Case Law Details
Sri Velavan Traders Vs State Tax Officer (Madras High Court)
The Madras High Court recently ruled on a crucial aspect of GST compliance in the case of Sri Velavan Traders versus the State Tax Officer. The judgment addressed the obligation of GST-registered individuals to respond to show cause notices (SCNs) even after scrutiny proceedings have been dropped.
The case arose from an order dated 10.04.2024, which was challenged primarily due to the dropping of scrutiny proceedings earlier on 12.09.2023. Despite the cessation of scrutiny, the petitioner received a show cause notice (SCN) and subsequent reminders urging participation in adjudication proceedings under Section 73 of GST laws. The petitioner argued that since scrutiny was dropped, no further action could be taken, and she was unaware of subsequent proceedings leading to the impugned order.
The High Court examined the legality of initiating Section 73 proceedings after the conclusion of scrutiny. It was contended that the impugned order did not consider a reconciliation statement crucial to the assessment, which detailed discrepancies in input tax credit (ITC) claims. The petitioner insisted on reconsideration, offering to remit a portion of the disputed tax demand.
On behalf of the respondent, it was argued that dropping scrutiny does not preclude the initiation of adjudication proceedings under GST laws. The court noted that despite dropping scrutiny, the petitioner, as a GST-registered entity, had a statutory obligation to respond to the SCN and participate in adjudication proceedings. The failure to do so was not justified merely on the grounds of dropped scrutiny.
Ultimately, the High Court set aside the impugned order with conditions. It directed the petitioner to remit a specified percentage of the disputed tax demand within a stipulated period and allowed for a fresh adjudication process upon receipt of the petitioner’s reply to the SCN.
In conclusion, the case of Sri Velavan Traders highlights the critical importance for GST-registered individuals to diligently respond to SCNs and participate in adjudication proceedings, irrespective of the status of earlier scrutiny proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An order in original dated 10.04.2024 is assailed on multiple grounds, including the dropping of scrutiny proceedings by order dated 12.09.2023. Upon scrutiny of the petitioner’s returns, notice in Form ASMT-10 was issued on 07.08.2023. Upon considering the petitioner’s reply dated 07.09.2023, such proceedings were dropped by order dated 12.09.2023. Consequently, the petitioner asserts that she was under the impression that no further action would be taken with regard to the alleged discrepancies in returns. She further submits she was unaware of proceedings culminating in the impugned order and therefore could not participate in such proceedings.
2. Learned counsel for the petitioner referred to the notice in Form ASMT-10 and the reply thereto. Upon such proceedings being dropped, learned counsel submits that the respondent did not have the jurisdiction to initiate proceedings under Section 73 in respect of discrepancies in returns. He also submits that the impugned order was issued without taking into consideration the reconciliation statement in Form 9C, which was available for examination by the respondent. Out of the total confirmed tax proposal, he submits that about Rs.80 lakhs relates to the alleged excess input tax credit (ITC) claimed on account of non-reconciliation.
3. Mr. V. Prashanth Kiran, learned Government Advocate, accepts notice for the respondent. He submits that the petitioner was provided multiple opportunities to participate in proceedings by issuing show cause notice dated 28.12.2023 and three reminders dated 31.01.2024, 14.02.2024 and 28.02.2024. He further submits that the dropping of scrutiny proceedings does not preclude the assessing officer from initiating adjudication proceedings under Section 73 of applicable GST enactments.
4. The impugned order was issued after issuing show cause notice dated 28.12.2023. The admitted position is that the petitioner did not respond thereto or participate in the hearing. As a registered person under applicable GST enactments, the petitioner cannot be absolved of the responsibility of responding to the show cause notice merely on the ground that scrutiny proceedings were dropped. Learned counsel for the petitioner, however, contended that the reconciliation statement was not taken into consideration while confirming the tax proposal relating to the ITC claim on account of non-reconciliation of information. Since such tax proposal was confirmed without hearing the petitioner, reconsideration is required by putting the petitioner on terms. On instructions, learned counsel for the petitioner submits that the petitioner agrees to remit 5% of the tax demand as regards the alleged non-reconciliation in respect of ITC and 10% of the tax demand relating to other issues dealt with in the impugned order.
5. Therefore, the impugned order dated 10.04.2024 is set aside on condition that the petitioner remits 5% of the disputed tax demand as regards the proposal relating to excess ITC claimed on account of non-reconciliation of information and 10% of the disputed tax demand with regard to other heads of tax demand within three weeks from the date of receipt of a copy of this order. The petitioner is also permitted to submit a reply to the show cause notice within the said period. Upon receipt of the petitioner’s reply and on being satisfied that the above remittances were 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.
6. W. P. No. 16412 of 2024 is disposed of on the above terms. Consequently, W.M.P.Nos.17970 & 17971 of 2024 are closed. No costs.
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