of 2026 proceeds on the basis that the petitioner had wrongly availed of input tax credit in respect of exempt supplies. On the contrary, the order dated 13.11.2025 in W.P.No.25947 of 2026 proceeds on the basis that the supplies are taxable and not exempt. Without prejudice to these contentions, learned counsel submits that the petitioner agrees to remit 25% of the tax demand under the order challenged in W.P.No.25946 of 2026 as a condition for remand of both matters. He has made an endorsement to that effect on the bundle. He adds that some recoveries were made earlier and that the remittance would be made after adjustment thereof.
3. Ms. Amirta Poonkodi Dinakaran, learned Government Counsel (Tax), accepts notice for the respondent. She contends that Section 73(2) does not prescribe that there should be an interval of three months between the dates of the relevant show cause notices and the assessment orders. She also submits that the petitioner has approached this Court belatedly and these writ petitions are liable to be dismissed on that ground.
4. The first ground of challenge by the petitioner entails interpretation of sub-sections (2) and (10) of Section 73. Said provisions are set out below:
“(2) The proper officer shall issue the notice under subsection (1) at least three months prior to the time limit specified in sub-section (10) for issuance of the order.
(10) The proper officer shall issue the order under subsection (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund.”
5. As can be seen from the text of sub-section (2), said provision is required to be interpreted in light of sub-section (10) thereof. Sub-section (10) prescribes a limitation period for the issuance of an order under sub-section (9) thereof. Said limitation period is three years from the due date for furnishing of the annual return for the financial year that the tax demand relates to. Therefore, sub-section (2) is intended to ensure that the show cause notice preceding adjudication is issued not less than three months before the limitation period for adjudication expires. The object and purpose is not difficult to discern. If sub-section (2) were not in the statute, it would have been possible for the proper officer to issue the show cause notice fifteen days prior to the expiry of the limitation period and thereafter hurriedly conclude the adjudication. It does not, however, follow from sub-section (2) that there should be a mandatory three month interval between the show cause notice and the order of adjudication even if such show cause notice was issued more than three months before the time limit for adjudication under sub-section (10).
6. It is a separate matter that there should be a reasonable interval between the show cause notice and the order of adjudication so as to provide a reasonable opportunity to the tax payer to respond to the show cause notice meaningfully and contest the tax proposals. Merely because the statute incorporates the requirements of natural justice with regard to providing about three opportunities to the tax payer to seek adjournments, a mandatory three month interval between the show cause notice and the order of adjudication cannot be read into Section 73. Therefore, I am unable to endorse the views of the Bombay High Court in the judgment cited by learned counsel.
7. Learned counsel also contended that the two orders are contradictory. The first order proceeds on the assumption that input tax credit was availed of and utilised in respect of exempt supplies, whereas the second order proceeds on the assumption that the supplies are not exempt. Therefore, there is merit in the contention of learned counsel for the petitioner as regards this ground of challenge.
8. For reasons aforesaid, subject to the remittance of 25% of the disputed tax demand relating to the order challenged in W.P.No.25946 of 2026, after adjusting recoveries, if any, relating thereto, within thirty days from the date of receipt of a copy of this order, both the orders impugned herein are set aside and these matters are remanded for re-consideration. After providing a reasonable opportunity to the petitioner, a fresh order shall be issued within three months from the date of remittance of 25% in the manner mentioned above. For the avoidance of doubt, it is clarified that it is open to the proper officer to examine whether the supplies are indeed exempt. Subject to fulfilment of the condition specified above, the bank attachment shall stand raised.
9. These writ petitions are disposed of on the above terms. Consequently, connected writ miscellaneous petitions are closed. There shall be no order as to costs.
