Case Law Details
Ramco Cement Limited Vs Deputy Commissioner (ST) (Madras High Court)
In a significant ruling, the Madras High Court has allowed Ramco Cement Limited to contest six issues confirmed in an assessment order dated 28.03.2024. This decision underscores the importance of adhering to the principles of natural justice and ensuring due process in tax proceedings.
Ramco Cement Limited received a show cause notice on 28.12.2023, addressing ten issues. After responding to the notice on 05.02.2024 and attending a personal hearing, an impugned order was issued on 28.03.2024. The order considered the petitioner’s reply and dropped four issues, while six issues were confirmed.
The main contention by Ramco Cement’s counsel was the introduction of two new issues in the final order without prior show cause notice, violating principles of natural justice. These issues included:
- Staff Welfare Expenses: Not addressed in the initial show cause notice.
- Rejection of Input Tax Credit (ITC): Based on sub-section 5 of Section 17 of the applicable GST enactments, also not initially notified.
The counsel also highlighted contradictions in the handling of ITC reversal under Rule 42, where the impugned order treated the sale of second-hand vehicles as taxable supplies, conflicting with the basis of the show cause notice.
SEZ Supplies and Other Contentions
The petitioner argued against the confirmation of tax liability on supplies to SEZs, citing a notification effective from 01.10.2023, which required endorsements on invoices. The petitioner’s reliance on this notification and subsequent submission of endorsed invoices for a significant portion of the tax claim were overlooked in the impugned order.
The tax liability concerning Corporate Social Responsibility (CSR) activities was also contested, as it was based on consolidated financial statements without specific grounds in the show cause notice.
The Court found that the principles of natural justice were contravened since the issues relating to staff welfare expenses and ineligible ITC were not raised in the initial show cause notice. The Court also noted the contradictory conclusions regarding ITC reversal and the sale of old vehicles.
The impugned order dated 28.03.2024 was set aside concerning the six issues raised in the show cause notice, subject to the petitioner remitting 10% of the disputed tax demand. The petitioner is permitted to submit a reply treating the impugned order as a show cause notice for the new issues. The respondent must provide a reasonable opportunity, including a personal hearing, and issue a fresh order within three months of receiving the petitioner’s reply.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An assessment order dated 28.03.2024 is the subject of challenge in this writ petition.
2. The petitioner received a show cause notice dated 28.12.2023 in respect of the 10 issues set out in internal pages 65 & 66 of the show cause notice. Such show cause notice was replied to on 05.02.2024. Pursuant to a personal hearing, impugned order dated 28.03.2024 was issued. By such order, upon considering the petitioner’s reply and submissions made during the course of personal hearing, four issues were dropped.
3. The first ground on which learned counsel for the petitioner assails the impugned order is that two new issues were dealt with and the tax proposals relating thereto were confirmed in the impugned order. The first of these issues relates to expenses incurred towards staff welfare. The second issue relates to rejection of input tax credit (ITC) by invoking sub section 5 of Section 17 of applicable GST enactments. Since the petitioner was not provided an opportunity to show cause notice in respect of these two issues, learned counsel contends that principles of natural justice were violated. Even as regards the issue relating to ITC reversal under Rule 42, learned counsel submits that the show cause notice proceeded on the basis that the petitioner had availed of ITC in respect of exempted supplies and was required to reverse ITC to that extent. In the impugned order, she points out that the assessing officer also imposed taxes on the sale of secondhand/old vehicles by treating it as taxable supply. Learned counsel contends that these two conclusions are contradictory and incompatible.
4. With regard to supply to SEZ, learned counsel contends that the notification requiring an endorsement on the invoices from the authorized officer of the SEZ was introduced by a notification which was not in force at the relevant point of time. She submits that such notification was effective from 01.10.2023. Without taking this aspect into account in spite of the petitioner’s reply dated 30.01.2024, which referred to the date of entry into force of the notification, she submits that the tax proposal was confirmed to the extent that endorsed invoices were not provided by the petitioner. She also submits that tax liability was confirmed in respect of CSR activities carried on on pan-India basis by drawing on particulars set out in the consolidated financial statements of the petitioner. For all these reasons, learned counsel submits that the matter requires reconsideration.
5. Mr. C. Harsha Raj, learned Additional Government Pleader, accepts notice for the respondent. He submits that two additional issues are dealt with in the impugned order because such issues arose out of the reply of the petitioner. As regards these issues, he submits that the impugned order may be treated as a show cause notice and the petitioner be provided an opportunity to respond thereto. On all other issues, learned counsel submits that the principles of natural justice were complied with and the petitioner’s reply was duly considered. Consequently, he submits that no case is made out for interference.
6. On comparing the show cause notice and the impugned order, it is evident that issues relating to staff welfare expenses and ineligible ITC as per sub-section 5 of Section 17 of applicable GST enactments were not raised in the show cause notice. To that extent, principles of natural justice were contravened. In the show cause notice, the issue relating to non-reversal of ITC for exempted supplies was dealt with and the petitioner was called upon to show cause in that respect. While the impugned order deals with the said issue, such order proceeds to also conclude that sale of old/used vehicles is liable to tax as a taxable supply. As contended by learned counsel for the petitioner, these conclusions are incompatible and contradictory.
7. With regard to supplies to SEZ, the petitioner relied upon reply dated 30.01.2024 wherein the respondent was informed that the requirement of obtaining an endorsement on the invoices came into force with effect from 01.10.2023. No finding was recorded on this issue. It should, however, be recognized that the petitioner appears to have provided endorsed invoices for a substantial portion of the tax claim and the tax proposal was dropped to that extent. As regards the issues dealt with in the show cause notice, the petitioner should be put on terms as a condition for reconsideration. On instructions, learned counsel for the petitioner agrees to remit 10% of the disputed tax demand as regards the six issues on which an opportunity to show cause was provided.
8. For reasons set out above, the impugned order dated 28.03.2024 is set aside in respect of the six issues raised in the show cause notice and confirmed in the order subject to the condition that the petitioner remits 10% of the disputed tax demand relating to short payment of tax, ITC reversal under Section 42 , supply to SEZs without payment on tax, excess carry forward ITC, sale of assets and CSR expenses. Such remittance shall be made within 15 days from the date of receipt of a copy of this order, Within the said period, the petitioner is permitted to submit a reply in respect of staff welfare expenses and ineligible ITC by treating the impugned order in respect thereof as a show cause notice. Upon receipt of such reply and on being satisfied that 10% of the disputed tax demand in respect of the above mentioned six issues was received, the 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.
9. W.P.No.17535 of 2024 is disposed of on the above terms. Consequently, WMP Nos.19319 & 19320 of 2024 are closed. No costs.
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