GST Liability on Transportation Services to TASMAC: Madras HC Set Aside for Ignoring Reverse Charge Provision in Order [Read Order]

The Madras High Court set aside the GST (Goods and Services Tax) demand order for failing to consider the applicability of the reverse charge mechanism while assessing tax liability on transportation services rendered to TASMAC, a state-owned entity.

The Court held that the adjudicating authority's omission of the statutory reverse charge provisions in the GST order cannot be sustained.

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The petitioner, Rethinasamy Gandhi, challenged the tax demand order dated 30.12.2023 issued by the Deputy State Tax Officer, which imposed GST liability for the financial year 2017-18.

The demand was preceded by a notice in Form DRC-01A on 11.09.2023 and a Show CauseNotice (SCN) in Form DRC-01 on 25.09.2023. The petitioner had submitted a reply, albeit superficial in the eyes of the department, and received a further reminder on 18.11.2023.

The core contention of the petitioner was that he had merely rendered transportation services to TASMAC for the movement of liquor bottles and that under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, read with the corresponding State Notification under the Tamil Nadu GST Act, the liability to pay GST on such services rested not with the service provider but with the recipient TASMAC under the reverse charge mechanism.

Referring to Serial No. 11 of Notification No. 11/2017-CT (Rate), which deals with transportation of goods, the Court observed that there was a prima facie case that GST liability in such cases should be discharged by the recipient under RCM. Justice C. Saravanan, noted that the impugned order had not even considered or discussed the applicability of this statutory provision, rendering the order legally unsustainable.

While quashing the impugned order, the Madras High Court directed the petitioner to deposit 25% of the disputed tax amount within 30 days from the date of receipt of the order.

Even though the court quashed, it directed that the order was not to be treated as a standalone or fresh proceeding, but rather as a corrigendum or addendum to the original SCN that preceded it.

The petitioner was also instructed to submit a comprehensive and detailed reply to the said SCN within the same 30-day period. Consequently, when the petitioner followed the conditions, the tax authorities were directed to adjudicate the matter afresh by passing a reasoned, speaking order on merits, after granting the petitioner a personal hearing, within a period of three months.

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