Rejection of details by mere word ‘incomplete’ and single line GST order: HC shutdown order

G.Anand, Proprietor of M/s. Ram Industries vs. Assistant Commissioner (ST) (Madras High Court)

In a recent judgment, the Madras High Court dealt with a significant dispute between G. Anand, Owner, M/s Ram Industriesand the Deputy Commissioner (ST). The case revolved around allegations of discrepancies in tax returns for the 2018-2019 fiscal year, which resulted in the petitioner being served with a notice of allegations. The crux of the dispute was the alleged underpayment of tax and the adequacy of the petitioner’s response to the demands of the tax authorities.

Background of the case

The applicant, G. Anandoperates M/s Ram Industries, a business entity reported for discrepancies in its tax returns for the financial year 2018-2019. The Deputy Commissioner (ST) issued a notice of allegations on December 28, 2023, citing differences between the plaintiff’s GSTR-1 (foreign delivery) and GSTR-3B (summary tax liabilities) filings. Due to these discrepancies, the authorities concluded that there was a deficiency in the payment of Goods and Services Tax (GST).

The petitioner responded to the Notice of Cause on March 15, 2024 and submitted a detailed response containing a reconciliation of the discrepancies and supporting documents. The documents submitted included the audited balance sheet for the relevant financial year and GSTR-9, the annual return form detailing all transactions for the year. Despite these submissions, the defendant Deputy Commissioner (ST)rejected the petitioner’s clarifications as “incomplete” and issued a one-line order on April 30, 2024 confirming the missing tax payment.

Justification for the petition

The petitioner was dissatisfied with the tax authorities’ response and applied for the application Madras High Court by submitting a written application. The petitioner argued that the Deputy Commissioner (ST) acted arbitrarily by rejecting the reply without a reasoned order or a detailed examination of the documents submitted. The petitioner alleged that the one-line order passed by the Deputy Commissioner was not only abrupt but also violative of the principles of natural justice as it did not take into account the reconciliation and evidence submitted.

In particular, the petitioner alleged that the reconciliation of the GSTR-1 and GSTR-3B filings was adequately explained and that supporting documents, including credit memos, invoices and amended tax returns, were provided to clarify the discrepancies identified by the tax authorities. The petitioner further argued that while passing the impugned order, the Assistant Commissioner ignored the audited balance sheet and GSTR-9 which were an accurate representation of the financial and tax liabilities of the company for the year.

Proceedings before the Higher Regional Court

The matter was submitted to the Madras High Courtwhereby the petitioner’s lawyer emphasized that the response of the Deputy Commissioner (ST) was mechanical and lacked mental power. The counsel stressed that despite furnishing all the necessary documents including reconciliation of GSTR-1 and GSTR-3B and final reconciliation of e-way bill turnover with GSTR-1, the petitioner’s submissions were cursorily dismissed. The contested decision did not contain detailed reasons for rejecting the documents as “incomplete”.

During the procedure the Government lawyer The representative of the tax authority admitted that the defendant Deputy Commissioner (ST)had not submitted any detailed or reasoned order in response to the petitioner’s submissions. Government counsel acknowledged that respondent should have issued a more comprehensive order that addressed all aspects of petitioner’s response, including votes and supporting documentation.

Judgment of the Madras High Court

After hearing the arguments from both sides, the Madras High Court found to be justified in the plaintiff’s case. The court found that the defendant had actually failed to provide a reasoned and detailed response to the plaintiff’s submissions. The court observed that rejecting the petitioner’s detailed reply, which included polls and verified documents, with a one-line order was arbitrary and violative of the principles of natural justice.

The Supreme Court held that the defendant did not focus on the plaintiff’s clarifications and issued the impugned order mechanically without considering the material evidence presented. The court observed that the order lacked any substantive discussion or analysis of the documents submitted by the plaintiff, particularly the GSTR-9 reconciliation and the audited balance sheet.

Pretrial detention

In his judgment he Madras High Court annulled the contested decision of April 30, 2024 and referred the matter back to the Deputy Commissioner (ST). The court directed the defendant to re-examine the plaintiff’s submissions in detail, taking into account all the reconciliations and supporting documents submitted, including the reconciliation of E-Way bill turnover with GSTR-1.

The court also ordered the defendant to give the plaintiff the opportunity for a personal hearing in which he could fully present his case. The court emphasized that after considering all aspects of the plaintiff’s response and hearing the defendant must issue a detailed and reasoned order that reflects due consideration of the plaintiff’s submissions.

With this instruction, the application was dismissed and the court made it clear that there would be no decision on costs. The court also finalized related other motions filed in connection with the case.

Diploma

The Madras High Court decision in the case of G.Anand, Proprietor of M/s Ram Industries vs. Assistant Commissioner (ST) Stresses the importance of due process and the need for tax authorities to give reasoned instructions when resolving discrepancies in tax returns. The case serves as a reminder that the taxpayer’s answers and supporting documents must be carefully considered when processing tax notices and evidentiary notices. The court’s order to remand the matter for reconsideration ensures that the plaintiff’s clarifications are examined properly and in accordance with the law.

FULL WORD LIST OF THE JUDGMENT/ORDER OF THE MADRAS HIGH COURT

The present application seeks the issuance of a “Writ of Certiorarified Mandamus” to request the records of the respondent with the file number ZD33055240001353 dated April 30, 2024 for the fiscal year 2018-2019, to set them aside and to issue an order to the respondent, which in ARN: ZD330324086426E of 03/15/2024 submitted response and dispose of it in accordance with the law.

2. Learned counsel for the plaintiff submits that in the year 2018-2019, the defendant found discrepancies in GSTR 1 and GSTR 3B filed by the plaintiff and issued show cause notice in DRC-01 on 28.12.2023. The accusation was that the tax payment was too low. The petitioner clarified the differences by his reply in ARN: ZD330324086426E dated 15.03.2024 with relevant documents such as GSTR 9 filed in ARN No. AC330319086715T dated 10.03.2024 along with the audited balance sheet and a detailed letter dated 11.03. 2024 together with the respective invoices, credit notes and changed returns. However, the respondent ignored the clarifications and GSTR 9 reconciliation along with the audited balance sheet and confirmed the allegations of show cause notice through the impugned order stating that the “documents were incomplete”. Without taking all these aspects into account, the defendant has issued a one-line order, which can therefore be set aside.

3. By submitting the impugned order, the learned Government Counsel (T) appearing for the respondent would rightly submit that the respondent should have passed a detailed order taking all aspects into consideration and also submit that an appropriate order could be passed.

4. In the present case, the plaintiff was served with the notice of cause for issue on December 28, 2023, to which the plaintiff also submitted his answer dated March 11, 2024. In the reply, final reconciliation and reconciliation of e-way bill turnover with GSTR-1 along with seven supporting documents were filed but the same were not considered by the respondent and the respondent passed the impugned order mechanically without any consideration. Therefore, the Court is inclined to set aside the defendant’s order dated 04/30/2024 and the same is accordingly set aside. While setting aside the impugned order, the Court remands the matter to the respondent to examine and give him an opportunity to consider the reply taking into account all the final reconciliations and reconciliation of E-Way bill turnover with GSTR-1 and the seven documents attached thereto the personal hearing and then issue a detailed order to speak.

With the above instructions, this writ petition is disposed of. There is no decision on costs. Consequently, the related Other Petitions are closed.