2025 (10) TMI 793 - HC - GST

Rectification demanding GST on total turnover for combo packs set aside; pre-deposit limited to B2B and B2C amounts

HC set aside the impugned rectification insofar as it demanded GST on total turnover for combo packs, finding the Adjudicating Authority failed to explain ... Challenge to rectification order - Evasion of GST by way of misdeclaration of duty slab on combo packs, consisting of electronic chargers with rechargeable batteries - grievance of the Petitioner was that the subject product only constitutes 3 % of its turnover, however, the differential tax has been imposed on the total turnover - requirment of opportunity for personal hearing - violation of principles of natural justice - HELD THAT:- A perusal of the impugned order would show that the demand and recovery of short paid GST has been calculated on the basis of the total turnover. Penalty of Rs. 50.51/-crores has been imposed under Section 74(1) of the of Central Goods and Services Tax Act, 2017 and Delhi Goods and Services Tax Act, 2017 - Further, the same amount of penalty has also been imposed under Section 122(1)(x), 122 (1)(xvi) & 122 (1)(xvii) of the CGST and DGST Act - Finally, a penalty of Rs. 50,000/- has been imposed under Section 125 of the CGST and DGST Act. The Court finds a fundamental flaw in the approach of the Adjudicating Authority that, though the actual sales of the entire combo packs, on both B2B and B2C sales was available with the Adjudicating Authority, the GST is being demanded on the total turnover - The impugned order is an appealable order. The tax evasion, if any, is in respect of B2B and B2C sales. There is no reasoning given by the Adjudicating Authority, as to why GST is being sought to be levied on the total turnover. The Court is of the opinion that the Petitioner is liable to be relegated to the appellate remedy. However, the pre-deposit shall be calculated, and made in respect of the amounts falling under B2B and B2C of each of the financial years - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether, where misclassification of certain 'combo packs' (electronic chargers with rechargeable batteries) is alleged for specified invoices, the tax demand can lawfully be computed on the taxpayer's total turnover instead of being limited to the turnover attributable to the allegedly misclassified items (B2B and B2C sales). 2. Whether a writ under Articles 226/227 is the appropriate remedy to examine the factual calculation of tax/penalty, or whether the taxpayer should be relegated to the appellate remedy, including issues of pre-deposit and limitation. 3. Whether the imposition of multiple and identical penalties (under Section 74(1), Sections 122(1)(x), 122(1)(xvi), 122(1)(xvii), and Section 125 of the CGST/DGST Acts) without distinct reasoning as to the basis and quantum for each is sustainable in view of the manner in which the demand was computed. 4. Whether the directions previously issued by the Court for a personal hearing and consideration of the claim that the item constituted only a small percentage of turnover were complied with and adequately reflected in the adjudicating authority's reasoned order. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Computation of Demand on Total Turnover vs. Turnover Attributable to Allegedly Misclassified Items Legal framework: Tax liability under the CGST/DGST scheme is determined by classification of goods/services and the applicable rate for those items; assessment/demand should reflect the taxable value of affected supplies. Section 50 (interest) and provisions for determination of tax arrears apply once tax short-payment is established. Precedent Treatment: The impugned order does not rely upon or cite binding precedent; the Court's decision proceeds on statutory interpretation and factual analysis of the record rather than on authority-following or distinguishing. Interpretation and reasoning: The Court finds a 'fundamental flaw' in the Adjudicating Authority's approach of levying GST on the total turnover despite recorded and available breakup of actual combo-pack sales (B2B and B2C). The Adjudicating Authority recorded turnover figures for each financial year and separately identified turnover of combo sales, yet proceeded to compute tax demand on total turnover without articulating reasons why the misclassification of only certain invoices justifies taxation of all sales. The Court observes that applying a lower/higher rate inconsistently to particular invoices suggests misclassification for those transactions only; therefore computation ought to be confined to the turnover attributable to those transactions unless the authority explains and proves a basis for broader application. Ratio vs. Obiter: Ratio - It is impermissible for the tax demand to be computed on total turnover where the asserted misclassification and short payment relate to specific itemized sales unless the authority provides reasoned findings justifying extension to total turnover. Conclusions: The Adjudicating Authority's computation on total turnover lacks reasoning and is unsustainable on the face of the record; factual analysis necessary to determine correct quantum is not appropriate in a writ, and thus corrective relief is procedural (see Issue 2). Issue 2 - Appropriateness of Writ Remedy and Relegation to Appellate Remedy; Pre-deposit Direction Legal framework: The statutory scheme contemplates an appellate remedy against adjudication orders; appellate forums consider pre-deposit requirements and limitation. High Court's writ jurisdiction under Articles 226/227 is discretionary and not intended for detailed factual reappraisal where efficacious statutory remedies exist. Precedent Treatment: The Court characterizes the matter as primarily factual and within the scope of an appeal, rather than deciding on precedent; no precedent is applied to alter this approach. Interpretation and reasoning: Given the factual and detailed computation issues (turnover breakups, invoices, classification on a transaction-by-transaction basis), the Court declines to undertake that factual exercise in a writ petition. Instead, the Court directs relegation to the appellate forum, while safeguarding the petitioner's right to appeal by specifying that the pre-deposit shall be calculated and made only in respect of amounts falling under B2B and B2C sales for each financial year. The Court grants a time-limited opportunity to file the appeal and orders that the appeal not be treated as barred by limitation if filed within the period. Ratio vs. Obiter: Ratio - Where adjudication involves detailed factual computation of taxable turnover for specific transactions, the appropriate course in a writ is to remit the matter to the appellate remedy rather than re-evaluate facts; the High Court can regulate the pre-deposit requirement to reflect the amounts genuinely in dispute (here, B2B/B2C turnover). Conclusions: The petitioner must file appeal within the stipulated time with pre-deposit confined to the turnover attributable to the alleged misclassified combo sales; the appellate authority must afford personal hearing and pass a reasoned order. The writ is disposed of accordingly. Issue 3 - Validity of Multiple Identical Penalties Without Distinct Reasoning Legal framework: Penalties under Sections 74, 122 and 125 of the CGST/DGST Acts attach on different statutory bases (e.g., fraud/suppression, furnishing false information, failure to keep proper books), and imposition requires satisfaction of statutory conditions and reasoned findings proportional to misconduct and quantification principles. Precedent Treatment: The impugned order levies identical penalty amounts under multiple provisions but does not provide compartmentalized or distinct reasoning to show how each penal provision's distinct mens rea or statutory condition is satisfied beyond the core finding of misclassification; the Court does not articulate reliance on authorities but flags lack of reasoned differentiation. Interpretation and reasoning: The Court notes that the massive quantum of identical penalties (equal to the tax demand) and the lack of articulated reasons as to why each penal provision warrants the same quantum are problematic, particularly when the foundational tax computation is itself flawed (see Issue 1). Because the order's penalty findings flow from the primary demand assessment, the inadequacy in assessing tax undermines the basis for multiple punitive impositions without separate, reasoned findings. Ratio vs. Obiter: Obiter/Practical direction - While the Court does not hold each penalty invalid on merits, it indicates that penalty imposition cannot stand absent a reasoned nexus between the specific statutory contraventions and the quantum imposed; appellate reconsideration is required. Conclusions: Penalties require re-examination on appeal after proper determination of taxable turnover for the specific transactions; the appellate authority must articulate separate reasoned findings for each penal provision if sustaining penalties. Issue 4 - Compliance with Earlier Court Direction for Personal Hearing and Consideration of Turnover Percentage Legal framework: Principles of natural justice require personal hearing and consideration of material placed before the authority. Prior court directions to afford personal hearing and consider specific contentions must be complied with and reflected in the reasoned order. Precedent Treatment: The record shows the Court had earlier directed a personal hearing and that the petitioner's contention that the product constituted only about 3% of turnover 'shall be taken into consideration'. The impugned order, while noting turnovers and making findings of deliberate misclassification, does not provide clear reasoning reconciling the prior direction with the computation on total turnover. Interpretation and reasoning: The Court observes that the earlier direction required a personal hearing and verification of the contention as to the small percentage of turnover; the adjudicating order does not satisfactorily explain why that factor did not prevent computation on total turnover. Because the order lacks a coherent explanation of compliance with the earlier directions, appellate re-examination is warranted. Ratio vs. Obiter: Ratio - Failure to demonstrate compliance with an earlier judicial direction and to record reasoned findings on that point undermines the order and supports appellate reconsideration. Conclusions: The appellate authority must conduct/furnish a personal hearing and pass a reasoned order addressing the prior directions and the turnover-percentage contention before sustaining demand or penalties.