ASSESSMENT BASED ON INSPECTION REPORT UNDER GST LAWS – TENABLE?

[Mr. M. GOVINDARAJAN]

In M/S. ANANTHAM RETAIL PRIVATE LIMITED VERSUS STATE TAX OFFICER [2022 (6) TMI 1258 - MADRAS HIGH COURT] the petitioner challenged the following orders of Tamil Nadu State Tax Authorities-

• WP No.11376 of 2022 – Challenging the order dated 31.01.2022 for the assessment year 2020 – 2021 imposing total tax liability – Rs. 20648214;
• WP No. 11384 of 2022 – challenging the order dated 31.01.2022 for the assessment year 2019 – 2020 imposing total tax liability – Rs.24659465;
• WP No. 11410 of 2022 – challenging the order dated 31.01.2022 for the assessment year – 2021 – 2022 imposing total tax liability – Rs.44677601.

The petitioner was engaged in trading of textiles and garments.  The petitioner is also having show rooms in two places Kumbakonam and Thanjavur. Before the formation of the petitioner company the business was run under partnership which was dissolved. 

The State Tax Officers conducted inspection under section 67 of the Tamil Nadu State Goods and Services Tax Act, 2017 (‘Act’ for short) in the three showrooms situated in Ramanathapuram, Kumbakonam and Thanjavur from 14.09.2021 to 16.09.2021.  During the inspection, the inspection team found certain irregularities in the transaction of dealers.  Therefore the Department revised the assessment order based on the above said inspection report.  A show cause notice was also issued to the dealers calling for the explanation with documentary evidence.

The Department issued communication in Form DRC-01 on 06.12.2021 for the years 2019-  2020, 2020 – 2021  and 2021 – 2022 on 06.12.2021.  The said form indicated the defects involving tax liabilities for non maintenance of proper accounts.  On 27.12.2021 the petitioner sought for 30 days time to give reply to the Department.   In the meantime the Department vide letter dated 28.12.2021 directed the petitioner to attend the personal hearing.   The petitioner replied in Part B of Form DRC-01A on 03.01.2022.  In that reply the petitioner that the quantification of tax is not agreeable to them as it is not correct.

The petitioner submitted the following before the High Court-

• The inspection and investigation have been conducted by different officers in a wrong manner, resulting in misunderstanding of facts and misinterpretation of provisions, misapplication of tariff and exemption notifications.
• The proceedings carried out were completely perverse and information and statements collected with intimation, an inducement of dropping of proceedings, are in complete violation of principles of natural justice and unreliable and  the demand made in Form DRC-01A has to be rejected.
• The Officers of the Tamil Nadu State Tax Department conducted investigations in the three branches of the petitioner on 14.09.2021.
• The Officers recorded the statements of the Managers and Directors of the petitioner and passed orders in Form GST INS – 2.
• Subsequently the Department issued communications in Form DRC – 01A under Rule 142(1A) on 06.12.2021 separately for the year 2017 – 18 to 2020 – 2021.
• The above said communications pointed out, narrated various defects noticed during the inspection and given details of taxes, interest and penalty as payable by the petitioner company under each head.
• If the petitioner had any objection to the notice, reply in writings to be filed before the 'Proper Officer' within 15 days from the date of receipt of the notice, failing which, orders will be passed accordingly, confirming the tax, penalty and interest as already proposed in the notice, as per the provisions of the Act and the Rules.
• The petitioner requested 30 days time to give reply to the notice vide letter dated 22.12.2021.  But the Department directed the petitioner to appear for personal hearing vide their letter dated 28.12.2021.
• The petitioner gave reply on 03.01.2022 in Part B of Form DRC – 01A raising various objections.
• The Department never has taken the objections raised by the petitioner but intimated the petitioner on 11.01.2022 that the personal hearing was given on 24.01.2022 as a final opportunity.
• The Authorized representative of the petitioner appeared before the Authority on the hearing date.
• The Authorized representative contended before the Authority that personal hearing cannot be initiated at this stage of adjudication proceedings and reiterated the petitioner's stand that, the liability of tax and quantification are not agreeable.
• The respondent has observed that the petitioner did not raise any objection to the inspection carried out from 14.09.2021 to 16.09.2021 and also agreed to the defects pointed out during the course of inspection and had paid an amount of Rs.89,52,450/-.
• The above said order has been passed in violation of principles of natural justice inasmuch as no show cause notice as envisaged in Section 73 or 74 of the TNGST/CGST Act has been issued before passing the order, there is unfairness, unreasonableness in the action of the respondent.
• The respondent vide Form GST DRC-09, directed the Branch Manager, Axis Bank, Ramanathapuram, to recover the amount due from the petitioner consequent to the impugned order.
• The impugned order dated 31.01.2022, is not proper and is in gross violation of principles of natural justice.

The Department submitted the following before the High Court-

• The burden of proof is lying with the dealers as per the provisions of the TNGST Act, 2017.
• Based on the defects pointed out during the course of surprise inspection, the notice was properly served on the dealers and then, personal hearing notice was also given, which was also properly served on the dealers and finally, considering the objections filed by the dealers, orders were passed, which are in accordance with law and without deviating the principles of natural justice.
• Against the impugned order, the petitioner can file an appeal before the Deputy Commissioner (GST-Appeal), Madurai, under Section 107(1) of the TNGST Act, 2017, within three months from the receipt of that order.

The Department, therefore, prayed for the dismissal of the writ petitions.

The High Court considered the submissions made by the parties to the writ petitions.  The High Court analyzed the facts of the case and the provisions of GST laws of Tamil Nadu.  The High Court observed that-

• After issuance of notice in Form DRC-01A, dated 06.12.2021, the respondent has issued Form GST DRC-01A.
• If the petitioner has got any objection and not paid tax as ascertained, a show cause notice has to be issued under Section 74(1) of the TNGST Act.
• After receiving objections, giving personal hearing, the assessment order ought to have been finalized.

The High Court observed that the above said procedure has been followed in this case.  The respondent vide Form GST DRC-09, issued a communication, directing the Branch Manager, Axis Bank, Ramanathapuram, to recover the amount due from the petitioner under Section 79 of the TNGST Act, 2017, which is not proper.  Therefore the High Court quashed the assessment order dated 31.01.2022.  The High Court also quashed the recovery notice dated 10.06.2022 issued to the bank.

The High Court directed the respondent to issue notice after following the procedures prescribed under the TNGST Act and issue show cause notice and after giving an opportunity to file their objections, pass appropriate orders on merits and in accordance with law.