GST Demand Orders Set Aside for Exceeding Proposed Amounts; Matter Remanded with Directions 10% Deposit

Issue: Whether the demand orders passed under the GST Act are valid when they exceed the amounts proposed in the original show cause notices, and whether two separate sets of proceedings were initiated for the same issue, violating the principles of natural justice and statutory provisions.

Facts:

The petitioner, a supplier of gas cylinders, filed returns and paid taxes for the financial year 2020-21.
The department identified discrepancies between GSTR-1 and GSTR-3B, issuing ASMT-10 on May 23, 2022, indicating a tax liability mismatch of Rs. 8,36,366.
Two show cause notices (DRC-01A) were issued, leading to two sets of proceedings.
The first notice, issued on May 22, 2024, resulted in an order dated August 24, 2024, proposing a demand of Rs. 17,42,622.
The second notice, dated May 31, 2024, led to an order dated August 30, 2024, proposing a penalty of Rs. 33,24,832 (enhanced from Rs. 8,36,366).
The petitioner challenged these orders, arguing that the demands exceeded the amounts proposed in the original notices and that two notices were issued for the same issue.

Decision:

The court acknowledged that the demands in the orders exceeded the amounts proposed in the show cause notices, violating Section 75(7) of the GST Act.
The court also noted that two sets of proceedings were initiated for the same issue, violating Section 6(2) of the GST Act.
While the respondent argued that the petitioner failed to participate in earlier proceedings, they agreed to provide another opportunity if the petitioner deposited 10% of the disputed tax.
The court set aside the impugned orders.
The petitioner was directed to deposit 10% of the disputed tax and file objections within a given time.
The respondent was directed to treat the canceled orders as show cause notices, consolidate the proceedings into one order, and consider the petitioner’s objections before passing a final order.

Key Takeaways:

This case highlights the importance of adhering to the principles of natural justice and statutory provisions in GST proceedings.
Demand orders cannot exceed the amounts proposed in the original show cause notices.
Separate proceedings cannot be initiated for the same issue.
The decision emphasizes the importance of granting assessees a fair opportunity to present their case and defend their interests.
The court’s decision to provide another opportunity to the petitioner while safeguarding the revenue’s interest demonstrates a balanced approach to resolving tax disputes.

HIGH COURT OF MADRAS

Deepa Annamalai Distributors

Commercial Tax Officer Mettur Assessment Circle

Mohammed Shaffiq, J.

W.P. Nos.37348 and 37351 of 2024
WMP Nos.40364, 40365, 40368 and 40369 of 2024

DECEMBER 17, 2024

G. Vardini Karthik, for the Petitioner. V. Prashanth Kiran, Govt. Adv. for the Respondent.

ORDER

1. These writ petitions are filed challenging the impugned orders dated 24.08.2024 and 30.08.2024 on the premise that the same are made in gross violation of procedure contemplated under the GST Act and they are also made in violation of principles of natural justice.

2. The petitioner is a proprietary concern and is engaged in the business of supply of gas cylinders. The petitioner is registered under the GST Act. During the relevant period 2019-20, the petitioner had filed its return and paid appropriate taxes. On scrutiny of the petitioner’s GSTR returns, it was noticed that there was mismatch between GSTR 1 and GSTR 3B.

2.1. Pursuant thereto, a notice in ASMT 10 was issued on 23.05.2022 whereby, it was stated that there was a discrepancy in discharge of the tax liability to the extent of Rs.4,18,183/- under the SGST and CGST Act respectively in all amounting to Rs.8,36,366/-. On the basis of ASMT-10, two different notices were issued namely DRC 01A dated 12.12.2023, followed by DRC -01A dated 28.03.2024. Further, two show cause notices were issued in DRC 01 on 22.05.2024 and 31.05.2024. Pursuant to the above notices issued, proceedings were initiated and it culminated in two different impugned orders dated 24.08.2024 and 30.08.2024. The following chart would show the difference notices issued in respect of the above two proceedings:

Scrutiny proceedings under Section 61 for the FY 2019-20 arising out of show cause notice dated 22.05.2024		Scrutiny proceedings under Section 61 for the FY 2019-20 arising out of show cause notice dated31.05.2024
Date particulars	Proposed demand	Date	particulars	Proposed demand
		23.05.2022	ASMT-10
		12.12.2023	DRC-01 A	Rs.25,99,384/-
		29.03.2024	Reply
22.05.2024 DRC-01	Rs.17,42,622/-	31.05.2024	DRC-01	Rs.8,36,366/-
24.08.2024 Impugned order	Rs.17,42,622/-(Amount incl. of tax demand, interest and penalty)	26.08.2024 penalty)	Impugned order	Rs.33,24,832/- (Amount incl. Of tax demand, interest and
24.08.2024 DRC-07	Rs.17,42,622/-	30.08.2024	DRC-07	Rs.33,24,832/-

3. It is submitted by the learned counsel for the petitioner that the impugned proceedings insofar as it traverses beyond the show cause notice is hit by Section 75 (7) of the GST Act, which provides that the amount of tax, interest and penalty demanded in the impugned order shall not be excess of the amount specified in the show cause notice.

4. A reading of the above table would show that pursuant to the show cause notice dated 22.05.2024, there was a total demand of Rs.17,42,622/-, which comprises of tax, interest and penalty, while pursuant to the show cause notice dated 31.05.2024, there was total demand of Rs.8,36,366/-. However, the impugned order dated 24.08.2024, which is made pursuant to the show cause notice dated 22.05.2024 confirms the entire tax, penalty, interest at Rs.17,42,622/-. However, the impugned order dated 30.08.2024 which is pursuant to the show cause notice dated 31.05.2024 has enhanced the demand to Rs.33,24,832/-. It was thus submitted that the impugned proceedings is hit by Section 75(7) of the Act. It was also submitted that the subject matter in respect of both the proceedings are one and the same and would thus be hit by the limitation/restriction in terms of Section 6(2) of the GST Act.

5. To the contrary, it was submitted by the learned Government Advocate for the respondents that the petitioner having not participated in the proceedings, now cannot question the correctness of the order.

6. It was further submitted that the petitioner is ready and willing to pay 10% of the disputed tax i.e. Rs.9,00,166/- and that he may be granted one final opportunity before the adjudicating authority to put forth their objections to the proposal, to which the learned Government Advocate appearing for the respondents does not have any serious objection.

7. By consent of both parties, the writ petition stands disposed of on the following terms:

(a)

The impugned orders dated 24.08.2024 and 30.08.2024 are set aside

(b)

The petitioner shall deposit 10% of the disputed taxes i.e. Rs.9,00,166/-as admitted by the learned counsel for the petitioner and the respondents, within a period of four weeks from the date of receipt of a copy of this order.

If any amount has been recovered or paid out of the disputed taxes, including by way of pre-deposit in appeal, the same would be reduced/adjusted, from/towards the 10% of disputed taxes directed to be paid. The assessing authority shall then intimate the balance amount out of 10 % of disputed taxes to be paid, if any, within a period of one week from the date of receipt of a copy of this order. The petitioner shall deposit such remaining sum within a period of three weeks from such intimation.

(d)

The entire exercise of verification of payment, if any, intimation of the balance sums, if any, to be paid for compliance with the direction of payment of 10% of the disputed taxes, after deducting the sums already paid and payment by the petitioner of the balance amount, if any, on intimation in compliance of the above direction, shall be completed within a period of four weeks from the date of receipt of copy of this order.

(e)

Failure to comply with the above condition viz., payment of 10% of disputed taxes within the stipulated period i.e., four weeks from the date of receipt of a copy of this order shall result in restoration of the impugned order.

(f)

If there is any recovery by way of attachment of Bank account or garnishee proceedings, the same shall be lifted /withdrawn on complying with the above condition viz., payment of 10 % of the disputed taxes.

(g)

On complying with the above condition, the impugned order of assessment shall be treated as show cause notice and the petitioner shall submit its objections within a period of four (4) weeks from the date of receipt of a copy of this order along with supporting documents/material. If any such objections are filed, the same shall be considered by the respondent and orders shall be passed in accordance with law after affording a reasonable opportunity of hearing to the petitioner. It is made clear that if the above conditions viz., 10% of disputed taxes is not complied or objections are not filed within the stipulated period, four weeks respectively from the date of receipt of a copy of this order, the impugned order of assessment shall stand restored.

8. The respondents shall consolidate the proposal and pass one consolidated order for the period 2018-19. It is open to the petitioner to raise all the issues including the lack of jurisdiction or otherwise.

9. There will be no order as to costs. Consequently, connected miscellaneous petitions are closed.