Case Law Details
KCP Infra Limited Vs State Tax Officer (Madras High Court)
The case of KCP Infra Limited vs. State Tax Officer involves three writ petitions challenging separate assessment orders dated February 29, 2024. The primary contention is the breach of principles of natural justice during the assessment proceedings under the Tamil Nadu Goods and Services Tax Act, 2017.
Background: In late January and early February 2023, an inspection was conducted under Section 67 of the Tamil Nadu Goods and Services Tax Act, 2017. During this inspection, a sworn statement was taken from Mr. V. Muthukumaran, the Accounts Executive of KCP Infra Limited. Fifteen discrepancies were identified, and the petitioner responded to each in a detailed reply dated February 15, 2023.
Key Discrepancies and Petitioner’s Response
- Input Tax Credit (ITC) Reversal: One major discrepancy (Discrepancy 11) involved the reversal of ITC due to non-payment within 180 days. The petitioner provided an ageing report for sundry creditors and claimed the right to ITC for delayed payments subject to interest.
- Turnover Inclusion: The petitioner argued that the turnover related to Andhra Pradesh was incorrectly included in the financial statements. They requested its exclusion in their response dated February 15, 2023, and submitted a trial balance showing the turnover from Tamil Nadu separately.
Proceedings and Orders: The 1st respondent issued an action on September 20, 2023, to which the petitioner replied on September 27, 2023, requesting an extension of time. Without granting this extension, a show cause notice was issued on November 10, 2023, followed by the impugned assessment orders on February 29, 2024.
Petitioner’s Arguments: The petitioner’s counsel argued that the reply to the inspection discrepancies was disregarded in the assessment process. They highlighted that the ageing report and the clarification about Andhra Pradesh’s turnover were ignored. The counsel proposed a settlement where the petitioner would remit Rs. 20,00,000 for the assessment year 2020-21 and Rs. 25,00,000 each for the years 2018-19 and 2019-20, excluding disputed ITC reversals and turnover differences between GSTR-9 and the profit and loss account.
Respondent’s Arguments: Mr. C.Harsha Raj, representing the respondents, contended that the petitioner was given ample opportunities to contest the tax demand, including at least three personal hearings. He maintained that merely submitting documents during the inspection did not fulfill the petitioner’s obligation to respond to the show cause notice and engage in the assessment proceedings.
Court’s Analysis and Judgment: The court observed that the petitioner had indeed responded to the 15 discrepancies during the inspection and in subsequent replies. The petitioner provided necessary documents, including the ageing report and trial balance, and explained the inclusion of Andhra Pradesh turnover based on audited financial statements.
However, the court noted that the petitioner’s response to the show cause notice and requests for a personal hearing were not adequately considered by the assessing officer. Given these facts, the court found that the principles of natural justice were breached, warranting interference with the impugned assessment orders.
Court’s Order: The Madras High Court quashed the impugned assessment orders, subject to the condition that the petitioner remits Rs. 20,00,000 for the assessment year 2020-21 and Rs. 25,00,000 each for the years 2018-19 and 2019-20 within two weeks of receiving the order. The petitioner is also allowed to submit a reply to the show cause notice within this period.
Upon receiving the payments and the reply, the assessing officer is directed to provide the petitioner with a reasonable opportunity, including a personal hearing, and issue fresh assessment orders within two months. The assessing officer must also adhere to the procedure prescribed in Circular No.12/2022 dated September 26, 2022, issued by the Commissioner of Commercial Taxes, Chennai.
Conclusion: The writ petitions were disposed of based on these terms, and no costs were imposed. Consequently, the connected miscellaneous petitions were closed. This judgment underscores the importance of adhering to principles of natural justice in tax assessment proceedings, ensuring that taxpayers have a fair opportunity to present their case and respond to discrepancies identified by tax authorities.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
In these writ petitions, three separate orders dated 29.02.2024 are assailed primarily on the ground of breach of principles of natural justice.
2. Pursuant to an inspection conducted in late January and early February 2023 under Section 67 of the Tamil Nadu Goods and Services Tax Act 2017, a sworn statement of Mr. V. Muthukumaran, Accounts Executive of the petitioner, was recorded on 30.01.2023. In course of inspection, 15 discrepancies were pointed out and the petitioner submitted a reply in relation to each discrepancy. Thereafter, the 1st respondent issued an action on 20.09.2023. The petitioner replied on 27.09.2023 and requested for an extension of time. Without providing such extension, the show cause notice was issued on 10.11.2023 and the impugned assessment order thereafter on 29.02.2024.
3. By inviting my attention to the reply dated 15.02.2023, learned counsel pointed out that each discrepancy was addressed therein. With specific reference to discrepancy ’11’, which pertains to Input Tax Credit (ITC) reversal for non payment for 180 days, learned counsel pointed out that the ageing report in respect of sundry creditors was provided by the petitioner. He further submits that the petitioner is entitled to claim ITC in respect of delayed payments subject to payment of interest. By thereafter referring to the intimation, show cause notice and the impugned assessment order, learned counsel points out that the reply of the petitioner at the inspection stage was completely disregarded. Apart from the ITC reversal due to non payment for 180 days, he pointed out that the turnover pertaining to Andhra Pradesh was also taken into consideration from the financial statement although the petitioner had requested that such turnover be excluded in the reply dated 15.02.2023. He also pointed out that the petitioner had provided a trial balance with regard to the turnover from Tamil Nadu.
4. On instructions, learned counsel for the petitioner submits that the petitioner agrees to remit a sum of Rs.20,00,000/- as regards the assessment order in respect of assessment year 2020-21 and a sum of Rs.25,00,000/- each in respect of orders relating to assessment years 2018-19 and 2019-20, which amounts were arrived at by reckoning the disputed tax demand after excluding the claims relating to ITC reversal and turnover difference between GSTR-9 and the profit and loss account.
5. Mr.C.Harsha Raj, learned Additional Government Pleader, accepts notice for the respondents. He submits that the petitioner was provided several opportunities to contest the tax demand, and that a personal hearing was offered on at least three occasions. He further submits that the submission of documents by the petitioner in course of inspection does not absolve the petitioner of the responsibility of replying to the show cause notice and participating in assessment proceedings.
6. In course of inspection, the petitioner submitted a reply in February 2023. On perusal thereof, it is clear that the petitioner responded to each of the ’15’ discrepancies noticed during inspection. In particular, the petitioner responded by providing an ageing report in respect of sundry creditors. The petitioner also stated that revenues from Andhra Pradesh had been included on the basis of the audited financial statement and that such inclusion is untenable. A trial balance was also submitted. The petitioner also responded to the intimation and show cause notice and sted for a personal hearing. In the above facts and circumstances, the impugned assessment orders call for interference albeit by putting the petitioner on terms.
7. For reasons set out above, the impugned assessment order is quashed subject to the condition that the petitioner remits a sum of Rs.20,00,000/- in W.P.No.11468 of 2024 and Rs.25,00,000/- each in W.P.Nos.11458 and 11464 of 2024 as agreed to towards the disputed tax demand within a maximum period of two 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 aforesaid period. Subject to the receipt thereof and upon being satisfied that the above mentioned sums of Rs.20,00,000/- and Rs.25,00,000/- each were received, the assessing officer is directed to provide a reasonable opportunity to the petitioner, including a personal hearing, and thereafter issue fresh assessment orders within a period of two months from the date of receipt of the petitioner’s reply. While undertaking the above exercise, the assessing officer shall take note of the procedure prescribed in Circular No.12/2022 dated September 26, 2022 issued by the Commissioner of Commercial Taxes, Chennai.
8. W.P.Nos.11458, 11464 and 11468 of 2024 are disposed of on the above terms. There shall be no order as to costs. Consequently, the connected miscellaneous petitions are closed.
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