GST order unsustainable if not provide reasons for its findings: Madras HC

Elite Natural Private Limited Vs State Tax Officer (Madras High Court)

The case of Elite Natural Private Limited Vs State Tax Officer in the Madras High Court concerns three writ petitions against original assessment orders for the fiscal years 2019-2020, 2020-2021, and 2021-2022. These orders were challenged following the issuance of show cause notices on December 9, 2023, to which the petitioner responded on January 4, 2024, addressing four primary tax proposals. Despite a personal hearing, the petitioner felt aggrieved by the final orders issued by the respondent.

Petitioner’s Arguments

The petitioner, represented by their learned counsel, challenged the tax proposals under four specific categories:

1. Excess Input Tax Credit (ITC) Availment: The petitioner argued that no excess ITC was claimed and highlighted that Table 8A of their annual return showed a higher available ITC balance than what was availed. They insisted that there was no discrepancy or wrongful claim in this regard.
2. Non-Reversal of ITC for Credit Notes: The petitioner explained that credit notes were accounted for correctly, with only the net ITC being claimed. This clarification was provided to counter the allegation of non-reversal of ITC upon receipt of credit notes.
3. Selling and Distribution Expenses: This head formed the largest portion of the total tax demand. The petitioner contended that these expenses were genuine business expenses and should not be subjected to GST as per the applicable GST enactments. Detailed explanations were provided for each line item under this category, arguing that these expenses were not taxable.
4. GST on Reverse Charge Mechanism: The petitioner asserted that the items in question were under the forward charge mechanism, not the reverse charge mechanism, and hence should not attract GST under the latter.

Despite these explanations, the respondent dismissed the petitioner’s reply as unsatisfactory without detailing why the supporting documents were deemed inadequate or why the explanations were unconvincing.

Respondent’s Position

Mr. V. Prashanth Kiran, representing the respondent, noted that the impugned orders did not reference the detailed reply from the petitioner dated January 4, 2024. The orders recorded that no supporting documents were received from the petitioner, which was one of the bases for rejecting their objections. This lack of acknowledgment or engagement with the petitioner’s detailed reply was a key contention.

Court’s Analysis and Decision

Upon reviewing the case, the court identified several issues:

• Non-engagement with Petitioner’s Submissions: The court observed a significant failure on the respondent’s part to address the petitioner’s detailed submissions and reasons provided in their reply. The impugned orders merely stated that the reply was unsatisfactory without elaborating on the rationale behind this conclusion.
• Lack of Detailed Reasons in Orders: The court emphasized that for an administrative order to be valid, it must provide reasons for its findings, especially when rejecting a taxpayer’s detailed objections. The orders under review did not meet this standard, thus rendering them unsustainable.

Given these shortcomings, the court set aside the impugned orders and remanded the matters for reconsideration. The court directed that:

• The petitioner is allowed to submit additional documents within 15 days of receiving the court’s order.
• The respondent must provide a reasonable opportunity for the petitioner, including a personal hearing.
• Fresh, reasoned orders must be issued within three months from the receipt of the court’s order, ensuring that the petitioner’s submissions are duly considered and addressed.

Conclusion

The court’s decision to remand the matters for fresh consideration underscores the importance of transparency and detailed reasoning in administrative orders. It ensures that taxpayers’ objections are duly considered and addressed with specific findings, thereby upholding principles of natural justice. The case highlights the necessity for tax authorities to engage substantively with taxpayer submissions and provide clear, reasoned decisions, especially in complex GST-related matters.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

These three writ petitions are directed against orders in original pertaining to assessment periods 2019-2020, 2020-2021 and 2021-2022, respectively. Upon receipt of show cause notices dated 09.12.2023, the petitioner asserts that it replied on 04.01.2024 and dealt with the four tax proposals. The orders impugned herein were issued after offering personal hearing to the petitioner.

2. Learned counsel for the petitioner submits that tax proposals were 2/8 made under four heads. By referring to the reply dated 04.01.2024, learned counsel submits that the petitioner explained that excess Input Tax Credit (ITC) was not availed of and that table 8A of the annual return of the petitioner discloses the availability of a greater ITC balance than that availed of. As regards the alleged non reversal of ITC with regard to receipt of credit notes, he submits that the petitioner pointed out that the credit notes were taken into consideration and that only net ITC was availed of. As regards the tax proposal relating to selling and distribution expenses, which constitutes the pre-dominant portion of the total tax demand, he submits that it was pointed out that these were expenses incurred by the petitioner and do not qualify as being taxable under applicable GST enactments. He also pointed out that each line item pertaining to selling and distribution expenses was explained. With regard to the last head relating to imposition of GST on reverse charge mechanism basis, he pointed out that the petitioner informed the assessing officer that these items fall within the forward charge mechanism and not the reverse charge mechanism. By inviting my attention to the impugned order and the findings on each of these aspects, learned counsel submitted that the respondent referred to the reply and concluded that such reply is not satisfactory and is not being accepted. Hence learned counsel submits that the impugned orders warrant reconsideration.

3. Mr. V. Prashanth Kiran, learned Government Advocate, accepts notice for the respondent. By referring to the orders impugned herein, he points out that there is no reference therein to the reply dated 04.01.2024. He further submits that the respondent recorded in the impugned order that supporting documents were not received from the petitioner.

4. On perusal of the reply dated 04.01.2024, it is noticeable that the petitioner has stated as under with regard to the alleged mismatch between GSTR 2A on the one hand, and GSTR 9 and 3B on the other:

“3.It is submitted that as per the above reconciliation, there is no excess availment of tax but higher ITC balance available in 8A of GSTR 9.”

The finding recorded in the impugned orders with regard to the above issues as under:

“The tax payer has submitted reply letter. The reply was not satisfied. They have not submitted valid supporting documents for the above defect. The objection filed by the taxable person has been examined carefully as per provision of the TNGST Act-2017. The contention raised by the taxable person has not acceptable.”

With regard to the selling and distribution expenses, in reply dated 04.01.2024, the petitioner stated as under:

“11. The notice fails to inform under which provision of GST Act the sales promotion expenses are taxable in our hands, especially considering the fact that it is an “expense” and not an “income.” ”

The finding recorded in this regard is as under:

“The tax payer has submitted reply letter. The reply was not satisfied. They have not submitted valid supporting documents for the above defect. The objection filed by the taxable person has been examined carefully as per provision of the TNGST Act-2017. The contention raised by the taxable person has not acceptable.”

5. The above illustrations from the reply of the petitioner and the impugned order clearly indicate the complete failure of the respondent to engage with the submissions of the petitioner and record reasons in rejecting such submissions. Since findings were recorded without indicating any reasons for such findings, these orders cannot be sustained.

6. Hence, orders impugned in these writ petitions are set aside and these matters are remanded for reconsideration. The petitioner is permitted to submit additional documents, if any, within 15 days from the date of receipt of a copy of this order. Upon receipt thereof, the respondent is directed to provide a reasonable opportunity to the petitioner, including a personal hearing, and thereafter issue fresh reasoned orders within a period of three months from the date of receipt of a copy of this order.

7. These writ petitions are disposed of on the above terms without any order as to costs. Consequently, connected miscellaneous petitions are closed.