GST demand cannot be raised based on figures in Profit and Loss Account

Introduction: In a significant ruling, the Madras High Court addressed the issue of whether GST demand can be raised solely based on figures from the Profit and Loss Account. Hon’ble Madras High Court in the case of M/s. Ralco Synergy Pvt. Ltd. v. Joint Commissioner of State Tax and Ors. [W.P. No. 5554 of 2024 dated March 5, 2024] set aside the Impugned Order passed by the Revenue Department, thereby holding that, GST demand cannot be raised based on figures in Profit and Loss Account.

Facts:

M/s. Ralco Synergy Pvt. Ltd. (“the Petitioner”) was issued intimation vide Form DRC-01A, after the inspection was conducted by the Revenue Department (“the Respondent”). Thereafter, Show Cause Notice (“SCN”) was issued, and the Assessment Order dated December 23, 2023 (“the Impugned Order”), was passed by the Respondent against the Petitioner.

Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon’ble Madras High Court, contending that the Impugned Order is violative of the principles of natural justice as the demand has been raised solely based on the figures of the Profit and Loss Account.

Issue:

Whether GST demand can be raised based on figures in Profit and Loss Account?

Held:

The Hon’ble Madras High Court in the case of WP No. 5554 of 2024 held as under:

• Noted that, the Respondent Assessing Officer relied upon total expenditure and revenue of the corporate entity on all India basis.
• Further Noted that, the profit and loss account of the Petitioner was the basis for issuance of the Impugned Order.
• Opined that, the Impugned Order has been issued without any application of mind.
• Held that, the Impugned Order is quashed and the matter is remitted back for reconsideration after depositing 5 percent of the disputed tax demand.

Conclusion: The ruling by the Madras High Court in the case of M/s. Ralco Synergy Pvt. Ltd. highlights the importance of proper assessment procedures in GST matters. Raising GST demand solely based on figures from the Profit and Loss Account, without proper scrutiny and application of mind, is deemed violative of the principles of natural justice.

This judgment underscores the need for assessing authorities to conduct thorough assessments, considering all relevant factors and evidence before making determinations. It also serves as a reminder to taxpayers of their right to fair treatment and due process under the law when faced with tax assessments.

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(Author can be reached at info@a2ztaxcorp.com)