Saravana Selvarathinam Retail (P.) Ltd. Vs Commissioner of Central Taxes (CGST) (Madras High Court)
Madras High Court recently addressed a petition filed by Saravana Selvarathinam Retail (P.) Ltd., seeking the refund of approximately Rs. 15.49 crores collected by tax authorities in March 2022. The collection occurred amidst an investigation into alleged tax evasion, during which the petitioner made substantial payments, including an initial Rs. 11 crores debited from their Electronic Credit Register, reportedly followed by threats of arrest and subsequent further payments after the petitioner’s arrest and remand.
The petitioner’s primary contention before the court was jurisdictional. They argued that although the arrest was carried out by State GST authorities, it was done under the authorization of the Commissioner of Central Taxes (CGST), the first respondent in the case. The petitioner asserted that the Central authority (first respondent) lacked the legal jurisdiction to conduct the investigation or issue a Show Cause Notice (SCN) under the circumstances, thereby questioning the validity of holding the collected amount. The Central authority, represented by the Senior Standing Counsel, countered that there was significant tax evasion involved, potentially making the petitioner liable for penalties under Section 132 of the CGST Act, 2017.
The High Court observed that the first respondent (Central authority) could not indefinitely retain the substantial sum collected from the petitioner without following due process, which necessitates the issuance of a Show Cause Notice to legally appropriate the funds. The court also noted that the petitioner had initially only implicated the Central authority, despite the State authority executing the arrest. Acknowledging its own prior considerations regarding the jurisdictional boundaries between Central and State GST authorities for investigations and notices under respective enactments, the court decided on a procedural course correction.
To ensure proper procedure and address the jurisdictional ambiguity raised, the court suo motu impleaded the relevant State tax authority, the Assistant Commissioner (CT), Nandanam Circle, Chennai, as the second respondent. The court directed the first respondent (Central authority) to cooperate with this newly added second respondent (State authority). The primary directive was issued to the State authority (second respondent) to issue a formal Show Cause Notice to the petitioner, potentially under Section 73 or 74 of the relevant GST enactments, detailing the grounds for demanding the tax allegedly evaded. This SCN must be issued within three months from the receipt of the court’s order.
Following the issuance of the SCN, the petitioner is required to file a detailed reply. The court expects the adjudicating authority (presumably the State authority issuing the SCN) to pass final orders on the matter within three months after receiving the petitioner’s reply, deciding the case on its merits and in accordance with the law, subject to statutory limitations. The court explicitly preserved the petitioner’s right to raise all available legal defences during this process. Importantly, the court directed that if the final adjudication results in the demand being dropped, the entire amount of Rs. 15.49 crores collected must be refunded to the petitioner. The writ petition was disposed of with these directions.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
