Case Law Details
SS Traders Vs Joint Commissioner (ST) (Intelligence) (Madras High Court)
Summary: In SS Traders v. Joint Commissioner (ST) (Intelligence), the Madras High Court addressed procedural irregularities in a tax assessment dispute involving SS Traders, a steel products supplier. The court set aside an order imposing a substantial tax liability on SS Traders, which was issued immediately following the final hearing on April 12, 2021. The petitioner contended that the order, spanning 105 pages, was issued on the same day as the hearing, making it technically improbable that the arguments presented were considered in full. Citing procedural fairness, the court ruled that issuing a comprehensive order on the same day likely bypassed due process, undermining the principles of natural justice. The case began when SS Traders received a Show Cause Notice (SCN) from the tax authorities, alleging that the business had improperly claimed Input Tax Credit (ITC) due to procedural lapses by the supplier. Although SS Traders argued that their transactions were legitimate and that they could not be penalized for supplier non-compliance, the Joint Commissioner issued a final assessment order on April 12, 2021. The Madras High Court concluded that the order was flawed due to its immediacy, thus invalidating it and remanding the matter for reassessment. The court directed SS Traders to deposit 10% of the disputed tax and submit a detailed reply, instructing the tax department to conduct a fresh hearing and issue a new, well-considered order. This ruling underscores the importance of adequate deliberation time in administrative proceedings to uphold fairness and procedural integrity.
The Hon’ble Madras High Court in the case of M/s. SS Traders v. Joint Commissioner (ST) (Intelligence) [Writ Petition No. 15363 of 2021 dated August 16, 2024] remanded back the order where the Assessee was mulct with huge tax liability vide Assessment Order and the on the date of hearing, 105 pages order was passed which was technically impossible. Therefore, the Order was set aside and was remitted back to pass fresh order.
Facts:
M/s. SS Traders (“the Petitioner”) was engaged in was engaged in the business of Iron and Steel namely Thermo Mechanically Treated (“TMT”) Bar, a type of Steel bar used in construction projects, underground and underwater structures.
They were served Show Cause Notice (“SCN”) dated February 11, 2021 to which the Petitioner replied on March 15, 2021 and requested three weeks-time. Pursuant to the reply, the Revenue Department (“the Respondent-1”) issued a SCN on March 22, 2021 and fixed the personal date of hearing on March 22, 2021. The Petitioner filed a reply on March 31, 2021 and requested fifteen days-time period.
The Joint Commissioner (“the Respondent-2”) issued another SCN on April 07, 2021 and granted final opportunity to the Petitioner for filing objections on or before April 12, 2021 and directed to appear for personal hearing on April 12, 2021.
It was contended that goods were not received by the Petitioner and the Petitioner had not deliberately paid tax from Electronic Cash Register. The Petitioner had wrongly claimed/availed Input Tax Credit (“ITC”).
The Petitioner contended that they cannot be found fault with on account of failure of the supplier to file statutory returns as is contemplated under the respective GST enactments. The supply of goods was directly from the place of storage godown/warehouse and the invoices were directly raised from the branch office of the head office. The Petitioner had also received consideration for the supplies effected and therefore, it cannot be said that no supply was affected.
Lastly, the case was heard on April 12, 2021 and on the same date, the Impugned Order has been passed consisting of 105 pages, which is technically impossible as the Petitioner was fully heard on the said date.
The Respondent-2 without considering the Petitioner’s contentions passed an Assessment Order dated April 12, 2021 (“the Impugned Order”) for the Assessment Year 2017-18.
The Petitioner contended that a portion of the turnover related to pre-GST era and for the remaining portion, the tax liability was paid by the Petitioner on January 11, 2021 along with interest.
Issue:
Whether the Department can pass an order on the same day of hearing?
Held:
The Hon’ble Madras High Court in Writ Petition No. 15363 of 2021 held as under:
- Held that, the Impugned Order is quashed and shall be treated as addendum to SCN dated February 11, 2021 and remitted the case back to the Respondents to pass fresh order where the Petitioner shall deposit 10% of the disputed tax within a period of six weeks and shall file a reply to the Impugned Order. If the Petitioner fails to comply with the conditions, it shall be construed the writ petition was dismissed with liberty to proceed against the Petitioner.
Our Comments:
In legal proceedings, the issuance of an order on the date of the personal hearing can be procedurally questionable. According to principles of natural justice and procedural fairness, an adequate period should be granted after the personal hearing to allow the Adjudicating Authority to review and consider the arguments presented by the parties involved. An immediate order raises concerns about whether the arguments and evidence provided during the hearing were duly considered. This approach could be seen as a prejudgment or a lack of objective assessment, potentially rendering the order arbitrary and in violation of the principles of due process.
In certain cases, if an order is passed without providing reasonable time for deliberation, it could be challenged on grounds of procedural impropriety. Courts have consistently held that a well-reasoned decision is essential, requiring time for thoughtful consideration. Therefore, unless the urgency of the case demands immediate action, passing an order on the same day could be construed as a denial of the right to a fair hearing, and the order may be set aside or remanded for reconsideration upon such grounds.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
This writ petition is of the year 2021.
2. In this writ petition, the petitioner has challenged the impugned Assessment Order bearing GSTIN: 33AQVPD8811F1ZS/2017-2018 dated 04.2021 passed by the second respondent for the Assessment Year 20172018.
3. The case of the petitioner is that the impugned Assessment Order has been in gross violation of principle of natural justice and also suffers from want of jurisdiction.
4. Learned counsel for the petitioner would submit that a portion of the turnover relates to pre-GST era and for the remaining portion, the tax liability was paid by the petitioner on 01.2021 along with interest.
5. Learned counsel for the petitioner would further submit that the second respondent has issued Show Cause Notice dated 02.2021 to the petitioner, to which, the petitioner replied on 15.03.2021, requesting three weeks time. Pursuant to the said reply, the second respondent issued a notice on 22.03.2021, fixing the date of personal hearing on 06.04.2021 at 11.00 a.m in the office of the second respondent. Replying to the said notice, on 31.03.2021, the petitioner requested for fifteen days time.
6. The second respondent issued another notice on 07.04.2021, granting one final opportunity to the petitioner to file objections on or before 12.04.2021 during the office hours from 10.00 a.m to 5.45 p.m and in the same notice, the second respondent also directed the petitioner to appear for personal hearing on 12.04.2021, without indicating any specific time for personal hearing.
7. It is further submitted that goods were not received by the petitioner and the petitioner had deliberately not paid the tax from Electronic Cash Register. The petitioner wrongly claimed/availed the Input Tax Credit towards the output tax liability based on the eligible Input Tax Credit. It is submitted that this act of the petitioner also warrants penalty as required under Section 74 of the respective GST enactments. It is therefore submitted that the impugned Assessment Order does not call for any interference. Hence, prays for dismissal of the writ petition.
8. It is submitted that the petitioner also appeared for a personal hearing on 12.04.2021. However, without considering the same, the impugned Assessment Order has been passed by the second respondent on the said date.
9. Aggrieved by the impugned Assessment Order dated 12.04.2021, the petitioner has come forward with this writ petition on the ground that there is gross violation of the principles of natural justice.
10. Learned counsel for the petitioner would submit that the petitioner has also closed down the business in 2019 and that the petitioner is also not having any other source of income but has been mulct with a huge tax liability of 5,32,45,970/- for no fault of the petitioner.
11. It is submitted that the petitioner cannot be found fault with on account of failure of the supplier to file statutory returns as is contemplated under the respective GST enactments and the rules made thereunder. As far as the denial of Input Tax Credit on the ground that the supply was without the actual supply of goods is concerned, it is submitted that the petitioner was engaged in the business of Iron and Steel namely Thermo Mechanically Treated (TMT) Bar, a type of Steel bar used in construction projects, underground and underwater structures.
12. It is submitted that the supply of goods was directly from the place of storage godown/warehouse and the invoices were directly raised from the branch office of the head office. It is further submitted that the petitioner had also received consideration for the supplies effected and therefore, it cannot be said that no supply was effected.
13. That apart, it is submitted that the case was heard on 04.2021 and on the same date, the impugned Assessment Order has been passed consisting of 105 pages, which is technically impossible as the petitioner was fully heard on the said date.
14. On the other hand, the learned Additional Government Pleader for the respondents would submit that the petitioner is beneficiary of illegitimate Input Tax Credit from the bogus traders namely, viz., M/s. Sri Devi Enterprises, M/s. JJ Traders and M/s. Jaya Trading Company.
15. In this connection, the learned Additional Government Pleader for the respondents has placed reliance on the decision of this Court in Sahyadri Industries Limited Vs. State of Tamil Nadu, (2023) 115 GSTR 320.
16. Having considered the submissions made by the learned counsel for the petitioner and the learned Additional Government Pleader for the respondents, this Court is inclined to partly come to the rescue to the petitioner by quashing the impugned Assessment Order and by remitting the case back to the respondents to pass a fresh order with the following conditions:
17. The petitioner shall deposit 10% of the disputed tax of Rs.31,56,386/-, within a period of six weeks from the date of receipt of a copy of this order.
18. The petitioner shall file a detail reply to the impugned Assessment Order,
19. The impugned Assessment Order which stands quashed shall be treated as addendum to the Show Cause Notice dated 02.2021 issued to the petitioner, which preceded the impugned Assessment Order.
20. It is made clear that in case the petitioner fails to comply either of the abovesaid conditions, it shall be construed that the writ petition was dismissed with liberty to the respondents to proceed against the petitioner in the manner known to law.
21. This Writ Petition is disposed of with the above observations and directions. No costs. Connected Writ Miscellaneous Petition is closed.
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