2025 (9) TMI 1595 - HC - GST

Order-in-appeal set aside for failing to consider grounds and violating natural justice; remitted for fresh, reasoned decision

HC set aside the impugned order-in-appeal dated 20.06.2025 for failure to consider the grounds raised and for violating principles of natural justice, ... Levy of tax, interest and penalty under Section 73(9) of Telangana Goods and Services Tax Act, 2017 - rejection of memo of appeal without even referring to or discussing any of the grounds raised by the petitioner - violation of principles of natural justice - HELD THAT:- Reasons are the soul of the order. A mere perusal of paragraph 10 of the impugned order shows total non-consideration of the grounds urged. Reference is made to the decision of the Apex Court in Kranti Associates (P) Ltd. v. Masood Ahmed Khan [2010 (9) TMI 886 - SUPREME COURT] where it was held that 'we set aside the order of the National Consumer Disputes Redressal Commission and remand the matter to the said forum for deciding the matter by passing a reasoned order'. Having regard to the aforesaid discussion made and the reasons recorded, the order-in-appeal dated 20.06.2025 is set aside. The matter is remitted to the appellate authority to pass a fresh order in accordance with law. The petitioner should appear before the appellate authority on 06.10.2025 - petition disposed off by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate authority's order summarily rejecting grounds of appeal without dealing with evidence and submissions breaches the duty to record reasons and vitiates the order. 2. Whether the differential turnover reported in financial statements vis-à-vis monthly GST filings (GSTR-1/GSTR-3B), and classified inadvertently as exempt turnover in GSTR-9/GSTR-9C for FY 2019-2020, was liable to tax for that year or required adjustment/reconciliation under GST law. 3. Whether services rendered under a Hybrid Annuity Model (HAM) concession agreement constitute a continuous supply for purposes of time of supply and invoicing, and consequently whether Sections 31(5) and 13(2) (and the CBIC circular clarifying HAM projects) govern time of supply rather than the general rule in Section 31(2). 4. Whether the adjudicating authority and appellate authority mischaracterised the contract as a BOT/annuity model (SAC 9967) as opposed to HAM/construction services (SAC 9954), and whether such characterisation affected the validity of tax, interest and penalty imposed under Section 73(9) of the Act. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Requirement to Record Reasons; Validity of Appellate Order that Does Not Deal with Grounds of Appeal Legal framework: Administrative orders and appellate decisions under the GST regime must disclose reasons addressing the grounds raised by the aggrieved party; reasons are essential to enable meaningful judicial review and to satisfy principles of natural justice. Precedent Treatment: The Court referenced the principle in Kranti Associates v. Masood Ahmed Khan that 'reasons are the soul of the order,' adopting the settled principle that a decision which fails to address the contentions and evidence presented is unsustainable. Interpretation and reasoning: The impugned appellate order, at paragraph 10, summarily rejected the memo of appeal without referring to or discussing any of the grounds raised or the evidence filed (service concession agreement, financial statements, GSTR-9/GSTR-9C, GSTR-1/GSTR-3B and agreements). The Tribunal found this to be total non-consideration of the grounds urged. The omission was material because the appellant had raised specific, evidence-based contentions concerning time of supply, classification of receipts, and the factual chronology (construction phase vs post-COD annuity receipts) which directly affected tax liability for FY 2019-2020. Ratio vs. Obiter: Ratio - An appellate order that does not consider and record reasons addressing the grounds and evidence presented is vitiated and requires remittance for fresh adjudication. Conclusions: The appellate order was set aside for failure to deal with the appellant's grounds and evidence; the matter was remitted to the appellate authority for fresh consideration and a reasoned decision. Issue 2 - Taxability of Differential Turnover Reported as Exempt in GSTR-9/GSTR-9C Legal framework: GST liability is determined by the time of supply, classification of services under appropriate SAC, and correct reporting/reconciliation between accounting/financial statements and GST returns. Section 73(9) permits imposition of tax, interest and penalty where tax is found payable; reconciliation forms (GSTR-9/GSTR-9C) are mechanisms for ensuring turnover matches filings. Precedent Treatment: No authority was overruled; the Court required the appellate authority to examine the evidence and submissions on reconciliation and the nature/timing of receipts rather than making summary conclusions. Interpretation and reasoning: The petitioner had accounted under Ind AS and reported turnover in GSTR-1/GSTR-3B based on amounts due and receivable during construction, while GSTR-9/GSTR-9C showed a variation inadvertently classified as exempt turnover. The adjudicating authority proposed to disallow that exempt classification and levy tax. The Court observed that such a determination requires examination of whether the amounts were actually receivable/received in the relevant year, whether they represented construction support (payable during construction) or annuity (payable post-COD), and whether the filing error was inadvertent and capable of reconciliation. Because the appellate order did not engage with these fact-specific issues and the documentary record, the correctness of the tax demand could not be affirmed without fresh adjudication. Ratio vs. Obiter: Ratio - A tax demand based on alleged misclassification in reconciliation statements cannot be upheld without examinable reasons and consideration of documentary evidence showing the true nature and timing of receipts. Conclusions: The question of taxability of the differential turnover was left open for the appellate authority to decide afresh after considering the evidence and legal submissions; the remittal is necessary to adjudicate whether the amounts were taxable in FY 2019-2020. Issue 3 - Time of Supply for HAM Projects; Applicability of Continuous Supply Rules and CBIC Circular Legal framework: Under the Act, the time of supply for continuous supply of services is governed by the specific provisions for continuous supply (Section 2(33) definition, Section 13(2) for value/time of supply interplay where payment and invoice rules apply) and invoicing provisions (Sections 31(2) and 31(5)); administrative guidance (CBIC circular) may clarify implementation of statutory rules for specific project structures (such as HAM). Precedent Treatment: The Court accepted that CBIC Circular No.221/15/2024 provides clarifications on time of supply for HAM projects and that such clarifications are relevant to adjudication; the appellate authority's disregard of the circular without addressing the contention was criticized. Interpretation and reasoning: The petitioner contended HAM projects are 'continuous supply of services' and that time of supply should be determined by invoice date or receipt of payment (whichever is earlier) per continuous supply rules and the CBIC circular, with Sections 31(5) and 13(2) being applicable. The adjudicating authority applied the general rule under Section 31(2) instead. The Court noted that this is a contested legal point tied to factual matrix (construction phase receipts vs post-COD annuity) and statutory interpretation that the appellate authority was obliged to consider and explain why it preferred Section 31(2) over the continuous supply rules and the CBIC circular. The appellate order did not confront these submissions or the circular's relevance. Ratio vs. Obiter: Ratio - Where classification as continuous supply under HAM is pleaded and supported by records, adjudicating bodies must consider the specific statutory provisions (Sections 31(5) and 13(2)) and relevant administrative clarifications before applying the general invoicing rule in Section 31(2). Conclusions: Determination of time of supply for the disputed amounts requires fresh consideration in light of continuous supply rules and the CBIC circular; appellate authority must address and reason whether the circular and Sections 31(5)/13(2) apply or why Section 31(2) alone governs. Issue 4 - Characterisation of Receipts: HAM vs BOT/Annuity Model and Appropriate SAC Classification Legal framework: Correct classification of supplies under appropriate Service Accounting Code (SAC) and contractual model (HAM vs BOT/Annuity) affects exemption availability and tax treatment; notifications grant exemptions to certain categories and classification errors can attract assessments under Section 73. Precedent Treatment: The Court did not alter prior legal positions on SAC classification but required that the appellate authority examine the petitioner's contention that its contract was under HAM and that annuity receipts (post-COD) were not received in FY 2019-2020; the appellate authority's contrary factual/characterisation conclusion was unsupported by reasoning. Interpretation and reasoning: The adjudicating authority treated the receipts as annuity and suggested SAC 9967 (toll/annuity) classification, disallowing claimed exemption under clause 23A of the notification. The petitioner maintained it never claimed exemption on annuity under SAC 9967 and that receipts in the contested year were construction support (not annuity) and thus fall under SAC 9954. The Court emphasized that such characterization is a mixed question of law and fact dependent on the concession agreement, invoicing, and timing of COD; the appellate authority's failure to analyze these factual matrices rendered its conclusion unsustainable. Ratio vs. Obiter: Ratio - Characterisation of contractual receipts (construction support vs annuity) and SAC classification must be based on evidence and reasoned findings; a summary conclusion without such reasoning cannot sustain tax, interest and penalty. Conclusions: The question whether the receipts constituted annuity or construction support, and the appropriate SAC classification, must be re-examined by the appellate authority with reference to the concession agreement, invoicing practice, GST filings and the temporal incidence of receipts. Remedial Disposition Legal framework & Reasoning: Given the material failures to consider and record reasons on pivotal factual and legal contentions (classification, time of supply, reconciliation), the Court applied the established principle that absence of reasons mandates setting aside and remittal for fresh decision rather than deciding the merits in writ jurisdiction. Ratio vs. Obiter: Ratio - Where an appellate order upholding tax, interest and penalty does not deal with available evidence and contentions, it must be set aside and the matter remitted for fresh adjudication; the remittal should afford the appellant opportunity to be heard and the appellate authority to pass a reasoned order. Conclusions: The appellate order was set aside and the matter remitted to the appellate authority for fresh decision in accordance with law, with the petitioner directed to appear on the specified date; no order as to costs.