Milk manufacturer wins challenge against tax assessment based on excess electricity consumption during COVID lockdown

The Madras HC allowed a petition challenging tax confirmation with interest and penalty for alleged suppression of sales. The petitioner, a milk products manufacturer operating as job worker, faced assessment based on excess electricity consumption during 2020 COVID-19 lockdown. The court found that respondent failed to consider petitioner's explanation that continuous deep freezer operations at -20^0C for storing third-party goods caused excess electricity consumption unrelated to sales turnover. Without contrary evidence of suppression, the court set aside the impugned orders and remanded the matter for reconsideration of this vital aspect.

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Issues:
Challenge to tax orders, imposition of penalty under TNGST Act, alleged sales suppression, violation of natural justice.

Analysis:
The Writ Petitions challenge orders confirming tax amounts and penalties under the TNGST Act due to alleged sales suppression. The petitioner responded to show cause notices, explaining discrepancies, but the respondent confirmed tax demands for one defect related to a decrease in taxable turnover. The petitioner argued that Covid-19 lockdowns caused stagnation of goods, leading to increased electricity consumption. Despite explanations and supporting documents, the respondent upheld the tax demand without proper consideration, violating natural justice principles. The petitioner sought a remand for reconsideration of this specific defect.

The respondent contended that discrepancies in taxable turnover indicated sales suppression, justifying the tax demands and penalties. The respondent highlighted the lack of convincing explanations, especially regarding electricity consumption, which affected the production calculations. The respondent defended the impugned order's validity, suggesting dismissal of the Writ Petitions or directing the petitioner to appeal through the appropriate channels.

Upon review, the Court noted the petitioner's business disruptions due to Covid-19 and the unique circumstances leading to increased electricity consumption. The Court agreed with the petitioner's arguments, finding the respondent's failure to consider crucial aspects before passing the impugned orders. Consequently, the Court set aside the orders concerning the specific defect related to sales suppression and remanded the matter to the respondent for reevaluation.

The Court issued specific orders: setting aside the impugned orders related to the identified defect, remanding the matter for reconsideration, allowing the petitioner to submit additional replies with relevant documents, directing a clear notice for a personal hearing, and instructing the respondent to take immediate steps to unfreeze the petitioner's bank account. The Writ Petitions were allowed on these terms, with no costs incurred, and connected Miscellaneous Petitions were closed.

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