Section 75(7) of the GST Act prohibits confirming a demand on grounds not specified in show cause notice : High Court
Summary in Key Points:
- Issue: The assessee challenged an assessment order that reclassified their services and significantly increased their tax liability without providing an opportunity to respond to the revised classification.
- Facts: The initial show cause notice treated the assessee as an ocean freight service provider. However, the final assessment order classified them as an intermediary, leading to a much higher tax demand.
- Decision: The High Court set aside the assessment order, holding that it violated the principles of natural justice and Section 75(7) of the GST Act, which prohibits confirming a demand on grounds not specified in the show cause notice.
- Remedy: The court directed the tax authorities to treat the order as a show cause notice and provide the assessee with three weeks to respond to the revised classification. A fresh assessment order must be passed after considering the assessee’s reply.
HIGH COURT OF MADRAS
Tvl. Glo Shipping Logistics (P.) Ltd.
v.
State Tax Officer
Mohammed Shaffiq, J.
W.P. No.33358 of 2024
W.M.P.Nos.36137 and 36138 of 2024
W.M.P.Nos.36137 and 36138 of 2024
NOVEMBER 12, 2024
Ms. Aparna Nandakumar for the Petitioner. C. Harsha Raj, Addl. Govt. Pleader for the Respondent.
ORDER
1. The present writ petition is filed challenging the impugned assessment order dated 31.08.2024 on the premise that the impugned order traverses beyond the show cause notice thereby suffers from violation of principle of natural justice apart from being contrary to the mandate under Section 75(7) of the GST Act.
2. The petitioner herein is a private limited company providing non-vessel operating common carrier services specializing in both full container load and less than container goods (grouped shipments).The petitioner is registered under the GST Act and has filed its return and paid appropriate taxes for the period 2019-20. On examination of the information furnished in the return under various heads the following defects were noticed:
| (i) | Under declaration of output tax |
| (ii) | Excess claim of Input Tax |
| (iii) | Under Declaration of Ineligible Input Tax Credit |
| (iv) | Claim of Input Tax on non business transaction and exempt supplies contrary to the restriction under Section 17 of GST Act,2017. |
| (v) | Input tax claimed from dealers with canceled registration certificate, defaulter in filing returns and non tax payers. |
3. A show cause notice was issued in form DRC01 dated 21.05.2024 wherein the tax liability was arrived at 21,77,761/- comprising of Rs.7,58,287/-(SGST), Rs.7,58,287/- (CGST) and IGST Rs.6,61,187/-. In response, the petitioner had submitted its detailed reply dated 19.06.2024, 21.06.2024 and 26.07.2024. On consideration of the reply, the impugned order has been passed by the respondent authority whereby the petitioner’s claim that they are Ocean Freight Service providers was rejected and they were instead treated as intermediary and the consequential interest and penalty was increased from Rs.21,77,761/- to Rs.96,83,029/-. The following table in the show cause notice and the order of assessment is relevant and thus extracted here under:
(i) FORM GST DRC-01 dated 21.05.2024
Summary of show cause Notice
| Sr. No. | Tax Rate (%) | Turn over | Tax Period | Act | POS(Place of Suppl (y) | Tax | Interest | Penalty | Fee | Others | Total | |
| From | To | |||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 |
| 1 | 0 | 0 | APR 2019 | MAR 2020 | SGST | NA | 7,58,2 87.00 | 6,57,4 78.00 | 75829 | 0 | 0 | 14,91, 594.00 |
| 2 | 0 | 0 | APR 2019 | MAR 2020 | CGST | NA | 7,58,2 87.00 | 6,53,8 02.00 | 75829 | 0 | 0 | 14,87, 918.00 |
| 3 | 0 | 0 | APR 2019 | MAR 2020 | IGST | Tamil Nadu | 6,61,1 87.00 | 5,52,3 54.00 | 66119 | 0 | 0 | 12,79, 660.00 |
| Total | 21,77, 761.00 | 18,63, 634.00 | 2,17,7 77.00 | 0 | 0 | 42,59, 172.00 | ||||||
(ii) FORM GST DRC 07 dated 31.08.2024
Order under Section 73
| Sr. No. | Tax Rate (%) | Turn over | Tax Period | Act | POS(Place of Supply) | Tax | Interest | Penalty | Fee | Others | Total | |
| From | To | |||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 |
| 1 | 0 | 0 | APR 2019 | MAR2 020 | IGST | Tamil Nadu | 11711 | 10367 | 20000 | 0 | 0 | 42078 |
| 2 | 0 | 0 | APR 2019 | MAR2 020 | CGST | NA | 48,35, 659.00 | 43,00, 883.00 | 4,83,5 66.00 | 0 | 0 | 96,20, 108.00 |
| 3 | 0 | 0 | APR 2019 | MAR2 020 | SGST | NA | 48,35, 659.00 | 43,00, 883.00 | 4,83,5 66.00 | 0 | 0 | 96,20, 108.00 |
| Total | 96,83, 029.00 | 86,12, 133.00 | 9,87,1 32.00 | 0 | 0 | 1,92,8 2,294. 00 | ||||||
4. It was thus submitted by the learned counsel for the petitioner that they never had an opportunity to respond to the case of the respondent that the petitioner would qualify as an intermediary which resulted in consequential increase in the tax liability inasmuch as it was set out only in the impugned order for the first time. It was also submitted that departure from show cause notice attract sub-section (7) to Section 75 of the GST Act, 2017 which reads as under:
“Section 75. General provisions relating to determination of tax.-
(7) The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice.”
5. At this juncture, it was submitted by the learned counsel for the respondent that inasmuch as the petitioner’s status as intermediary was set out in the impugned order for the first time which resulted in the increase in the demand of taxes and the consequential interest and penalty in the impugned order being in excess of the amount specified in the notices, the petitioner may treat the impugned order of assessment as a show cause notice and submit their reply within a period of 3 weeks from the date of receipt of a copy of this order. If any such reply is filed the same would be considered and orders would be passed on merits in accordance with law after affording the petitioner a reasonable opportunity of hearing.
6. In view thereof, the impugned order dated 31.08.2024 is set aside. It is open to the petitioner to submit their reply within a period of 3 weeks from the date of receipt of a copy of this order. If for any reason the petitioner does not file their reply within the stipulated period i.e., 3 weeks from the date of receipt of a copy of this order, the impugned order of assessment shall stand restored.
7. Accordingly, the writ petition stands disposed of. Consequently, connected miscellaneous petitions are closed.