GST Demand Set Aside for Being Contrary to the Show Cause Notice and Subsequent Communication
Summary in Key Points:
- Issue: Whether a GST demand order is valid when it contradicts the show cause notice (SCN) and is based on incorrect information.
- Facts: The assessee, who had sold a wind electric generator park through a slump sale, received a demand notice for the entire sale consideration. However, in a subsequent communication, the revenue department admitted that the assessee was not liable to pay tax on the entire sale consideration but on a different amount. Despite this, the final order confirmed the demand for the entire amount.
- Decision: The High Court held that the demand order was arbitrary and contrary to the information provided in the SCN and subsequent communication. The court set aside the order and remanded the matter for fresh consideration.
Decision:
The High Court ruled in favor of the assessee, setting aside the impugned demand order and remanding the matter for fresh consideration. The court emphasized the following:
- Contradictory Demand: The final demand order contradicted the information provided in the SCN and the subsequent communication from the revenue department, creating confusion and uncertainty for the assessee.
- Arbitrary Demand: The demand for the entire sale consideration was arbitrary, as the revenue department itself had admitted that the assessee was not liable to pay tax on the entire amount.
- Violation of Natural Justice: The contradictory and arbitrary nature of the demand violated the principles of natural justice, as the assessee was not given a clear understanding of the tax liability and was denied a fair opportunity to respond.
Important Note: This case highlights the importance of consistency and clarity in GST proceedings. The demand order must align with the information provided in the SCN and subsequent communications to ensure transparency and fairness. Any deviation or contradiction can lead to the invalidation of the demand order, as it violates the principles of natural justice and creates uncertainty for the assessee.
HIGH COURT OF MADRAS
Frontline Wind Energy (P.) Ltd.
v.
Assistant Commissioner (ST)
C. Saravanan, J.
W.P.No.28388 of 2021
W.M.P.No.29976 of 2021
W.M.P.No.29976 of 2021
JANUARY 2, 2025
N. Prasad for the Petitioner. Ms. Amirtha Poonkodi Dinakaran, Govt. Adv. for the Respondent.
ORDER
1. The petitioner is before this Court against the impugned Assessment Order passed by the respondent for the Assessment Year 2019-2020 dated 26.11.2021. By the impugned order, the respondent has confirmed the taxable turnover of the petitioner and has computed the tax as follows:-
| Taxable turnover determined | Rs.10,34,32,205-00 @18% | |
| SGST @ 9% | CGST @ 9% | |
| Tax due | Rs.93,08,898-00 | Rs.93,08,898-00 |
| Tax paid | Rs.Nil | Rs.Nil |
| Balance (-) | Rs.93,08,898-00 | Rs.93,08,898-00 |
| A demand notice in Form DRC 07 is issued | ||
| Penalty:- | ||
| Penalty at 100% of the tax due U/s.122(1) of the Act | Rs.93,08,898-00 | Rs.93,08,898-00 |
| Paid | Rs.Nil | Rs.Nil |
| Balance (-) | Rs.93,08,898-00 | Rs.93,08,898-00 |
| A demand notice in Form DRC 07 is issued | ||
2. The specific case of the petitioner is that the petitioner had earlier purchased a Wind Electric Generator Park consisting of 20 Wind Mills as a Slump Sale under Slump Sale Agreement dated 17.04.2015 from M/s.Zuri Hotels & Resorts Private Limited. It is submitted that the business was thereafter sold to M/s.Bilal Match Works under Sale of business Agreement dated 14.06.2019 for a total sale consideration of Rs.9,50,00,000/-. The Department had issued a notice dated 09.09.2021, wherein, based on the data from the 6th Annual Report of the petitioner for the Financial Year 2019-2020 it was proposed to tax the entire amount together with further addition as detailed below:
“Further, verification of the 6th Annual Report for the year 2019-20, you have sold the Wind Mill machinery at Rs.10,34,32,205-00 (Cost of machinery Rs.5,64,43,519+profit on sale of machinery Rs.4,69,88,68600) which is liable to pay tax @ 18% under TNGST Act, 2019.”
3. It is submitted that after the petitioner was replied to the said Notice dated 09.09.2021, a further Notice was issued on 21.10.2021, wherein, the respondent had admitted the petitioner was not liable to pay tax on the entire sale consideration for the sale of a business for a sum of Rs.9,50,00,000/-. However, wanted to tax the differential amount of Rs.84,32,205/- to which the petitioner had replied. However, in the impugned order, the respondent has confirmed the demand on the entire amount of Rs.10,34,32,205/- which was the data obtained from the 6th Annual Report of the petitioner for the Financial Year 2019-2020. It is submitted that there is no legal basis for sustaining the demand and there is a complete arbitrariness in the impugned order.
4. The learned Government Advocate for the respondent on the other hand would submit that the impugned order does not suffer from any irregularity. It is submitted that the petitioner has an alternate remedy under Section 107 of the GST Act before the Appellate Authority and therefore prays for dismissal of the writ petition.
5. I have considered the arguments advanced by the learned counsel for the petitioner and the learned Government Advocate for the respondent.
6. The impugned demand is clearly contrary to the discussion and proposal in the 2nd mentioned Notice dated 21.10.2021, wherein, there is a categorical admission that a sum of Rs.9,50,00,000/- was not exigible. Relevant portion from the said Notice reads as under:
“Any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course of furtherance of his business immediately before he ceases to be taxable person, unless the business is transferred as a going concern to another person as per entry 4(c)(i) of Schedule II to the TNGST Act, 2017. In view of the fact that the dealer has filed agreement which proves that the dealers have sold the unit as a while as a going concern and as such the sales consideration for an amount of Rs.9,50,00,000/- is not exigible to tax.”
7. Thus, the impugned demand is unsustainable and is clearly arbitrary and contrary to the aforesaid Notice dated 21.10.2021. Therefore, Court is inclined to set aside the impugned order and remits the case back to the respondent to pass a fresh order on merits and in accordance with law. This exercise shall be carried out by the respondent within a period of 8 weeks from the date of receipt of a copy of this order. Needless to state, the petitioner shall be heard before final orders are passed.
8. This Writ Petition stands allowed. No costs. Consequently, connected Writ Miscellaneous Petition is closed.