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Case Law Details

Case Name : Tvl. Urayur Cotton Company Vs State Tax Officer (High Court Madras)
Appeal Number : Writ Petition No.14991 of 2024
Date of Judgement/Order : 18/06/2024
Related Assessment Year :
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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.

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