SS Traders Vs Joint Commissioner (ST) (Information) (Madras High Court)

Summary: In SS Traders v. Joint Commissioner (ST) (Information)The Madras High Court addressed procedural irregularities in a tax assessment dispute involving SS Traders, a supplier of steel products. The court set aside an order imposing a substantial tax liability on SS Traders, which was issued immediately after the final hearing on April 12, 2021. The petitioner argued that the order, which runs into 105 pages, was issued on the same day as the hearing, making it technically unlikely that the arguments presented will be fully considered. Citing procedural fairness, the court ruled that issuing a sweeping order on the same day likely circumvented due process, undermining the principles of natural justice. The case began when SS Traders received a Show Cause Notice (SCN) from the tax authorities, alleging that the business had improperly claimed Input Tax Credit (ITC) due to the supplier’s procedural lapses. Although SS Traders argued that their transactions were legitimate and that they could not be penalized for the suppliers’ non-compliance, the Joint Commissioner issued a final assessment order on 12 April 2021. The Madras High Court held that the order was vitiated by its immediacy, invalidating – him thus and sending the case for re-evaluation. The court directed SS Traders to deposit 10% of the tax in dispute and file a detailed reply, asking the tax department to hold a fresh hearing and issue a fresh order. This ruling emphasizes the importance of adequate deliberation time in administrative proceedings to uphold procedural fairness and integrity.

The Hon’ble Madras High Court in the case Miss. SS Traders v. Joint Commissioner (ST) (Intelligence) (Writ Petition No. 15363 of 2021 dated 16 August 2024) re-sent the order where the assessee was saddled with huge tax liabilities, through the assessment order and on the date of hearing, the 105 page order was passed which was technically impossible. The Order was therefore set aside and remitted for passing a fresh order.

Facts:

Miss. Merchants SS (the “Petitioner”) was engaged was engaged in the business of iron and steel namely heat treated (“TMT”) Bar, a type of steel bar used in construction projects, underground and underwater structures.

They were given a notice of reason (“SCN”) dated February 11, 2021 to which the Petitioner responded on March 15, 2021 and requested three weeks. According to the reply, the Department of Revenue (“respondent-1”) issued a SCN on March 22, 2021 and fixed the personal hearing date on March 22, 2021. The petitioner filed a response on March 31, 2021 and requested fifteen days.

Joint Commissioner (“respondent-2”) issued another SCN on 07 April 2021 and granted the petitioner last opportunity to file objections on or before 12 April 2021 and directed to appear for personal hearing on 12 April 2021.

It was contended that the goods were not received by the petitioner and the petitioner deliberately did not pay the tax in the electronic cash register. Petitioner has wrongly claimed/utilized Input Tax Credit (“ITC”).

The petitioner contended that it cannot be held guilty because of the supplier’s failure to comply with the statutory declarations as prescribed under the respective GST Acts. The supply of goods is made directly from the place of storage/warehouse and the invoices are raised directly from the head office branch. The petitioner has also received consideration for the deliveries made and therefore it cannot be said that no delivery has been affected.

Finally, the case was heard on April 12, 2021 and on the same date, the impugned Order consisting of 105 pages was pronounced, which is technically impossible since the Petitioner was fully heard on the said date.

Respondent-2, without considering the submissions of the petitioner, passed an Assessment Order dated April 12, 2021 (“The Impugned Order”) for Assessment Year 2017-18.

The petitioner claimed that part of the turnover was for the pre-GST period and for the rest, the tax liability was paid by the petitioner on 11 January 2021 along with interest.

Emission:

Whether the Department can issue an order on the same day of the hearing?

It took place:

The Hon’ble Madras High Court of Written petition no. 15363 of 2021 held as follows:

• Held that, the impugned Order is quashed and will be treated as an addendum to the SCN of February 11, 2021 and remanded the case to the Respondents to pass a new order, wherein the Petitioner shall deposit 10% of the disputed tax within a period of six weeks. and shall file a reply to the impugned Order. If the petitioner does not fulfill the conditions, it will be construed that the writ petition has been dismissed with liberty to proceed against the petitioner.

Our comments:

In court proceedings, issuing an order on the date of the personal hearing may be procedurally questionable. In accordance with the principles of natural justice and procedural fairness, adequate time should be allowed after the personal hearing to enable the Adjudicating Authority to review and consider the arguments presented by the parties involved. An immediate order raises concerns about whether the arguments and evidence presented during the hearing were properly considered. This approach could be seen as bias or a lack of objective assessment, potentially making the order arbitrary and violating due process principles.

In certain cases, if an order is made without providing a reasonable time for deliberation, it could be challenged on grounds of procedural impropriety. Courts have consistently held that a well-reasoned decision is essential, requiring time for careful consideration. Therefore, unless the urgency of the case requires immediate action, the issuance of an injunction on the same day could be construed as a denial of the right to due process, and the order may be vacated or remanded for reconsideration on those grounds.

FULL TEXT OF THE JUDGMENT/ORDER OF THE MADRAS COURT OF APPEAL

This writ petition is from the year 2021.

2. Through this application, the petitioner contested the contested Assessment Order bearing GSTIN: 33AQVPD8811F1ZS/2017-2018 dated 04.2021 adopted by the second respondent for the Assessment Year 20172018.

3. The case of the petitioner is that the impugned Assessment Order has grossly violated the principle of natural justice and also suffers from lack of jurisdiction.

4. The learned counsel for the petitioner would submit that part of the turnover relates to the pre-GST period and for the remaining part, the tax liability was paid by the petitioner on 01.2021 along with interest.

5. The petitioner’s counsel will also claim that the second defendant issued the petitioner a notice of presentation of the case dated 02.2021, to which he responded on 03.15.2021, requesting a three-week deadline. Pursuant to the aforementioned objection, the second defendant issued a notice on 22.03.2021, setting the date of the personal hearing on 06.04.2021 at 11.00 a.m. at the headquarters of the second defendant. Responding to the said notice, on 31.03.2021, the petitioner requested a period of fifteen days.

6. The second respondent issued another notification on 04/07/2021, giving the petitioner a last opportunity to file a response until 04/12/2021 or before 04/12/2021, during business hours from 10:00 a.m. to at 17.45, and in the same notification, the second respondent also directed. the petitioner to appear at the personal hearing on 12.04.2021, without indicating any specific time for the hearing.

7. It is further contended that the goods were not received by the petitioner and the petitioner deliberately did not pay the fee in the Electronic Cash Register. The petitioner has wrongly claimed/entitled Input Tax Credit for output tax liability on eligible input tax credit basis. It is submitted that this act of the petitioner also warrants a penalty under Section 74 of the respective GST Acts. Therefore, it is submitted that the impugned Assessment Order does not call for any interference. Therefore, it is prayed for dismissal of the writ petition.

8. It is submitted that the petitioner also appeared for a personal hearing on the 12th.04.2021. However, without considering the same, the impugned Assessment Order was passed by the second respondent on the said date.

9. Aggravated by the impugned Assessment Order dated 12.04.2021the petitioner filed this writ on the ground that there is a serious violation of the principles of natural justice.

10. Learned counsel for the petitioner would submit that the petitioner also closed the business in 2019 and also the petitioner has no other source of income but was satisfied with a huge tax liability of 5,32,45,970/- through no fault of the petitioner.

11. It is contended that the petitioner cannot be held guilty because of the failure of the supplier to comply with the statutory declarations as prescribed in the respective GST Acts and the rules made thereunder. As regards the denial of input tax credit on the ground that the supply was without actual supply of goods, it is submitted that the petitioner was engaged in the business of iron and steel namely Thermo-Mechanically Treated Bar (TMT), a type of steel bar used in construction projects, underground and underwater structures.

12. It is claimed that the delivery of the goods was directly from the place of storage/warehouse and the invoices were raised directly from the head office branch. It is further contended that the petitioner received consideration also for the deliveries made and therefore it cannot be said that no delivery was made.

13. Apart from this, it is claimed that the case was tried on 04.2021 and on the same date the challenged assessment order consisting of 105 pages was pronounced, which is technically impossible since the petitioner was fully heard on the said date .

14. On the other hand, the learned supplementary pleading of the respondents would contend that the petitioner is the beneficiary of the illegitimate tax credit from the bogus traders viz. Miss. Sri Devi Enterprises, Miss. JJ Merchants and Miss. Jaya Trading Company.

15. In this regard, the learned additional plea of ​​the government for the respondents relied upon the decision of this Court in Sahyadri Industries Limited Vs. Tamil Nadu State(2023) 115 GSTR 320.

16. Considering the arguments made by the learned defense counsel of the petitioner and the learned additional pleader of the respondents, the Court is inclined to partially come to the rescue of the petitioner by canceling the contested Assessment Order and sending the case back to trial. respondents to issue a new order with the following conditions:

17. The petitioner shall deposit 10% of the impugned fee of Rs.31,56,386/-, within six weeks from the date of receipt of a copy of this order.

18. The Petitioner shall file a detailed response to the impugned Assessment Order,

19. The contested assessment order that is quashed will be treated as an addendum to the Notice of Presentation of the Case dated 02.2021 issued to the petitioner, which preceded the contested Assessment Order.

20. It is stated that if the petitioner does not meet any of the conditions mentioned above, it will be interpreted that the summons has been dismissed with freedom for the respondents to proceed against the petitioner in the manner known by law.

21. This writ petition is disposed of with the above observations and directions. No cost. The related writ petition is closed.

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