2024 (2) TMI 180 - HC - GST

Government Company seeks GST exemption under Section 8 of Companies Act 2013 through writ petition

KERALA INFRASTRUCTURE AND TECHNOLOGY FOR EDUCATION Versus UNION OF INDIA, THE COMMISSIONER OF CGST & CENTRAL EXCISE, ADDITIONAL / JOINT COMMISSIONER OF CGST & CENTRAL EXCISE

Kerala HC disposed of a writ petition filed by a Government Company registered under Section 8 of the Companies Act, 2013, seeking GST exemption on goods ... Exemption from payment of GST - centage charges towards the expenditure borne by the petitioner for project implementation - whether the supply of goods and services received by the petitioner or supply made by them are exempted from payment of GST? - HELD THAT:- It is not in doubt that the petitioner is a Government Company registered under Section 8 of the Companies Act, 2013. Almost all the shares of the petitioner are held by the State Government. The question whether the supply of goods and services received by the petitioner or supply made by them are exempted from payment of GST is the question which needs to be decided by the assessing authority itself. The petitioner has been issued with show cause notice to which they have filed their reply and the petitioner had also availed one opportunity of hearing before the assessing authority. It is not deemed proper to interrupt the ongoing proceedings before the assessing authority. However, it is made clear that the assessing authority will examine each and every argument of the petitioner against the show cause notice and also examine the evidences/documents submitted by them, including the notifications, to come to a conclusion whether the petitioner is entitled for exemption from payment of GST or not. Once the assessing authority comes to its conclusion that the petitioner is exempted from payment of GST, the show cause notice should be dropped. The present writ petition stands finally disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether the petitioner is exempt from payment of GST in respect of supplies of goods and/or services by reason of registration under Section 12AA of the Income Tax Act and notifications exempting supplies between Government entities or charitable entities. 2. Whether the show cause notice issued under Section 73 of the CGST Act/State GST Act can be quashed by writ jurisdiction on the ground that the assessing authority has pre-determined the liability (rendering adjudication a futile exercise). 3. Whether the High Court should interfere with ongoing adjudicatory proceedings when the assessing authority has issued a show cause notice and the assessee has filed a reply and availed hearing; and if interference is inappropriate, what directions (if any) the Court should give to the assessing authority. ISSUE-WISE DETAILED ANALYSIS Issue 1: Exemption from GST under Notifications and Section 12AA Registration Legal framework: Exemption claims arise from notifications under the Central/State GST rate schedules (including entries inserted by notifications) and the statutory scheme of CGST/SGST. Liability to pay tax is determined by applying the relevant exemption notifications to the facts of supply. Proceedings for recovery of alleged unpaid tax are governed by Section 73 (and corresponding State provisions) of the CGST/SGST Acts and the Rules made thereunder. Precedent treatment: No precedent beyond statutory regime invoked for substantive interpretation of exemption notifications; the Court considered documentary claims of exemption and the need for adjudicatory scrutiny rather than resolving exemption merits in writ proceedings. Interpretation and reasoning: The Court recognised that the petitioner is a government-controlled Section 8 company with Section 12AA certification and that the petitioner contends supplies are exempt (either as charitable entity or as inter-governmental supply). However, determination of whether each supply falls within the scope of the applicable exemption notification requires detailed consideration of evidence, invoices, value assessment and the nature of transfers (ownership transfer vs. maintenance/service). Those factual and evidentiary questions fall within the competence of the assessing/adjudicating authority exercising functions under the CGST/SGST Acts. Ratio vs. Obiter: Ratio - entitlement to exemption is a question of fact and law which the assessing authority must decide in adjudication; the court will not substitute its view where adjudication is pending. Obiter - observations that ownership retention and centage/maintenance charges may bear on taxability are comments of guidance rather than definitive findings. Conclusions: The question of exemption under the notifications is to be determined by the assessing authority after considering the petitioner's reply and supporting documents; the Court refrains from conclusively adjudicating the exemption claim in the writ petition. Issue 2: Quashing Show Cause Notice on Ground of Predetermination (Writ Maintainability) Legal framework: Writ jurisdiction may be invoked to quash administrative action where the authority has acted with pre-determination, bias, or where adjudication would be a futile formality; principles of natural justice and institutional impartiality govern. Section 73 proceedings ordinarily permit adjudication and appellate remedies; extraordinary interference is limited to cases of demonstrable mala fides or clear pre-judgment. Precedent Treatment: The judgment considered principles exemplified by higher-court authority permitting pre-emptive judicial intervention where show cause notices are mere formalities following pre-judgment. The Court reviewed that line of authority but applied it contextually. Interpretation and reasoning: The petitioner alleged pre-determination based on the tone/content of the show cause notice. The Court examined the record and found no cogent demonstration that the assessing authority had closed its mind or would refuse to consider the petitioner's submissions. The petitioner had filed a detailed reply and attended a hearing. The materials supplied with the notice and the existence of an opportunity to be heard indicate that adjudication was not a foregone conclusion. Merely expressing a view in a show cause notice does not, without more, establish the kind of pre-determination that warrants quashing the notice. Ratio vs. Obiter: Ratio - quashing a show cause notice for predetermination requires clear evidence that the authority has prejudged the matter; absence of such evidence and existence of ongoing proceedings precludes writ relief. Obiter - reference to possible scenarios where intervention would be warranted if evidence of bias or closed mind were shown. Conclusions: The writ petition is not maintainable on the ground of predetermination in the absence of demonstrable bias or denial of opportunity; the Court declines to quash the show cause notice on that basis. Issue 3: Appropriateness of Judicial Interference with Ongoing Adjudication and Directions to Assessing Authority Legal framework: Courts ordinarily refrain from interfering with pending statutory adjudication unless circumstances justify relief; where interference is declined, courts may nevertheless issue directions to ensure a fair, lawful, and expeditious adjudicatory process consistent with principles of natural justice. Precedent Treatment: The Court applied the accepted delimitation of writ review of revenue proceedings-judicial intervention only where adjudication would be futile or where jurisdictional error, mala fides, or denial of natural justice is shown; otherwise, the statutory process must run its course with judicial supervision confined to ensuring fairness. Interpretation and reasoning: Given that the petitioner had been served with particulars, filed a detailed reply and attended hearing, the Court concluded that the assessing authority must be allowed to continue and decide the matter on merits. To safeguard petitioner's opportunity, the Court directed the assessing authority to examine all arguments, notifications and documents submitted, and to issue a fresh personal hearing notice; the petitioner was directed to produce all relevant evidence, including financial statements and the notifications relied upon. The Court made clear that if the assessing authority concludes exemption applies, the notice must be dropped. Ratio vs. Obiter: Ratio - in absence of circumstances warranting quashing, the proper course is to remit to assessing authority with directions to consider all submissions and evidence; lower courts may impose procedural directions to ensure fairness and completion of adjudication. Obiter - comments regarding the types of evidence the authority should consider (invoices, ownership retention, maintenance contracts) are illustrative guidance. Conclusions: The Court refrained from interfering with ongoing adjudication, disposed the writ petition with directions that the assessing authority (a) re-issue fresh personal hearing notice, (b) consider all documents and arguments including exemption notifications and financial records, and (c) drop the show cause notice if it finds exemption. The petitioner must appear and produce all relevant evidence; no interim relief was granted.