Assessment order set aside for non-application of mind despite statutory remedy being available under writ jurisdiction

The Madras HC allowed a writ petition challenging an assessment order despite availability of statutory remedy. The court found the impugned order suffered from non-application of mind as it merely reiterated the proposal without addressing the petitioner's reply regarding Input Tax Credit claims. The court held that while alternative remedies generally preclude writ jurisdiction, exceptions exist including violation of natural justice principles and non-application of mind. The assessment order dated 02.09.2024 and consequential detailed order dated 31.08.2024 were set aside. Petition disposed of favorably.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the impugned order dated 02.09.2024, confirming tax liability and rejecting the petitioner's reply to the Show Cause Notice dated 05.06.2024, suffers from violation of principles of natural justice due to non-consideration of the petitioner's detailed objections.

(b) Whether the supply of vehicle rental services by the petitioner to a registered Goods Transport Agency (GTA) is liable to GST or exempt/nil-rated under Notification No.12/2017 Central Tax (Rate) dated 28.06.2017.

(c) Whether the lorry freight expenses and transport income incurred and declared by the petitioner are taxable under GST or exempt, particularly in light of the petitioner's contention that tax on GTA services was discharged under reverse charge mechanism (RCM) and that transport income from vehicle hire to another GTA is exempt.

(d) Whether the impugned order suffers from non-application of mind and is liable to be set aside on the ground of failure to deal with the petitioner's objections.

(e) Whether the writ petition is maintainable under Article 226 of the Constitution of India despite the existence of an alternate appellate remedy.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Violation of Principles of Natural Justice and Non-application of Mind

The petitioner contended that the impugned order was passed in gross disregard of the reply filed in response to the Show Cause Notice. The reply elaborately explained the nature of transactions, invoked relevant notifications, and relied on precedents. However, the impugned order merely reiterated the tax demand proposal without addressing or considering the objections raised. The Court noted that the order under the "findings" section failed to deal with any of the issues raised and did not assign any reason for rejecting the petitioner's reply.

The Court observed that such conduct amounts to non-application of mind and violates principles of natural justice, which require that a party's submissions be considered and dealt with before adverse orders are passed. The Court relied on the established principle that failure to consider relevant objections and evidence filed by a party vitiates the order. This non-application of mind was held to be an error apparent on the face of the record, justifying interference under Article 226 despite the existence of an alternate remedy.

(b) Taxability of Vehicle Rental Services to a GTA under Notification No.12/2017

The petitioner's primary contention was that the services rendered by way of renting vehicles to a registered GTA fall under tariff heading 9966 or 9973 and are nil-rated as per Notification No.12/2017 Central Tax (Rate) dated 28.06.2017. The petitioner submitted that the supply was made to M/s Zinc Foods Private Ltd., a registered GTA, which in turn provided GTA services to Tamil Nadu Civil Supplies Corporation.

The petitioner supported its claim by referencing authoritative rulings including the AAAR Maharashtra and AAR Karnataka decisions, which held that:

• Services by way of giving vehicles on hire to a GTA are distinct from GTA services themselves and are exempt/nil-rated under the notification.
• A person can be both a GTA and a supplier of vehicles on hire to another GTA, with the appropriate tax treatment applicable to each distinct transaction.

The respondent's Show Cause Notice challenged this claim on the basis of verification of Form 26AS and non-filing of outward supplies in GSTR-1, proposing to tax the supply at 18% GST.

The Court found that the impugned order failed to engage with or analyze the petitioner's detailed submissions and relied solely on the proposal without adjudicating on the applicability of the exemption notification or the precedents cited. This omission was a critical flaw.

(c) Taxability of Lorry Freight Expenses and Transport Income

The Show Cause Notice also proposed tax on lorry freight expenses and transport income declared by the petitioner, amounting to Rs. 93,24,435, at the rate of 5%. The petitioner responded that:

• Lorry freight expenses represented GTA services on which tax was discharged under reverse charge mechanism (RCM), supported by payment of CGST and SGST along with interest.
• Transport income of Rs. 52,24,347 represented lorry hire charges received from another transport agency, which was exempt under the same Notification No.12/2017.
• The transport income was credited as income liable to Income Tax and was not taxable under GST.

The impugned order rejected the petitioner's reply on this issue for lack of submission of relevant documents, without any reasoned analysis. The Court held that such rejection without consideration of the petitioner's explanation and documentary evidence also amounted to non-application of mind and was unsustainable.

(d) Maintainability of Writ Petition Despite Alternate Remedy

The respondent contended that the impugned order was appealable and therefore the writ petition was not maintainable. The Court acknowledged the general principle that writ petitions under Article 226 are not entertained where an alternate statutory remedy exists. However, the Court emphasized that this is a self-imposed restriction and not an absolute bar. Exceptions exist where there is violation of principles of natural justice, lack of jurisdiction, or error apparent on the face of the record.

Given the non-application of mind and failure to consider the petitioner's reply, the Court exercised its discretion to entertain the writ petition and set aside the impugned order.

3. SIGNIFICANT HOLDINGS

The Court held:

"The impugned order suffers from non-application of mind inasmuch it merely reiterates the proposal and does not deal with any of the aspects set out in the reply in respect of the above two issues."

"There is merit in the submission of the learned counsel for the petitioner that the impugned order suffers from gross non-application of mind and thus stands vitiated."

"Existence of alternate remedy is not an embargo or an absolute bar to exercise power under Article 226 of the Constitution of India but a self-imposed restriction and the following circumstances viz., violation of principles of natural justice or lack of jurisdiction or error apparent on the face of the record are some of the exceptions carved out to the rule of alternate remedy for exercise of discretion under Article 226."

The Court concluded that the impugned orders dated 02.09.2024 and 31.08.2024 were liable to be set aside for the reasons stated. The petitioner was permitted to file further objections within two weeks, which must be considered by the respondent authority after affording a reasonable opportunity of hearing, in accordance with law.

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