Landmark GST Ruling: Partial Relief Granted with 10% Tax Deposit and Opportunity for Reconsideration of Disputed Order

HC Madras partially allowed a GST-related challenge, quashing an order imposing tax on trade payables. The court directed the petitioner to deposit 10% of disputed tax demand (excluding trade payables) and mandated respondents to reconsider the order, providing a reasonable opportunity for the petitioner to present arguments within two months.

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Issues involved:
Challenge to order u/s 226 of the Constitution of India regarding imposition of GST on trade payables.

Detailed Judgment:

Issue 1: Scope of Show Cause Notice
The petitioner, a registered person under GST enactments in Tamil Nadu, challenged an order dated 31.12.2023, arguing that it exceeded the scope of the show cause notice issued on 30.09.2023, which was limited to a proposed tax of Rs. 43,66,708.14. The impugned order imposed GST on the total trade payables of Rs. 85,58,12,375, leading to a tax liability exceeding Rs. 90 crores. The petitioner contended that GST was wrongly imposed despite compliance with Input Tax Credit (ITC) regulations. The respondents did not provide sufficient reasons for their conclusions, according to the petitioner.

Issue 2: Imposition of GST on Trade Payables
The petitioner's main contention was the imposition of GST on trade payables, which were considered taxable supplies by the respondents based on financial statements. The petitioner had fulfilled ITC requirements by making timely payments for received goods or services, as evidenced by returns filed. The impugned order's conclusion that GST was payable on the total taxable supply from financial statements was deemed questionable.

Issue 3: Reconsideration of Impugned Order
The Court found merit in the petitioner's arguments regarding the imposition of GST on trade payables and other tax heads. It quashed the impugned order conditionally, requiring the petitioner to remit 10% of the disputed tax demand under all heads except trade payables within two weeks. The respondents were directed to provide a reasonable opportunity for the petitioner to present their case and issue a fresh order within two months, considering all contentions raised.

Conclusion
The High Court of Madras quashed the impugned order subject to the petitioner complying with the condition to remit 10% of the disputed tax demand under all heads except trade payables. The Court emphasized providing the petitioner with a fair opportunity to present their contentions and directed the issuance of a fresh order within two months. No costs were awarded, and connected miscellaneous petitions were closed.

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