Madras HC Grants Conditional Stay with Opportunity in GST Dispute Case

Vadim Infrastructure Private Limited Vs Commercial Tax Officer (Madras High Court)

In a recent legal development, the Madras High Court granted a conditional stay on an order dated 25th December 2021 that was subject to challenge in a writ petition. The petitioner, engaged in the business of providing engineering and construction services, faced audit observations following an assessment period from 2017 to 2018. Let’s delve into the key aspects of this case:

Audit Process and Notices:

• The petitioner received audit observations after the audit of their books of accounts.
• An intimation dated 8th September 2023 prompted a response from the petitioner on 25th September 2023.
• Subsequently, an audit report dated 28th September 2023 led to a show cause notice issued on 29th September 2023.
• The petitioner replied to the show cause notice on 29th November 2023, seeking additional time until 15th December 2023.
• The impugned order was issued on 25th December 2023.

Contentions and Challenges:

• The petitioner’s counsel highlighted that the audit observations primarily focused on turnover reconciliation and variations between the GSTR 3B return and Form 26AS.
• The petitioner argued that the turnover considered pertained to their business across India under multiple GST registrations.
• Duplication between the observations related to turnover reconciliation and the comparison of GSTR 3B returns and Form 26AS was also pointed out.

Government’s Response:

• The Additional Government Pleader emphasized that the petitioner had multiple opportunities to contest the tax demand.
• However, the petitioner did not reply to the show cause notice or provide necessary documents regarding turnover from Tamil Nadu.
• The government maintained that the petitioner had statutory remedies and had not established a case for interference under Article 226 of the Constitution of India.

Prima Facie Assessment:

• While the petitioner failed to provide documents related to turnover from Tamil Nadu, it appears that the tax demand was confirmed based on the total turnover from the petitioner’s profit and loss account.
• There seems to be a potential duplication between the head related to turnover and the head concerning differences between the GSTR 3B return and Form 26AS.

Conditional Stay and Remittance:

• The court set aside the impugned order, granting the petitioner another opportunity.
• The petitioner agreed to remit 10% of the disputed tax demand for all heads except turnover reconciliation and differences between the GSTR 3B return and Form 26AS.
• For these two specific heads, the petitioner is willing to remit 5% of the disputed tax demand.

Next Steps:

• The petitioner can file a reply along with supporting documents within three weeks.
• The second respondent will provide a reasonable opportunity, including a personal hearing, and issue a fresh order within two months from receiving the petitioner’s reply.

Conclusion:

• The conditional stay strikes a balance between tax demands and the petitioner’s right to contest.
• The case highlights the importance of thorough documentation and the need for cautious decision-making in tax matters.

This judgment in W.P. No. 8745 of 2024 underscores the complexities of tax disputes and the significance of due process. As the remanded proceedings unfold, both parties must navigate the legal landscape with care.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

An order dated 25.12.2021 is subject to challenge in the writ petition.

2. The petitioner is engaged in the business of providing engineering and construction services. Pursuant to the audit of the Books of accounts of the petitioner for assessment period 2017-2018, the petitioner received audit observations. The petitioner also received an intimation dated 08.09.2023. Such intimation was replied to on 25.09.2023. After issuance of the audit report dated 28.09.2023, a show cause notice was issued on 29.09.2023. Such show cause notice was replied to on 29.11.2023 seeking further time up to 15.12.2023. The impugned order was issued thereafter on 25.12.2023.

3. Learned counsel for the petitioner referred to the notice for conducting audit and the audit observations dated 22.08.2023. He pointed out that the principal observations therein pertain to turnover reconciliation and variation between the GSTR 3B return and Form 26AS. He further submitted that the petitioner responded thereto on 25.09.2023 and pointed out that turnover pertains to the petitioner’s business across India under multiple GST registrations. A similar reply was also issued with regard to the comparison between the GSTR 3B return and Form 26AS. Learned counsel pointed out that the petitioner also indicated that there was duplication between the observation relating to turnover reconciliation and comparison of GSTR 3B returns and Form 26AS. By referring to the additional typed set, learned counsel pointed out that the amounts demanded towards turnover reconciliation and differences between the GSTR 3B return and Form 26AS constitutes a major portion of the tax demand. Therefore, he submits that the petitioner should be provided an opportunity to effectively contest the tax demand.

4. Mr. C. Harsha Raj, learned Additional Government Pleader, accepts notice on behalf of the respondents. He points out that the petitioner was provided multiple opportunities to contest the tax demand. After referring to the audit observations and audit report, he further submitted that the petitioner did not reply to the show cause notice and provide necessary documents with regard to the turnover from Tamil Nadu. Learned Additional Government Pleader also submitted that the petitioner has a statutory remedy and has not made out a case for interference under Article 226 of the Constitution of India.

5. The focus of the petitioner’s challenge is on the confirmation of the tax demand relating to turnover and differences between the GSTR 3B return of the petitioner and Form 26AS. With regard to turnover, the contention of the petitioner is that such turnover is inclusive of turnover from all States. Apart from the GSTR 9 return, the petitioner relied upon the reconciliation statement filed along with the reply dated 25.09.2023. On the differences between the GSTR 3B return and Form 26AS, apart from pointing out that the amounts mentioned in the Form 26AS also relate to transactions across India, it was contended that there is duplication between this issue and the issue relating to turnover.

6. In the impugned order, the respondents recorded that the petitioner did not place on record documents pertaining to the turnover from Tamil Nadu. This conclusion cannot be completely disregarded in as much as the petitioner should have placed on record the trial-balance relating to Tamil Nadu and supported it with a certificate from a Chartered Accountant. However, it appears prima facie that the tax demand was confirmed against the petitioner by taking into ac-count the total turnover from the petitioner’s profit and loss account. It also appears prima facie that there could be duplication as between the head relating to turnover and the head relating to the differences between the GSTR 3B return and Form 26AS. In these circumstances, it is just and appropriate that the petitioner be provided another opportunity, albeit by putting the petitioner on terms.

7. Learned counsel for the petitioner submits that the petitioner is willing to remit 10% of the disputed tax demand relating to all heads of claim other than turnover reconciliation and differences between the GSTR 3B return and Form 26AS. As regards these two heads, he submits that the petitioner is willing to remit 5% of the disputed tax demand.

8. For reasons set out above, the impugned order is set aside on the following terms:

(i) As agreed to by the petitioner, the respondents are permitted to appropriate 10% of the disputed tax demand relating to all heads of demand, other than turnover reconciliation and difference between the GSTR 3B return and Form 26AS, from the bank account of the petitioner, which was attached. As regards the tax demand relating to turnover reconciliation and difference between GSTR 3B returns and Form 26AS, the respondents are permitted to appropriate 5% of the tax demand from the aforesaid bank account.

(ii) Upon realisation of the above amounts, which shall be retained subject to the outcome of the remanded proceedings, the attachment of the bank account shall stand raised.

9. The petitioner is also permitted to file a reply along with all supporting documents within three weeks. Upon receipt of the petitioner’s reply, the second respondent is directed to provide a reasonable opportunity to the petitioner, including a personal hearing, and thereafter issue a fresh order within two months from the date of receipt of the petitioner’s reply.

10. W. P.No.8745 of 2024 is disposed of on the above terms without any order as to costs. Consequently, connected miscellaneous petitions are also closed.