2021 (7) TMI 859 - HC - GST

VAT Turnover Included in GST Calculation; Court Upholds Authorities' Decision

Godway Furnicrafts Versus The State Of AP, The Joint Commissioner The Assistant Commissioner, Circle - II

Godway Furnicrafts Versus The State Of AP, The Joint Commissioner The Assistant Commissioner, Circle - II - 2021 (54) G. S. T. L. 151 (A. P.) , [2021] 95 ... Issues Involved:1. Legality of directing the petitioner to pay GST at 28% from 1.7.2017.2. Interpretation of the term 'preceding financial year' in Section 10(1) of the GST Act.3. Validity of the petitioner's claim to pay tax under the composite scheme.Detailed Analysis:1. Legality of directing the petitioner to pay GST at 28% from 1.7.2017:The petitioner firm, engaged in the furniture business, claimed to have opted for the composite scheme under Section 10(1) of the GST Act and paid taxes accordingly. The Department initially accepted these payments but later issued a show cause notice on 14.2.2018, rejecting the petitioner's claim under the composite scheme due to a turnover of Rs. 2.09 crores in the previous year under the VAT regime. Despite the petitioner's explanation, the Department confirmed the demand for GST at 28% (14% S.GST and 14% C.GST) from 1.7.2017, along with interest and penalty. The petitioner’s appeal was also rejected, leading to the present writ petition.2. Interpretation of the term 'preceding financial year' in Section 10(1) of the GST Act:The core issue was the interpretation of 'preceding financial year' in Section 10(1) of the GST Act. The petitioner argued that the term should only consider the period after the GST regime commenced on 1.7.2017, and not the turnover under the VAT regime. Conversely, the Department contended that the term includes the turnover from the VAT regime, as the GST Act replaced the VAT Act, and all taxes under VAT were subsumed into GST. The court highlighted that the GST Act aimed to create a unified tax system, replacing multiple state and central taxes, including VAT.3. Validity of the petitioner's claim to pay tax under the composite scheme:The petitioner claimed to have paid GST under the composite scheme based on self-declaration for four quarters. However, the court noted that the option exercised by the petitioner required verification. The delay in verification by the authorities due to the transition to the new regime did not prevent them from directing the petitioner to pay the correct tax if the self-declaration was found incorrect. The court emphasized that the term 'preceding financial year' in Section 10(1) of the GST Act includes the turnover from the VAT regime, as excluding it would allow taxpayers to evade taxes for the financial year 2017-2018. The legislature's intent was clear in using the term 'preceding financial year' to include the turnover from the VAT regime for determining tax liability under the GST regime.Conclusion:The court dismissed the writ petition, affirming that the authorities were correct in considering the turnover from the VAT regime as part of the 'preceding financial year' for the purpose of the composite scheme under Section 10(1) of the GST Act. The petitioner's argument to exclude the VAT regime turnover was rejected, and the demand for GST at 28% from 1.7.2017 was upheld. The court found no illegality in the Department's actions and concluded that the transition from VAT to GST aimed to maintain uniformity and prevent tax evasion.