Case Law Details
Tvl. Shivam Steels Vs Assistant Commissioner (ST)(FAC) (Madras High Court)
In the case of Tvl. Shivam Steels vs. Assistant Commissioner (ST) (FAC) heard by the Madras High Court, the petitioner contested the original order dated March 12, 2024, specifically concerning defect number 3. The case revolves around a GST demand related to post-sale discounts and the consequent reversal of Input Tax Credit (ITC).
The petitioner received a show cause notice on January 12, 2024, addressing six defects. In response, the petitioner provided explanations on January 22, 2024, and February 14, 2024. The dispute centers on the reversal of ITC for credit notes issued by the supplier, with the petitioner arguing that these credit notes were financial in nature and did not meet the conditions outlined in Section 15(3) of the GST statutes. According to the petitioner, the value of supply should not include discounts unless specific conditions are met, which were not satisfied in this case. The petitioner also referred to Circular No.92/11/2019-GST to support their argument that they were not liable for ITC reversal for financial credit notes.
The learned counsel for the petitioner argued that the impugned order wrongly construed the discount offered by the supplier as a service provided by the purchaser to the supplier. This misinterpretation led to the erroneous conclusion that the petitioner provided a service by increasing the supplier’s sales volume, thus benefiting the supplier’s market position and goodwill. The counsel for the petitioner emphasized that this interpretation contradicts GST principles, warranting judicial intervention.
The Additional Government Pleader representing the respondent contended that the petitioner should have approached the appellate authority for all defects, not selectively for defect number 3. He argued against encouraging such practices and suggested that the petitioner should be redirected to the statutory remedy.
The court examined Section 15(3) of the GST statutes, which allows for a reduction in the value of supply due to discounts if documented in the invoice or agreed upon before or at the time of supply. The petitioner established that these conditions were not met, indicating that the supplier should have paid tax on the full supply value.
The impugned order’s assessment of defect number 3 concluded that the petitioner was providing a service by boosting the supplier’s sales, thereby increasing the supplier’s marketability and goodwill. This conclusion was found to be fundamentally flawed and contrary to GST law. The court deemed this conclusion ex facie erroneous, requiring judicial reconsideration.
While acknowledging the general rule of exhausting alternative remedies before seeking judicial intervention, the court noted that this case involved a pure legal issue, justifying the petitioner’s approach to the High Court. The court also highlighted that the appellate authority lacked the power to remand issues, supporting the decision to exercise jurisdiction.
Ultimately, the Madras High Court set aside the order dated March 12, 2024, concerning defect number 3 and remanded the issue for reconsideration by the original authority. The court directed the assessing officer to issue a fresh order within three months, after providing the petitioner with a reasonable opportunity for a hearing. The writ petition was disposed of on these terms, with no costs imposed, and the related miscellaneous petitions were closed.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
By this writ petition, an order in original dated 12.03.2024 is assailed only insofar as it pertains to defect no.3.
2. The petitioner received show cause notice dated 12.01.2024 calling upon the petitioner to show cause with regard to six defects. The petitioner replied to such show cause notice on 22.01.2024 and 14.02.2024. The order impugned herein was issued thereafter.
3. Learned counsel for the petitioner submits that defect no.3 pertains to reversal of Input Tax Credit in respect of credit notes issued by the supplier. By referring to sub-section (3) of Section 15 of applicable GST statutes, learned counsel submits that the value of supply would not include a discount only if the conditions prescribed in clauses (a) or (b) of sub-section (3) are satisfied. According to him, the case at hand does not fall within the scope of sub-section (3). Consequently, he contends that the credit notes issued by the supplier were financial credit notes. He also refers to Circular No.92/11/2019-GST dated 07.03.2019 to substantiate the above contention. Hence, the recipient / tax payer is not liable to reverse Input Tax Credit to the extent of the value of credit notes.
4. By referring to the relevant part of the impugned order, learned counsel submits that the discount offered by the supplier was erroneously construed as a service provided by the purchaser to the supplier. Consequently, he contends that the impugned order calls for interference on this issue.
5. Mr. C. Harsha Raj, learned Additional Government Pleader, accepts notice for the respondent. He points out that the petitioner has filed this writ petition only insofar as defect no.3 is concerned. As regards other defects, he submits that the petitioner has carried the matter in appeal before the appellate authority. Learned Additional Government Pleader contends that such practice should not be encouraged. Therefore, he submits that the petitioner should be relegated to the statutory remedy.
6. Sub-section (3) of Section 15 of applicable GST statutes provides for a reduction in the value of supply, on account of a discount, if such discount has been duly recorded in the invoice issued in respect of such supply or if such discount is established in terms of an agreement entered into either before or at the time of supply although the supply may be subsequent to such agreement. In this case, the petitioner has prima facie established that neither of the requirements under sub-section (3) were satisfied. In such event, the supplier would be liable to pay tax on the full value of supply.
7. On examining the impugned order, the following conclusion was recorded in respect of defect no.3:
“I have carefully gone through the objection/reply filed by the taxable person and also perused the connected records. On examination of the documents it is noticed that the discount has been received after the sale was effected by the taxable person. The word discount received is nothing but an amount received from the supplier in the name of discount to increase the volume of sale during the year. In other words, the amount is related to good performance done by the taxable person by way of increasing the sale and thereby to boost the total turnover of the supplier / company, which resulted in increase in goodwill of the company and also helps the company to market their products and if the company is in the stock market the value of the share of the company will automatically goes up. The taxable person in this end by performing a good sale have provided a service to the supplier and the supplier / company got the benefit of goodwill and sound marketability in the trading world.”
The above extract discloses that the assessing officer concluded that the taxable person is providing a service to the supplier while taking the benefit of a discount by facilitating an increase in the volume of sales of such supplier. This conclusion is ex facie erroneous and contrary to the fundamental tenets of GST law. Therefore, this conclusion warrants interference and this issue requires reconsideration.
8. The contention of learned Additional Government Pleader remains to be considered. The exercise of jurisdiction under Article 226 is discretionary and subject to self imposed fetters. One such fetter is when an efficacious alternative remedy is available. It should be borne in mind that the existence of an alternative remedy is a material consideration but not a bar to the exercise of jurisdiction.
In the case at hand, on the basis that the other issues require reappraisal of evidence, the petitioner has approached the appellate authority in respect thereof. As regards this issue, since it is a pure legal issue, the petitioner has chosen to approach this Court. As recorded earlier, the conclusion is ex facie erroneous on this issue, and the appellate authority under applicable GST statutes does not have the power to remand. Therefore, notwithstanding the fact that the petitioner had approached the appellate authority in respect of other issues, I am inclined to exercise jurisdiction. It is needless to say that a writ petition would not ordinarily be entertained once the person aggrieved has chosen to challenge other issues in an order before an appellate authority.
9. For reasons set out above, impugned order dated 12.03.2024 is set aside only insofar as defect no.3 relating to reversal of Input Tax Credit for the value of credit notes issued by the supplier is concerned. As a corollary, defect no.3 is remanded for re- consideration by the original authority. After providing a reasonable opportunity to the petitioner, including a personal hearing, the assessing officer is directed to issue a fresh order within three months from the date of receipt of a copy of this order.
10. W.P.No.15335 of 2024 is disposed of on the above terms. No costs. Consequently, W.M.P.Nos.16659 and 16661 of 2024 are closed.
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