Case Name : Tvl. Jones Enterprises Vs Assistant Commissioner (ST) (Madras High Court)

Appeal Number : W.P. Nos. 11038 & 11042 of 2024

Date of Judgement : 26/04/2024

• The implementation of the Goods and Services Tax (GST) regime in India on July 1, 2017, brought about a major change in the country's indirect tax system. The implementation of this tax reform replaced a complicated system of taxes at both the central and state levels.
• The goal was to simplify taxation, remove the issue of cascading effects, and promote a unified national market.
• The GST system taxes goods and services at various points in the supply chain, starting from manufacturing and ending with consumption.
• It allows for tax credits to be claimed for taxes paid at earlier stages. The GST Council is made up of representatives from the central and state governments.
• Its main responsibilities include setting tax rates, managing the tax system, and dealing with matters concerning tax compliance and administration.
• The importance of filing annual returns and complying with GST regulations is significant. It is crucial to ensure that businesses fulfil their obligations by submitting their annual returns on time and adhering to the regulations set by the GST authorities.
• Filing annual returns allows businesses to provide accurate financial information, maintain transparency, and fulfil their legal responsibilities.
• Complying with GST regulations ensures that businesses operate within the law, avoid penalties, and maintain good standing with the authorities. Overall, it is essential for businesses to understand
• Filing annual returns is an important requirement in the GST regime. It allows taxpayers to report their financial transactions, reconcile input tax credits, and make sure they are following tax laws.
• The annual return, usually submitted using Form GSTR-9, gives a detailed summary of a taxpayer's business activities for a specific financial year. It includes information about sales, purchases, input tax credits, and tax liabilities.

It is important to comply with GST regulations for several reasons:

• As a taxpayer, you are required by law to follow the regulations related to GST. This includes filing your returns, paying your taxes, and following the reporting requirements outlined in the GST law.
• If you don't follow the GST regulations, like not filing your returns or paying your taxes, you could end up facing penalties, fines, and legal consequences from the tax authorities. Being compliant with tax regulations in a timely and accurate manner is important for taxpayers to avoid penalties and to keep their business operations running smoothly.
• When taxpayers file their returns accurately and on time, it helps with reconciling the input tax credits they have claimed. When you properly reconcile, it means that taxpayers get the full benefit of input tax credits and reduces the chances of having disagreements with tax authorities.
• When businesses comply with GST regulations, it helps to make their transactions more transparent and accountable. This is because tax authorities have access to detailed information about taxable supplies, input tax credits, and tax payments. This helps build trust between taxpayers and tax authorities and encourages a culture of following tax regulations.
• Basically, taxpayers under the GST regime have two important responsibilities: filing annual returns and following GST regulations. By ensuring transparency, accountability, and compliance with tax laws, it helps the GST system function efficiently and creates a favourable business environment.

Facts Of The Case

• The Assistant Commissioner (ST) has issued orders imposing tax liability and penalties on Tvl. Jones Enterprises.
• The company is being penalised for alleged non-compliance with GST regulations, specifically related to the filing of the annual return.
• The petitioner's main argument is that they were unaware of the proceedings that led to the imposition of tax liability and penalties.
• The petitioner claimed that they were only notified about the case through notices and orders uploaded on the GST portal, without any other form of communication to inform them.
• There was a problem with the returns filed by Tvl. Jones Enterprises.
• The petitioner's lawyer pointed out that there was a difference between their GSTR 3B return and the GSTR 2B return that was automatically filled in.
• They said that this difference was because the supplier reported their sales late. The person making the request argued that they could provide an explanation for this difference and had already paid 10% of the tax amount in question.
• The petitioner has also challenged an order dated 13.02.2023, which imposed penalties for not filing the annual return. The argument was made that the need to submit an annual return in Form GSTR-9 only applies if the turnover exceeds a certain threshold.
• The petitioner claimed that this threshold did not apply to them.

• The petitioner's lawyer argued that the petitioner had no knowledge of the legal process that resulted in the imposition of tax liability and penalties.
• The notices and orders related to the case were only uploaded on the GST portal, without any other means of communication to inform the petitioner.
• The petitioner was not given the chance to respond to the allegations or take part in the proceedings due to a lack of communication. This goes against the principles of natural justice and procedural fairness.
• There was a mismatch in the returns. The petitioner's lawyer pointed out that there was a difference between the petitioner's GSTR 3B return and the automatically filled GSTR 2B return.
• The reason for this difference is that the supplier reported their sales late. The petitioner claimed that they could provide an explanation for this discrepancy and had already paid 10% of the disputed tax amount.
• The argument was that the tax proposal against the person making the claim was due to this discrepancy, which could be resolved by providing a clear explanation and reconciling the tax returns.
• The petitioner is challenging an order that was issued on 13.02.2023, which imposed penalties for not filing the annual return. The argument was made that the need to submit an annual return in Form GSTR-9 only applies if the turnover goes beyond a certain threshold.
• The petitioner claimed that this threshold did not apply to them. So, the petitioner challenged the penalties imposed for not meeting the filing requirements, arguing that their turnover did not meet the threshold criteria.
• The tax proposal is based on certain grounds and there is a penalty imposed on the petitioner.
• The tax proposal against the petitioner is based on a difference between the petitioner's GSTR 3B return and the auto-populated GSTR 2B return.
• The tax authorities discovered a discrepancy that showed the supplier had reported their sales late. As a result, the petitioner was proposed a tax liability due to this discrepancy.
• Furthermore, the petitioner faced penalties for not filing the annual return, as required by GST regulations.
• The tax authorities discovered that the petitioner failed to file the annual return, which resulted in penalties being imposed according to the GST law.

Issue  of the mismatch between GSTR 3B and GSTR 2B returns.

• The argument about the discrepancy between the petitioner's GSTR 3B and GSTR 2B returns highlights the significance of reporting and reconciling financial transactions accurately under the GST regime.
•  When there is a mismatch, it means that there are differences between the reported sales and input tax credits. If these differences are not corrected, it can result in tax liabilities or penalties.
• The petitioner claimed that they could explain the discrepancy by pointing out that the supplier had reported sales late.
• The statement emphasises the challenges that arise when it comes to complying with GST, especially when transactions rely on timely reporting from various parties in the supply chain.
• The mismatch between GSTR 3B and GSTR 2B returns highlights the importance of having proper documentation, reconciliation, and communication between taxpayers and suppliers.
• This is necessary to ensure accurate reporting and compliance with GST regulations. The statement also highlights how crucial it is to give taxpayers a chance to clarify any discrepancies and correct mistakes before imposing taxes or penalties.

Judgment of the Madras High Court

The reason for setting aside the questioned orders:

• The court acknowledged the petitioner's argument that they were not aware of the proceedings because the notices were only uploaded on the GST portal without any other form of communication. 
• The petitioner was not given the chance to respond to the allegations or participate in the proceedings due to a lack of communication. This goes against principles of natural justice.
• The court noted that the petitioner had paid 10% of the disputed tax demand, which shows their willingness to participate in the resolution process and address the discrepancies pointed out by the tax authorities.
• The court decided that it was necessary to set aside the orders in the interest of justice, given the circumstances. It was important to give the petitioner a chance to argue their case on its merits in order to be fair and uphold the principles of natural justice.
• The petitioner will be given the opportunity to contest the matter on its merits.
• The court has instructed the petitioner to provide responses to the show cause notices within two weeks of receiving the court's order.
• The petitioner would be able to present their arguments, explanations, and evidence regarding the discrepancies that the tax authorities have identified.
• After receiving the petitioner's replies, the court instructed the respondent to give the petitioner a fair chance to be heard, which includes a personal hearing.
• After carefully reviewing the petitioner's arguments and going through the required procedures, the respondent was told to issue new orders within three months after receiving the petitioner's responses.