The Madras High Court allowed the prominent Cement company Ramco Cements against the GST orders issued on multiple issues including the taxability of the sale of second hand or old vehicles.
M/s. Ramco Cement Limited, Represented by its Senior General Manager, the assessee, filed the petition challenging the GST Assessment order. According to the assessee, it received a show cause notice in respect of the 10 issues, which was replied. Pursuant to a personal hearing, impugned order was issued where 4 of its issues were dropped by the GST department.
Firstly, the order addressed and confirmed two new issues without providing the petitioner an opportunity to respond, thereby violating principles of natural justice. The issues in question pertain to expenses incurred for staff welfare and the rejection of input tax credit ( ITC ) under Section 17(5) of the applicable GST enactments. The petitioner was not issued a show cause notice for these matters.
Additionally, concerning the GST ITC reversal under Rule 42 of GST Rules, 2017, the show cause notice suggested that the petitioner had availed ITC on GST exempted supplies, necessitating a reversal. However, the impugned order also imposed taxes on the sale of secondhand/old vehicles, treating them as taxable supplies. The Counsel argued that these conclusions are contradictory and incompatible.
The assessee’s counsel, further stated that regarding supplies to Special Economic Zones ( SEZ ), the requirement for an endorsement on invoices by an authorised SEZ officer was introduced by a notification effective from 01.10.2023. At the relevant time, this notification was not in force. Despite the petitioner’s reply on 30.01.2024, which highlighted the effective date of the notification, the GST proposal was confirmed due to the absence of endorsed invoices.
Moreover, the counsel pointed out that the GST liability was also confirmed for Corporate Social Responsibility ( CSR ) activities conducted across India, based on details from the petitioner’s consolidated financial statements. Thus, based on these grounds, the counsel contended that the matter necessitates reconsideration.
The respondent’s counsel argued that the two additional issues addressed in the impugned order arose from the petitioner’s own reply. Therefore, the impugned order should be treated as a show cause notice, allowing the petitioner an opportunity to respond.
Regarding all other issues, the respondent’s counsel maintained that the principles of natural justice were upheld and the petitioner’s reply was duly considered. As a result, the respondent’s counsel contended that there is no basis for judicial interference.
The bench of Justice Senthilkumar Ramamoorthy found that the show cause notice did not raise issues related to staff welfare expenses and ineligible ITC under sub-section 5 of Section 17 of the applicable GST laws. Consequently, the principles of natural justice were contravened. The show cause notice did address the non-reversal of ITC for exempted supplies, but the impugned order inconsistently concluded that the sale of old/used vehicles is taxable, which is contradictory as argued by the assessee-petitioner’s counsel.
Regarding supplies to SEZ, the assessee’s reply dated 30.01.2024 noted that the requirement for invoice endorsements came into effect on 01.10.2023, but this was not considered in the impugned order. Although the petitioner provided endorsed invoices for a significant portion, reducing the tax proposal, the court determined that the petitioner should remit 10% of the disputed tax demand on issues raised in the show cause notice for reconsideration.
The impugned order was set aside for the 6 issues initially raised, subject to the petitioner remitting 10% of the disputed tax demand within 15 days. The assessee was directed to submit a reply regarding staff welfare expenses and ineligible ITC, treating the impugned order as a show cause notice.
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