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Trident Home Furnishings Private Limited Vs Assistant Commissioner (ST) (Madras High Court)
The Madras High Court recently quashed an assessment order and subsequent bank attachment concerning Trident Home Furnishings Private Limited in its dispute with the Assistant Commissioner (ST). The case revolved around discrepancies in the petitioner’s tax returns and raised important questions about adequate communication of show cause notices (SCNs) via the Goods and Services Tax (GST) portal.
Background of the Case
The petitioner, Trident Home Furnishings Private Limited, faced an assessment order concerning alleged discrepancies in their GST returns for the financial year 2018-2019. A show cause notice (SCN) was issued on 22 September 2023, outlining concerns over differences between the petitioner’s GSTR-3B returns (summary of outward supply) and auto-populated GSTR-2A data (details of inward supplies).
The petitioner argued that they were unaware of the SCN and assessment proceedings until their bank account was attached, as the SCN and the impugned order were uploaded only to the “View Additional Notices & Orders” tab of the GST portal. The petitioner contended that they did not receive direct communication or notification, which prevented them from responding in a timely manner to the allegations of tax discrepancies.
In response to this, the petitioner filed writ petitions challenging the assessment order and the resulting bank attachment.
Petitioner’s Arguments
The petitioner’s counsel highlighted several critical points during the court proceedings:
1. Discrepancies in GST Returns: The Assistant Commissioner (ST) had observed differences between the inward supply values as per GSTR-2A and the outward supply figures reported in GSTR-3B. This difference formed the basis for the tax liability imposed on the petitioner, with the authorities speculating that the petitioner had engaged in sales suppression.
2. Speculative Tax Liability: The petitioner contended that the tax liability imposed by the respondent was speculative, based solely on a comparison of purchase values and sales without proper verification of the actual outward supplies. They argued that the burden of proving sales suppression lies with the tax authorities and not with the taxpayer.
3. Lack of Communication: A key issue raised by the petitioner was that they were not directly notified of the SCN or subsequent assessment order. Instead, these documents were uploaded to the GST portal under the “View Additional Notices & Orders” section, which the petitioner argued was insufficient communication under GST rules.
4. Offer to Pay Partial Amount: As a gesture of goodwill and to expedite the resolution of the matter, the petitioner expressed willingness to pay 5% of the disputed tax amount while the case was reconsidered.
Respondent’s Counterarguments
Representing the Assistant Commissioner (ST), V. Prasanth Kiran, the Government Advocate, argued that due process had been followed in this case. The respondent maintained that:
1. Issuance of SCN and Personal Hearing: The SCN was duly issued to the petitioner on 23 September 2023, and the petitioner was offered a personal hearing. This, according to the respondent, fulfilled the procedural requirements of natural justice.
2. Sales Suppression Allegation: The authorities had reasonably inferred sales suppression based on the petitioner’s GST returns and the mismatch between the reported sales and purchases. This justified the imposition of tax liability on the petitioner.
Court’s Observation and Judgment
After reviewing the submissions from both parties, the Madras High Court observed several crucial points regarding the tax authorities’ approach to the petitioner’s case:
1. Inadequate Communication: The court noted that the petitioner’s argument about insufficient communication via the GST portal was valid. Merely uploading notices and orders under the “View Additional Notices & Orders” section without direct communication to the taxpayer did not amount to proper service of the SCN. The court emphasized that taxpayers should be directly notified to ensure they are aware of the proceedings against them.
2. Failure to Consider Evidence: The court found that the tax authorities had imposed tax liability on the petitioner based solely on a speculative assumption of sales suppression. The court noted that the authorities failed to properly assess the petitioner’s explanations and supporting documents, including the reconciliation between GSTR-3B and GSTR-2A returns.
3. Violation of Natural Justice: The court concluded that the impugned assessment order lacked sufficient basis and had been issued without giving due consideration to the petitioner’s submissions. The court emphasized the importance of adhering to the principles of natural justice, which require tax authorities to fully evaluate the taxpayer’s explanations before issuing an order.
Court’s Directions
In its final judgment, the Madras High Court set aside the impugned assessment order and the bank attachment. The court issued the following directions:
1. The petitioner, Trident Home Furnishings Private Limited, was ordered to remit 5% of the disputed tax amount within two weeks from the date of receipt of the court’s order.
2. The petitioner was granted permission to submit a reply to the show cause notice within the same two-week period.
3. Upon receipt of the petitioner’s reply and confirmation of payment, the Assistant Commissioner (ST) was directed to provide a reasonable opportunity for a personal hearing to the petitioner and reconsider the case in light of the petitioner’s submissions.
4. A fresh assessment order was to be issued within three months, following due consideration of the petitioner’s responses.
5. As a result of setting aside the assessment order, the bank attachment on the petitioner’s account was ordered to be lifted.
Conclusion
The Madras High Court’s decision in Trident Home Furnishings Pvt. Ltd. Vs Assistant Commissioner (ST) highlights the importance of proper communication between tax authorities and taxpayers. It also reinforces the necessity of adhering to the principles of natural justice, ensuring that taxpayers are given a fair opportunity to defend themselves before adverse orders are passed.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
By these writ petitions, an assessment order and the consequential bank attachment are challenged. Show cause notice dated 22.09.2023 was issued to the petitioner in respect of discrepancies between the GSTR 3B returns of the petitioner and the auto populated GSTR 2A. Because the show cause notice and impugned order were uploaded in the “view additional notices and orders” tab of the GST portal, the petitioner asserts that it was unaware of these proceedings until the bank account was attached. The present writ petitions were filed in these facts and circumstances.
2. Learned counsel for the petitioner submits that the assessing officer noticed the aggregate value of inward supplies as per GSTR 2A. Upon noticing that the outward supply turnover, as per GSTR 3B, was low, he contends that tax liability was imposed on the speculative basis that the petitioner would have had outward supplies corresponding to such purchases. He contends that the burden of establishing sales suppression is on the respondent and not on the petitioner. Without prejudice, he submits that the petitioner agrees to remit 5% of the disputed tax demand as a condition for remand.
3. Mr. V.Prasanth Kiran, learned Government Advocate, appeared on behalf of the respondent. He submits that principles of natural justice were complied with by issuing show cause notice dated 23.09.2023 and by offering a personal hearing to the petitioner.
4. On perusal of the impugned order, it appears that tax liability was imposed on the allegation of sale suppression based on the difference between purchase value and outward supply value. The petitioner has asserted that it could not participate in proceedings on account of being unaware of the same. By taking the said assertion into account and by taking into account the nature of the confirmed tax proposal, the interest of justice warrants reconsideration subject to putting the petitioner on terms.
5. For reasons aforesaid, the impugned order is set aside on condition that the petitioner remits 5% of the disputed tax demand within two weeks from the date of receipt of a copy of this order. Within the said period, the petitioner is permitted to submit a reply to the show cause notice. On receipt thereof and on being satisfied that 5% of the disputed tax demand was received, the first 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 the petitioner’s reply. In view of the assessment order being set aside, the bank attachment is raised.
6. W.P.Nos.15744 and 15747 of 2024 are disposed of on the above terms. No costs. Consequently, W.M.P.Nos. 17152, 17154, 17158 and 17159 of 2024 are closed.
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