Case Law Details
Teena Jacob Vs State Tax Officer (Kerala High Court)
In the case of Teena Jacob vs. State Tax Officer before the Kerala High Court, the petitioner, a registered dealer under the CGST/KSGST Rules, 2017, had opted for the composition scheme during the tax period 2017-18. However, the proper officer found that the petitioner was engaged in works contract activities, which made them ineligible for the composition scheme. Consequently, the officer issued a show cause notice rejecting the composition scheme application and also issued a notice under Section 61(3) to determine the tax and other dues under Section 73(1). Despite being granted time to respond, the petitioner did not reply to the notice.
The petitioner’s counsel argued that the procedure followed by the tax officer was flawed. They contended that the officer should have first determined the eligibility of the petitioner for the composition scheme before issuing a notice under Section 73(1) to determine tax liability. However, in this case, the notice under Section 73(1) was issued before any order rejecting the composition scheme application was passed.
The court acknowledged that there had been a violation of the statutory scheme by the tax officer. According to the court, the officer should have first determined the petitioner’s eligibility for the composition scheme before proceeding to determine tax liability under Section 73 of the Act. Issuing a notice under Section 73(1) without first rejecting the composition scheme application was deemed a complete violation of the Act’s scheme.
As a result, the court set aside the impugned order and remitted the matter back to the tax officer. The officer was directed to first determine the petitioner’s eligibility for the composition scheme. The petitioner was given ten days to file a reply to the show cause notice for rejection of the composition scheme application. The officer was instructed to adjudicate the show cause notice after affording an opportunity for the petitioner to be heard. Only if the application for the composition scheme was rejected, should a notice under Section 73(1) be issued to determine tax liability.
The petitioner was directed to file any reply by a specified date and appear before the tax officer on the same day to make submissions regarding the composition scheme application. If the tax officer was not satisfied with the petitioner’s reply, a fresh notice was to be issued to determine tax liability, followed by a fresh order in accordance with the law.
In conclusion, the writ petition was disposed of with these directions to ensure compliance with the statutory scheme and fairness in the proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
1. The present writ petition is filed impugning Ext.P9 order dated 18.12.2023 passed by the Assistant Commissioner, Taxpayer Services Division, Ernakulam North, 2nd respondent in the writ petition.
2. The petitioner is the registered dealer under the provisions of CGST/KSGST Rules, 2017. The petitioner had opted for composition scheme during the tax period 2017-18.
3. As per Section 10(2)(a) of the CGST/SGST Act, 2017 : the registered person is eligible under the composition scheme provided he is not engaged in supply of service and he is not engaged in works contract.
4. The proper officer having found that the petitioner was engaged in works contract and therefore, he was not eligible for composition scheme issued show cause notice dated 29.09.2023 rejecting the application of the composition scheme as well as notice under Section 61(3) to determine the tax and other dues under Section 73(1). In the show cause notice, the petitioner was granted time to respond but the petitioner did not respond to the notice. Accordingly, Ext.P7 notice for rejection of the compounding application dated 30.09.2023 in Ext.P7 has been issued.
5. The learned counsel for the petitioner submits that without determining the eligibility of the petitioner for compounding show cause notice for determining liability under Section 73 has been issued to the petitioner. It is submitted that at the first instance, the petitioner’s application for compounding should have been considered, and after passing an order rejecting the application, the notice for hearing the petitioner for determining the tax liability under Section 61(3) of the Act should have been issued. No such procedure has been followed in the present case.
6. Jasmin M.M, the learned Government Pleader does not dispute the fact that the show cause notice dated 29.09.2023 is prior to the date of notice for rejection of compounding application of the petitioner which is dated 30.09.2023. No order for rejecting the compounding application was issued before the show cause notice dated 29.09.2023 was issued to the petitioner.
7. Considering the said facts, I am of the view that there has been violation of the statutory scheme in the present case by the second respondent. He ought to have first determined the eligibility of the petitioner for the compounding scheme and the order should have been passed for proceeding further in determining Tax liability under Section 73 of the Act.
8. Without there being an order rejecting the application of the petitioner, notice under Section 73 has been issued. This is a complete violation of the Scheme of the Act and therefore, I am of the considered opinion that the impugned order is unsustainable and it is hereby set aside. The matter is remitted back to the second respondent, first to determine the eligibility of the petitioner to the compounding scheme. The petitioner is directed to file reply to the show cause notice for rejection of the application under the composition scheme within a period of ten days from today. The show cause notice shall be adjudicated by the second respondent, after affording an opportunity of being heard to the petitioner. Only if the order is passed rejecting the compounding application of the petitioner, then notice under Section 73(1) should be issued to the petitioner.
The petitioner is directed to file any reply on or before 05.04.2024 and the petitioner shall appear on the same day before the second respondent to make his submission on compounding application. If the second respondent is not satisfied with the reply of the petitioner, he shall issue fresh notice to the petitioner to determine tax liability and then pass fresh order in accordance with law.
This writ petition is disposed of.
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