GST Audit Findings Replicated in order: HC Directs Proper Adjudication

S.P.P. Silks Vs State Tax Officer (Madras High Court)

In the case of S.P.P. Silks vs. State Tax Officer, the Madras High Court addressed a writ petition challenging an order dated 29.12.2023. The order stemmed from an audit of the petitioner’s books of account, during which the petitioner raised objections to the audit observations. However, these objections were not accepted, leading to the issuance of an intimation in Form GST DRC-01 on 20.09.2023, followed by a show cause notice dated 29.09.2023. The impugned order was subsequently issued on 29.12.2023.

The petitioner contended that the language used in both the intimation and the show cause notice was identical, suggesting predetermination. Citing the judgment of the Hon’ble Supreme Court in ORYX Fisheries (P) Ltd. v. Union of India, the petitioner argued that proceedings pursuant to a show cause notice that did not afford a reasonable opportunity to respond were liable to be interfered with. Furthermore, the petitioner highlighted that the conclusions recorded in the impugned order mirrored those in the show cause notice and earlier audit observations.

In response, the learned Additional Government Pleader contended that the petitioner had not enclosed necessary documents while objecting to the audit objections or responding to the show cause notice, leading to the confirmation of the tax proposal.

Upon consideration, the Court observed that the language used in both the show cause notice and the impugned order was indeed identical, indicating a lack of objective adjudication and a failure to consider the petitioner’s replies. Consequently, the Court directed that the impugned order be treated as a show cause notice, allowing the petitioner to submit a reply within 15 days. The second respondent was instructed to provide a reasonable opportunity, including a personal hearing, and issue a fresh order within three months after duly considering the petitioner’s reply and the observations set out in the Court’s order.

Ultimately, the writ petition was disposed of on these terms, without any order as to costs, and the connected miscellaneous petitions were also closed.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

An order dated 29.12.2023 is subject to challenge in this writ petition.

2. Pursuant to an audit of the petitioner’s books of account, the petitioner raised objections in relation to audit observations. Such objections were not accepted. Therefore, an intimation was issued on 20.09.2023 in Form GST DRC-01. This was followed by a show cause notice dated 29.09.2023. The petitioner replied thereto on 26.12.2023. The impugned order dated 29.12.2023 was issued thereafter.

3. Learned counsel for the petitioner invited my attention to the intimation dated 20.09.2023 and show cause notice dated 29.09.2023. He pointed out that the audit observations were converted into the show cause notice and this is evident from the conclusions which are recorded in the show cause notice with regard to each alleged defect. By comparing the intimation and the show cause notice, learned counsel points out that the same language is contained in the show cause notice and that this is a clear indication of predetermination. By referring to and relyin upon the judgment of the Hon’ble Supreme Court in ORYX Fisheries (P) Ltd. v. Union of India (ORYX Fisheries), (2010) 13 SCC 427, particularly paragraphs 22 to 25, 27, 31 & 32 thereof, learned counsel submits that proceedings pursuant to a show cause notice which does not provide the recipients of such notice a reasonable opportunity to respond meaningfully thereto are liable to be interfered with. By referring to the impugned order, learned counsel submits that the contents of impugned order, as regards conclusions recorded therein, are identical to the conclusions recorded in the show cause notice and in the earlier audit observations.

4. Mr. T.N.C. Kaushik, learned Additional Government Pleader, accepts notice on behalf of the respondents. He submits that the petitioner did not enclose necessary documents while objecting to the audit objections or responding to the show cause notice. In those circumstances, he contends that the tax proposal was confirmed. In case the Court is inclined to interfere, he submits that the impugned order may be treated as a show cause notice.

5. The show cause notice deals with about six defects. By way of illustration, the operative portion of the show cause notice with regard to defect No.1 is set out below:-

“ The reply filed by the taxpayer was verified. The annexure said to be filed as supporting documents are not clear and readable. Due to non compliance of section 16(2)(c) of TNGST Act, 2017 the reply filed by the taxpayer is not accepted and the demand proposed in the defect is confirmed. Accordingly tax liability is worked out as below:

You are required to pay the above tax liability along with interest under Section 50 and penalty under Section 73(9) of TNGST Act 2017. ”

The above extract reveals that a conclusion was recorded instead of indicating the tax proposal and calling upon the petitioner to show cause in respect thereof.

6. The impugned order deals with the same six defects. The conclusion recorded therein in respect of defect No.1 is set out below:-

“The reply filed by the taxpayer was verified. The annexure said to be filed as supporting documents are not clear and readable. Due to non compliance of section 16(2)(c) of TNGST Act, 2017 the reply filed by the taxpayer is not accepted and the demand proposed in the defect is confirmed. Accordingly tax liability is worked out as below:

You are required to pay the above tax liability along with interest under Section 50 and penalty under Section 73(9) of TNGST Act 2017. ”

7. It is conspicuous that the language used in both the show cause notice and the impugned order is identical. Therefore, it appears that observations made in course of audit were converted into the show cause notice and eventually recorded as conclusions in the impugned order. In the process, the petitioner’s replies were not taken into consideration.

8. The adjudication process would be robbed of meaning unless the authority undertaking adjudication acts in an objective manner without predetermining the issues arising for consideration. Since adjudication was not undertaken in such manner, the impugned order cannot be sustained. However, it shall be treated as a show cause notice and responded to.

9. In these circumstances, it is directed that the impugned order be treated as a show cause notice. The petitioner is permitted to submit a reply thereto within 15 days from the date of receipt of a copy of this order. Upon receipt of such reply, the second respondent is directed to provide a reasonable opportunity, including a personal hearing, and thereafter issue a fresh order within three months from the date of receipt of the petitioner’s reply after duly taking note of the observations set out in this order.

10. W.P.No.10120 of 2024 is disposed of on the above terms without any order as to costs. Consequently, the connected miscellaneous petitions are also closed.