Madras HC Upholds GST Demand as Seigniorage Fee Indicated Suppressed Turnover

KPR Enterprises Vs State Tax Officer (Madras High Court)

The Madras High Court dismissed three writ petitions filed by KPR Enterprises challenging orders dated 15.07.2024 for the tax periods 2018-2019, 2019-2020, and 2020-2021, while granting liberty to file statutory appeals before the appellate authority.

The impugned orders were preceded by Intimation Notices in Form GST DRC-01A dated 20.03.2024, to which the petitioner replied on 23.03.2024, followed by Show Cause Notices in Form GST DRC-01 dated 02.04.2024, to which replies were submitted on 25.06.2024. The final orders were passed in Form GST DRC-07 on 15.07.2024.

The petitioner contended that it was unable to continue its business and had entered into an arrangement with one B.T. Nagaraj Reddy, who extracted rock boulders from the site. According to the petitioner, the price was fixed based on provisional advice or consultations and GST was duly discharged. It was argued that the inspection conducted in March 2024 did not reveal any incriminating material, yet DRC-01A intimations and DRC-01 notices were issued.

The petitioner further submitted that the impugned orders did not contain findings regarding fraud, wilful misstatement, or suppression of facts. It was also argued that only rock boulders, which were not capable of being measured in the manner alleged, had been sold and that the contractor who extracted and sold the boulders had discharged the applicable GST liability. On that basis, the petitioner contended that there was no loss to the revenue.

Another ground raised was that the impugned orders had been passed without granting an opportunity of personal hearing, rendering the orders liable to be set aside.

The State Tax Officer opposed the writ petitions, submitting that the impugned orders were detailed and did not warrant interference.

The Court noted that the tax demand had been confirmed based on the seigniorage fee paid by the petitioner. The show cause notices quantified the extracted boulders in cubic metres and tonnes based on the seigniorage fee paid. The demand covered three tax periods:

• 2018-2019:Seigniorage fee of Rs. 7,08,000, quantity of 12,000 cubic metres, resulting in a tax liability of Rs. 10,17,750.
• 2019-2020:Seigniorage fee of Rs. 24,78,000, quantity of 42,000 cubic metres, resulting in a tax liability of Rs. 14,09,568.
• 2020-2021:Seigniorage fee of Rs. 28,32,000, quantity of 48,000 cubic metres, resulting in a tax liability of Rs. 16,38,650.

The Court also noted that the petitioner had declared the value of outward supplies in GSTR-1 at Rs. 34,09,433.

The Court considered the submissions and referred to earlier decisions delivered in a batch of matters dealing with invocation of the extended period of limitation under Section 74 of the GST enactments. It observed that the inspection had been conducted before issuance of the information dated 19.03.2024.

With respect to tax payable on the seigniorage fee, the Court recorded that the issue was pending before the Supreme Court and had been kept in abeyance. However, regarding the alleged suppression of the value of outward supplies, the respondent had determined the tax liability on the basis that the petitioner had under-reported the value of boulders disclosed in GSTR-1.

The Court held that the material on record, including the tabulated figures, disclosed suppression of turnover sufficient to justify proceedings under Section 74 of the GST enactments. It observed that the respondent had estimated escaped turnover using the National Standard Method to determine the value of supplies that had allegedly been under-declared in the GST returns. The Court further found it highly improbable that the petitioner would have paid substantial seigniorage fees if only a lower quantity of minerals had been extracted and supplied during the relevant periods.

Based on this, the Court held that the respondent had arrived at the value of supplies and confirmed the tax demand. It also observed that the show cause notices clearly alleged suppression of the value of outward supplies in GSTR-1 and contained the calculations supporting that allegation. Therefore, sufficient foundational material existed for initiating proceedings under Section 74.

The Court held that payment of substantial seigniorage fees coupled with under-declaration of outward supplies established a prima facie basis for invoking the extended period of limitation under Section 74. It noted that both Sections 73 and 74 use the expression “Where it appears,” and concluded that the challenge to invocation of the extended limitation period could not be accepted.

The Court also held that it could not identify any procedural irregularity committed by the respondent while passing the impugned orders that would justify interference under writ jurisdiction.

Accordingly, the writ petitions were dismissed. However, the Court granted the petitioner liberty to file statutory appeals before the appellate authority within 30 days from receipt of the order in compliance with Section 74. It directed that if such appeals were filed within the prescribed period, the appellate authority should decide them on merits without rejecting them on the ground of limitation and should provide the petitioner with an opportunity of hearing before passing orders.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

By this Common Order, all these Writ Petitions are being disposed of.

2. In these Writ Petitions, the Petitioner has challenged the respective impugned Orders all dated 15.07.2024 passed for the Tax Period 2018-2019, 2019-2020 and 2020-2021, as detailed below:

3. The impugned Orders have preceded Intimation Notices in GST DRC-01A followed by the Show Cause Notices in GST DRC-01 to which the Petitioner has given reply.

4. The case of the Petitioner appears to be that the Petitioner was unable to carry on the business and therefore entered into a contract with one B.T.Nagaraj Reddy, who extracted the boulders from the site and the price was fixed based on the provisional advisor consultations / instructions and GST was duly discharged.

5. It is submitted that despite no incriminating being unearthed in the inspection during March 2024, Intimation Notices in DRC-01A were issued to the petitioner to which the Petitioner had replied.

6. It is submitted that the Petitioner was also issued with Show Cause Notices in GST DRC-01 to which also, the Petitioner has replied. It is further submitted that the finding arrived in the impugned Orders regarding “fraud”, “willful-misstatement” and “suppression of fact” is absent.

7. It is further submitted that the Petitioner sold only rock boulders which are not capable of being used or even followed by the measurements and that the said Contractor namely B.T.Nagaraj Reddy had discharged the tax liability, who extracted the boulders, and sold them from the Petitioner’s site. Hence, there is no loss to the exchequers.

8. That apart, it is submitted that the impugned Orders have been passed without the Petitioner being given an opportunity of being heard and therefore the impugned Orders are liable to be quashed and the Writ Petitions be allowed.

9. Learned Government Advocate for the Respondent on the other hand would submit that the impugned Orders are detailed Orders and does not merit any interference and therefore these Writ Petitions are liable to be dismissed with exemplary costs.

10. By the impugned order, the demand has been confirmed based on the seigniorage fee paid by the petitioner. In the show cause notice, the department has arrived at the quantity of boulders cleared by the petitioner in Cubic Meters and Tons, which are extracted below:

The petitioner has, however, declared the value of the supply in GSTR-1 as 34,09,433/-.

11. I have considered the arguments advanced by the learned counsel for the petitioner and the learned Government Advocate for the respondent. I have also perused the records and the provisions of the respective GST enactments and the Rules made thereunder.

12. This case was heard along with the batch, and decisions were pronounced in W. P.Nos.2142 of 2026 [Turbo Energy Private Limited], W.P.Nos.35967 of 2024 [Fastenex Private Limited], W.P.Nos.14487 of 2025 [Ispahani Estates] etc., wherein a detailed order has been passed insofar as the invocation of extended period of limitation under Section 74 of the respective GST Enactments.

13. The arguments in this case were advanced along with the arguments heard in the 53 cases which were disposed by two separate orders, whereby orders were pronounced in the aforesaid cases.

14. A reading of the impugned order reveals that the inspection was held prior to the issuance of the above information on 19.03.2024.

15. As far as the tax payable on the seigniorage fee is concerned, the matter is pending before the Hon’ble Supreme Court and the same has been kept in abeyance. As far as the difference in the value of supply is concerned, the respondent has arrived at the tax based on the inference that there was a suppression of the value of supply of boulders in GSTR-1, warranting the invocation of the extended period of limitation under Section 74 of the respective GST enactments.

16. The facts on record and the above tabulation would reveal that the petitioner has suppressed turn over, warranting the initiation of proceedings under Section 74 of the respective GST enactments.

17. It is evident that the respondent has estimated the escaped turnover based on the National Standard Method in order to arrive at the value of supply short declared by the petitioner in the Returns to invoke the machinery under Section 74 of the respective GST enactments. It is also highly improbable for the petitioner to have paid the higher amounts towards the seigniorage fee as compared to lesser quantity of minerals extracted and supplied during the respective tax periods.

18. It is in this background, the value was arrived and the demand has been confirmed.

19. In the show cause notice also, it has been clearly stated that the petitioner has suppressed the value of the output supply of goods in GSTR-1, based on the calculation given therein. Thus, there were sufficient materials / foundational facts available for the issuance of a notice under Section 74 to demand tax for the above tax period.

20. Since the petitioner has paid a huge amount for the seigniorage fee, but has under-declared the value of the outward supply, it is evident that a prima facie case was made out for the invocation of the extended period of limitation under Section 74 of the respective GST enactments, as both under Section 73 and 74 of the respective GST enactments, the expression used is “Where it appears”.

21. As such, the challenge to the impugned order on the ground that there is no basis for invoking the extended period of limitation under Section 74 of the respective GST enactments, cannot be countenanced.

22. As such, I am unable to discern any any procedural irregularity committed by the respondent while passing the respective impugned orders so as to interfere with the present writ petitions

23. Therefore, these writ petitions are liable to be dismissed, and are accordingly, dismissed. However, liberty is given to the petitioner to file a statutory appeal before the appellate authority, if so desired, in compliance with the requirements under Section 74, within a period of 30 days form the date of receipt of a copy of this order.

24. If such an appeal is filed within the specified time, the appellate authority shall take up the appeal and dispose the same on merits without reference to limitation.

25. It is needless to state that, before passing any orders, the petitioner shall be heard. No costs. Connected miscellaneous petitions are closed.