In a recent ruling, the Madras High Court set aside the Goods and Services Tax ( GST ) demand order issued completely on a different basis from the Show Cause Notice ( SCN ). The court ordered fresh proceedings.
A recent ruling by the Madras High Court addressed a significant disparity between a tax order and the initial show cause notice, leading to the decision’s annulment. The order dated 23.06.2023 was challenged on the grounds that it deviated substantially from the premise outlined in the show cause notice received by the petitioner.
According to the petitioner had received an intimation dated 24.11.2022, followed by a show cause notice on 29.12.2022. In response, the petitioner explained their status as a distributor of Aircel Limited, highlighting their inability to conduct business post the closure of Aircel’s operations in February 2018. However, the subsequent order, issued in the context of these communications, imposed a tax liability vastly exceeding the initially estimated amount.
The petitioner’s counsel pointed out the discrepancy, emphasising that while the show cause notice referenced a tax liability of Rs. 8,27,252/- based on alleged sales suppression, the final order imposed a liability of Rs. 14,97,072/- by comparing GSTR 3B return and GSTR 2A. Moreover, a significant reversal of Input Tax Credit from the petitioner’s ledger further complicated the matter.
The Government Advocate, Mr. V. Prashanth Kiran, argued that the petitioner’s response to the intimation effectively invalidated their entitlement to Input Tax Credit, justifying the order’s validity.
Upon examination of the intimation and the subsequent show cause notice, a Single bench of Justice Senthilkumar Ramamoorthy noted that the initial communication summoned the petitioner to justify a tax liability of Rs. 8,27,252/-, predicated on the presumption of sales suppression. However, the final order drastically escalated the tax burden to Rs. 14,97,072/-, accompanied by an equivalent penalty. Notably, the impugned order diverged from the premise of sales suppression altogether.
The court emphasised that if the tax authority intended to amend the tax assessment following the petitioner’s response, issuing a fresh show cause notice was imperative. Moreover, the significant debit from the petitioner’s electronic credit ledger, amounting to Rs. 7,52,047/-, further underscored the irregularities surrounding the impugned order. Thus, the court concluded that the impugned order lacked legal validity.
Consequently, the Court set aside the order dated 23.06.2023, allowing the respondent to initiate fresh proceedings by issuing a revised show cause notice to the petitioner.
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