Case Law Details
Tvl. Urayur Cotton Company Vs State Tax Officer (High Court Madras)
In a significant ruling, the Madras High Court set aside a GST demand order against Tvl. Urayur Cotton Company. The court found that the respondent, the State Tax Officer, failed to consider the petitioner’s reply regarding alleged circular trading and the reverse charge mechanism (RCM) liabilities.
On December 29, 2023, the State Tax Officer issued an original order imposing GST liabilities on Tvl. Urayur Cotton Company. The order was based on two primary allegations: circular trading and non-compliance with RCM provisions on professional charges. The petitioner received a show cause notice on September 25, 2023, detailing these defects.
Circular Trading Allegation: The first issue pertained to alleged circular trading and the subsequent unlawful availment of Input Tax Credit (ITC). The petitioner responded on October 24, 2023, asserting that there was no common management between Urayur Cotton Company and M/s Santhanalakshmi Mills India LLP (Santhanalakshmi Mills). They provided detailed information about the partners of Santhanalakshmi Mills and included copies of the rental agreement and registration certificates for both entities. Despite these submissions, the impugned order confirmed the tax proposal based solely on the fact that the two entities operated from a common business address, disregarding the evidence provided by the petitioner.
Reverse Charge Mechanism (RCM): The second issue involved the payment of professional charges under the reverse charge mechanism. The petitioner clarified that a portion of the charges pertained to the Tamil Nadu Value Added Tax (TNVAT) period, and another part was related to an IGST tax invoice. After appropriate deductions, the petitioner stated that the RCM liability was Rs. 4,18,000, which had already been discharged. This detailed explanation and the corresponding payments were ignored, and the total proposed tax value of Rs. 12,53,000 was confirmed without proper consideration.
Court Proceedings: During the court proceedings, the petitioner’s counsel highlighted these oversights. The court examined the reply dated October 24, 2023, and found that the petitioner’s detailed submissions and supporting documents were not considered in the impugned order. This failure to review the petitioner’s reply constituted a significant procedural lapse.
The learned Government Advocate representing the respondent argued that the petitioner’s reply had been considered and that no case for interference was made out. However, the court found substantial merit in the petitioner’s claims and determined that the order was issued without a fair evaluation of the provided evidence.
Judgment: The Madras High Court concluded that the impugned order could not be sustained due to the procedural deficiencies identified. Consequently, the court set aside the order and remanded the matter for reconsideration. The court directed the petitioner to submit any additional documents within two weeks of receiving the court’s order. The respondent was instructed to provide a reasonable opportunity for a personal hearing to the petitioner and issue a fresh order within three months of receiving the additional documents.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An order in original dated 29.12.2023 is challenged on the ground that the petitioner’s reply was not taken into consideration.
2. The petitioner received show cause notice dated 25.09.2023 in respect of two defects. The first defect relates to alleged circular trading by the petitioner and the consequential unlawful availment of Input Tax Credit (ITC). The second issue relates to payment of professional charges on reverse charge mechanism basis. The petitioner replied to the show cause notice on 24.10.2023. In such reply, the petitioner asserted that the management of the petitioner and M/s. Santhanalakshmi Mills India LLP (Santhanalakshmi Mills) is not common. The petitioner set out particulars of the partners of Santhanalakshmi Mills. The petitioner also stated that the common premise is specified as an additional place of business in the petitioner’s registration certificate. Copies of the rental agreement and registration certificate of Urayur Cotton Company and Santhanalakshmi Mills were enclosed. With regard to professional charges, the petitioner that a sum of Rs.2,50,000/- pertains to the TNVAT period and a sum .5,85,000/- related to IGST tax invoice. After deducting the said amounts, it was stated that the liability on reverse charge mechanism basis was Rs.4,18,000/- and that such liability was discharged. The impugned order was issued in these facts and circumstances.
3. Learned counsel for the petitioner invited my attention to the impugned order and pointed out that the tax proposal relating to defect no.1 was confirmed solely on the ground that the two entities use a common place of business without taking into account the reply of the petitioner or the documents annexed thereto. Similarly, as regards professional charges, he submits that the reply was totally disregarded and the total tax proposal value of Rs. 12,53,000/- was confirmed.
4. Mrs .K. Vasanthamala, learned Government Advocate, accepts notice for the respondent. She points out that the impugned order refers to the reply dated 29.12.2023. By further submitting that no case is made out for interference since the petitioner’s reply was taken into consideration, learned counsel submits that the petitioner has an alternative statutory remedy.
5. The petitioner’s reply dated 24.10.2023 is on record. As regards defect no.1, the petitioner asserts that the two entities are not under the same management. Particulars of partners of Santhanalakshmi Mills are set out. A copy of the rent agreement and registration certificate of both Urayur Cotton Company and Santhanalakshmi Mills appears to have been enclosed with the reply. On perusal of the impugned order, I find that the reply and documents annexed thereto were not taken into consideration. As regards professional charges, the petitioner had stated that reverse charge mechanism liability was limited to Rs.4,18,000/- and that this amount was paid. This reply was also completely disregarded in the impugned order. Consequently, the impugned order cannot be sustained and the matter requires reconsideration.
6. For reasons set out above, the impugned order dated 29.12.2023 is ide and the matter is remanded for reconsideration. The petitioner is permitted to submit additional documents, if any, within a period of two weeks 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 a fresh order within a period of three months from the date of receipt of additional documents from the petitioner.
7. The writ petition is disposed of on the above terms without any order as to costs. Consequently, connected miscellaneous petitions are closed
