DSV Air and Sea Pvt Ltd vs State of Tamil Nadu

The order dated 31.12.2023 is being challenged on multiple grounds, primarily asserting that the impugned order exceeded the scope of the initial show cause notice and unjustly subjected the entire trade payables of the petitioner to GST. The petitioner, who is a registered entity under the applicable GST enactments in the State of Tamil Nadu, found themselves facing proceedings subsequent to an audit and the submission of an audit report dated 26.09.2023. Following this audit, a show cause notice was issued to the petitioner on 30.09.2023, which, according to the petitioner, was limited to a proposed tax liability of Rs. 43,66,708.14. The petitioner duly responded to this show cause notice on 30.10.2023. However, in the sequence of events that followed, the impugned order was issued on 31.12.2023.

The learned counsel for the petitioner directed attention to the show cause notice, specifically pointing to page 137 of the paper book, to argue that the notice proposed an aggregate tax of Rs. 43,66,708/-. Contrarily, the tax liability confirmed under the impugned order soared to an excess of Rs. 90 crores, a figure vastly disproportionate to the initial proposal. The counsel further elucidated that the respondents had arrived at this exorbitant figure by treating the total trade payables of Rs. 85,58,12,375/- as a taxable supply, subsequently imposing GST on this amount. This treatment of trade payables as taxable supply was contested by the petitioner, who had already stated in their reply to the show cause notice that Input Tax Credit (ITC) was availed in accordance with the law. The petitioner had ensured compliance by paying for supplies received from the respective suppliers within the specified 180-day period. Despite this clear and compliant response, the respondents proceeded to impose GST on the total trade payables, which the petitioner contends is a substantial overreach and a significant flaw in the impugned order.

Moreover, the learned counsel for the petitioner also raised concerns regarding the imposition of GST on inward supplies where taxes were to be paid on a reverse charge basis and the ITC availed on the import of services. The impugned order, according to the counsel, did not contain any cogent reasons for dismissing the petitioner’s reply on these points. The absence of a reasoned decision-making process regarding the rejection of the petitioner’s arguments further vitiates the impugned order. The counsel argues that the respondents failed to provide a justification for their conclusions, rendering the impugned order procedurally and substantively flawed. Consequently, the petitioner seeks to challenge the validity of the order on these grounds, emphasizing that the respondents have not adhered to the principles of natural justice and have acted beyond the scope of the show cause notice, leading to an unjust and excessive imposition of GST on the petitioner.

Mr. C. Harsha Raj, the learned Additional Government Pleader, accepts notice for the respondents and points out that the show cause notice meticulously detailed each discrepancy along with the proposed tax liability. Therefore, he argues, the amount mentioned in the table at page 137 of the paper book should not be construed as the total amount for which the petitioner was called upon to show cause. Furthermore, he contends that the petitioner has an appellate remedy available and that no sufficient grounds are present to warrant interference under Article 226 of the Constitution of India.

The central focus of the petitioner’s challenge is the imposition of GST on trade payables. The petitioner operates on a national scale, and the total trade payables referenced by the respondents were derived from the petitioner’s financial statements. In response to the show cause notice, the petitioner explained that they had complied with all statutory requirements concerning the availment of Input Tax Credit (ITC) by ensuring that payments for goods or services received were made within the specified time limit. The petitioner also referenced the returns filed in Form GSTR 1 and GSTR 3B to substantiate their compliance.

Given the petitioner’s detailed response, the conclusion drawn in the impugned order—that GST is payable on the total taxable supply as reflected in the financial statements—appears prima facie to be untenable. Additionally, the issues concerning inward supplies, where taxes were to be paid on a reverse charge basis and ITC availed on import of services, necessitate a more thorough reconsideration. These circumstances justify interference with the impugned order, albeit with conditions imposed on the petitioner. On instructions, the learned counsel submits that the petitioner agrees to remit 10% of the disputed tax demand as a condition for remand, provided the demand relating to trade payables is excluded.

Since it has been preliminarily concluded that the findings regarding the imposition of GST on trade payables—by treating the total tax payables as taxable supplies—are prima facie untenable, the petitioner shall remit 10% of the disputed tax demand pertaining to all other heads under the impugned order as a condition for remand.

For the reasons outlined above, the impugned order is quashed, subject to the condition that the petitioner remits 10% of the disputed tax demand under all heads, except trade payables, within two weeks from the date of receipt of a copy of this order. Upon receipt of 10% of the disputed tax demand as specified, the second respondent is directed to provide the petitioner with a reasonable opportunity, including a personal hearing, and subsequently issue a fresh order after duly considering all the petitioner’s contentions within two months. All contentions remain open to the petitioner.

The writ petition is disposed of on these terms, with no order as to costs. Consequently, the connected miscellaneous petitions are closed.

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DSV Air and Sea Pvt Ltd            

For reference visit:
Madras High Court

Read another case law:
GST Case Law