2024 (10) TMI 205 - HC - GST

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 ... Outward suppression of taxable turnover - Assessment and penalty under Section 74 of the TNGST Act - Principles of natural justice and non-speaking order - Remand for fresh consideration with opportunity of personal hearing - De-freezing of bank account as interim reliefOutward suppression of taxable turnover - Assessment and penalty under Section 74 of the TNGST Act - Principles of natural justice and non-speaking order - Validity of confirmation of tax, interest and equal penalty in respect of Defect No.8 based on alleged suppression of turnover for the pandemic years - HELD THAT: - The assessments in respect of Defect No.8 were founded on a comparison showing decreased taxable turnover in 2020-21 and 2021-22 vis-a -vis 2019-20 while electricity consumption remained substantially the same. The petitioner explained, with supporting documents, that COVID-19 lockdowns caused shutdowns and storage of manufactured job-work products in deep freezers (continuous running for storage at -20 C), producing higher EB consumption that is not directly linked to sales. The respondent did not produce contrary evidence to substantiate suppression and, having failed to take the petitioner's explanation and records into account, passed the impugned orders without adequate consideration of that vital aspect. The Court found the assessment on Defect No.8 to be non-speaking in material respects and observed that the principles of natural justice required fresh consideration after affording the petitioner an opportunity to file further replies and to be heard personally. [Paras 6, 8, 9]Impugned orders dated 25.06.2024 are set aside insofar as they relate to Defect No.8; the matter is remanded to the assessing authority for reconsideration after permitting additional reply and holding a personal hearing, and interim relief of de-freezing the petitioner's bank account is to be implemented.Final Conclusion: Writ petitions allowed in part: the tax demand, interest and penalty confirmed in respect of Defect No.8 are set aside and remitted to the respondent for fresh consideration with directions to permit additional reply within the specified time, to issue a clear notice fixing a personal hearing, to decide thereafter in accordance with law, and to de-freeze the petitioner's bank account forthwith. 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.