M/S.Kaashta Kraya Vikraya v. State Tax Officer (Review Cell-1)

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 24.11.2022

CORAM

THE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ W.P.(MD).Nos.9631, 9633, 9637 and 9641 of 2021 and WMP.(MD).Nos.7373, 7380, 7384 and 7386 of 2021 M/s.Kaashta Kraya Vikraya Represented by its Proprietor Mr.Rajesh N Patel, No.1/466, Tenkasi Road, Piranoor Border, Senkottai-627 809.

... Petitioner in all W.Ps.

Vs.

1.State Tax Officer (Review Cell-1), Office of Deputy Commissioner (ST) (Inspection), C.T.Buildings, Palayamkottai, Tirunelveli, Tamil Nadu - 627 002.

2.State Tax Officer (State Tax Intelligence Wing), Office of Deputy Commissioner, State Tax Intelligence Wing, Collection and Tax Due Section, Tirunelveli, Tamil Nadu- 627 002.

... Respondents in all W.Ps.

Prayer in W.P.(MD)No.9631 of 2021:Writ Petition filed under Article 226 of the Constitution of India, praying to issue a Writ of Certiorarified Mandamus calling for the records of the 1st respondent in GSTN. 33ADYPR3536K1ZV/2017-18 dated 10.12.2020 and quash the same as being violative of natural justice and cryptic and consequently direct the 1/25

first respondent to hear the matter afresh by taking into consideration all relevant documents and explanations put forth by petitioner. Prayer in W.P.(MD)No.9633 of 2021:Writ Petition filed under Article 226 of the Constitution of India, praying to issue a Writ of Certiorarified Mandamus calling for the records of the 1st respondent in GSTN. 33ADYPR3536K1ZV/2018-19 dated 10.12.2020 and quash the same as being violative of natural justice and cryptic and consequently direct the first respondent to hear the matter afresh by taking into consideration all relevant documents and explanations put forth by petitioner. Prayer in W.P.(MD)No.9637 of 2021:Writ Petition filed under Article 226 of the Constitution of India, praying to issue a Writ of Certiorarified Mandamus calling for the records of the 1st respondent in GSTN.

33ADYPR3536K1ZV/2019-20 dated 10.12.2020 and quash the same as being violative of natural justice and cryptic and consequently direct the first respondent to hear the matter afresh by taking into consideration all relevant documents and explanations put forth by petitioner. Prayer in W.P.(MD)No.9641 of 2021:Writ Petition filed under Article 226 of the Constitution of India, praying to issue a Writ of Certiorarified Mandamus calling for the records of the 1st respondent in GSTN. 33ADYPR3536K1ZV/2020-21 dated 10.12.

first respondent to hear the matter afresh by taking into consideration all relevant documents and explanations put forth by petitioner. For Petitioner : Mr.Ananda Gomathy Murugesan in all WPs.

For Respondents : Mr.Veerakathiravan in all WPs.

Additional Advocate General Assisted by Mr.M.Prakash Additional Govt. Pleader COMMON ORDER These batch of writ petitions are filed challenging the orders of assessment under the Goods and Service Tax Act, 2017, for the period/ years viz., 2017-18, 2018-19, 2019-20 and 2020-21 on the premise that the 1st Respondent has passed these orders contrary to the material on record and without taking into account the Trade Practice in relation to Timber and that the orders are non-speaking. The petitioners in all these writ petitions are one and the same hence, referred to as "petitioner" for the sake of brevity.

2.1. It is submitted that the petitioner is engaged in trading of Timber procured locally and from International Market. That the petitioner re-sells the timber so procured after cutting the timber into required sizes. The total and taxable turnover reported by the petitioner in Form GSTR-3B during 3/25

the relevant periods, is tabulated hereunder: Name of the taxable person Total and taxable income Period/ year Tvl.Kaashta Kraya Vikraya Rs.2,37,32,452/- 2017-18 Rs.6,47,33,945/- 2018-19 Rs.2,85,16,434/- 2019-20 Rs.7,72,945/- 2020-21 2.2. There was an inspection of the petitioner's place of business pursuant to an authorisation issued by the Joint Commissioner (S.T.) (Intelligence Wing), Tirunelveli, on 10.09.2020 and 11.09.2020 at the following places:

i) The Principal place of business, Tenkasi Road, Shencottai, Tenkasi District.

ii) The Additional Place of business, Madurai Bye-Pass Road, Madurai District.

iii) The Additional Place of business, Thoothukudi Harbour Site, Thoothukudi District.

2.3. The inspections were carried out simultaneously in the aforesaid places of business. The details of the defects noticed during the course of inspection for the relevant period/ year as set out in the impugned orders are tabulated below:

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S.No Period/ year GSTIN Issues Reply/ Remarks given by the Inspecting Officer 2017-18 GSTN.

Defect No:1 Claimed input tax credit.

Not entitled to claim ITC:

Failure to produce copies of invoices, transport documents, proof for actual receipt of goods.

33ADYPR3636K1ZV/2017Defect No:3 Claimed Tran-1 credit.

Not entitled to Tran-1 credit:

Failure to produce copies of invoices.

Defect No:8 Failure to pay tax for the Payment made towards Timber clearing and transport charges.

Liable to pay tax at the rate of 18% for a total turnover of Rs.

1,76,378/- 5/25

S.No Period/ year GSTIN Issues Reply/ Remarks given by the Inspecting Officer 2018-19 GSTN.

Defect No:1 Claimed input tax credit.

Not entitled to claim ITC:

Failure to produce copies of invoices, transport documents, proof for actual receipt of goods.

33ADYPR3536K1ZV/2018Defect No:3 Discrepancy in Payment made towards Business promotion.

Failure to produce documents/ records for payment towards Business Promotion expenses.

Defect No:7 Improper GSTR-1 return.

Non-disclosure of outward supply of goods in GSTR-1, thereby attracting Section 74 of the GST Act, 2017.

Defect No:8 Non-generation of E-way bill.

Penalty for improper maintenance of account.

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S.No Period/ year GSTIN Issues Reply/ Remarks given by the Inspecting Officer 2019-20 GSTN.

Defect No:1 Claimed input tax credit.

Not entitled to claim ITC:

Failure to produce copies of invoices, transport documents, proof for actual receipt of goods.

33ADYPR3536K1ZV/2019Defect No:4 Discrepancy in Payment made towards Business promotion.

Failure to produce documents/ records for payment towards Business Promotion expenses.

Defect No:6 Discrepany in Payment made towards Proprietor Personal Expense.

Failure to produce documents/ records for payment towards Business Promotion expenses.

Defect No:8 Non-generation of E-way bill.

Penalty for improper maintenance of account.

2020-21 GSTN.

Defect No:1 Claimed input tax credit.

Failure to produce copies of invoices, transport documents, proof for actual receipt of goods.

33ADYPR3536K1ZV/2020Defect No:2 Stock difference Tax due on stock difference.

3. On 13.10.2020, on the basis of inspection, an intimation was 7/25

served on the petitioner for the relevant period/ years under Section 74(1) in Form GST DRC-01A. In response thereto, the petitioner submitted documents in relation to the defects pointed. On verification of the same, a Demand cum Show Cause Notice was issued on 02.11.2020 for the relevant period/ years under the TNGST Act, 2017 containing proposals on the basis of the above defects. In response to the above, the petitioner submitted their objections on 30.11.2020 for all the notices. However, the same was rejected and impugned orders of assessment passed. It may be relevant to very briefly set-out the proposed objection and its rejection vide impugned order: Common issue:

From the table, it would be evident that the issue of claim of input tax credit without actual receipt of goods is common for all the four impugned orders. The ITC was denied for failure to produce copies of invoices, transport documents and proof of actual receipt of goods. The petitioner responded stating that invoices were produced before the Inspecting Officer on 10.09.2020 (in respect of Defect 1 in all the impugned orders). The petitioner further submitted that the Trade Practice insofar as Timber logs and sizes lying at Thoothukudi Timber Yard/ godown is that they are sold 8/25

and bought without corresponding movement of goods, although there would be transfer of title/ ownership multiple times before there is a sale resulting in actual movement of the goods. It was submitted that the proposal cannot be sustained as it is contrary to the Trade Practice relating to timber. In other words, it was submitted that Trade Practice in respecct of Timber was that it was procured / purchased and sold without corresponding physical movement of goods.

4. The Assessing Officer on consideration of the reply rejected the contentions of the petitioner on the following premise that there is no transfer of property and that the transactions are mere paper transactions. The petitioner had contravened the conditions laid down under Section 16 of the TNGST Act, 2017, and thus, not entitled to claim Input Tax Credit.

5. Apart from the above issue which is common for all the relevant period/ years, certain other proposals were made in the notice issued in 9/25

respect of relevant period/ year as could be seen from the following: Additional issues:

I. For the period 2017-18:

a. Credit claimed under Form TRAN-1 is denied for want of invoice copies.

b. Timber clearing and transport charges was treated as supplies taxable under GST Act, 2017.

The above proposals were confirmed on the premise that the following invoice in respect of credit claimed under Form TRAN-1 was not furnished. Tax on timber clearing and transport charges was confirmed on the premise that the petitioner had not produced tax invoices and other documents disclosing sufferance of tax.

II. For the period 2018-19:

i) In respect of two transactions of supplies by way of sale of timber, invoices were generated but not disclosed in the GSTR Form-1, taxes were proposed and the same was confirmed on the premise that no documentary evidence was furnished by the petitioner with regard to the non-reporting of the above invoices in respect of which E-way bills were raised. 10/25

ii) Non-generation of E-way bill in respect of outward supplies to the extent of Rs.1,27,047/-.

III. For the period 2019-20:

i) On verification of trading and Profit and Loss Account, it was found that a payment of Rs.2,11,181/- has been made towards business promotion expenses. Further, there was no document in the form of Tax Invoices or any other document to disclose that taxes have either been paid on the basis of forward charge or on the basis of reverse charge in respect of the above.

ii) The other issue relates to proprietor personal expenses. On perusing the Profit and Loss Account, though it was found that there was payment made towards proprietor personal expenses amounting to Rs. 4,01,592/-, it was found that the same was not supported by Tax Invoices or other documents which would reveal payment of tax on the above transactions.

iii) Non-generation of E-way bill in respect of invoice for a taxable value of Rs.1,35,625/-.

IV. For the period 2020-21:

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The place of business was inspected by the Intelligence Wing Officers which revealed a stock variation to the extent of Rs.4,87,733/- to which a gross profit at 5% was added and proposal was made to levy tax on a taxable value of Rs.5,12,120/-. The petitioner submitted its objections stating that the stock variation is only in view of the fact that two transactions of supplies by way of sale of goods were not deducted in the book stock but deducted from the actual stock and that the copies of invoices with E-way bill was also submitted. The explanation was rejected on the premise that the sale had been effected after completion of inspection and the contention of the petitioner that the stock variation was only in view of the fact that certain supplies of sales was not deducted in the book stock but deducted in the actual stock was unacceptable.

6. These writ petitions are filed challenging the above orders on the ground of violation of principles of natural justice and that the orders are not supported by adequate reasons/ evidence.

7. To the contrary, it is submitted by the learned counsel for the Respondents that the impugned orders of assessment raises a number of 12/25

issues which requires production of documents as the claim of the petitioner was not supported by convincing documentary evidence and on production of evidence would require an examination/ appreciation of such evidence. The issues arising out of the impugned orders are essentially questions of fact. It is further submitted that the impugned orders are passed after complying with the procedure contemplated under the Act. The impugned orders can be challenged by way of a statutory appeal and there is no reason to by-pass the statutory remedy.

8. Heard both sides and perused the materials available on record.

9. The question whether a taxable person is entitled to credit or otherwise would have to be decided on the basis of compliance with the conditions set-out under Section 16 of the GST Act, 2017, which reads as under:

"16. Eligibility and conditions for taking input tax credit.-

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be 13/25

credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; [(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;]39 (b) he has received the goods or services or both. [Explanation.

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other 14/25

than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed: Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon......"

A reading of the above would show that there are four substantial conditions that have to be cumulatively satisfied to claim Input Tax Credit: a. That the claimant must be in possession of a Tax Invoice or Debit Note issued under the Act.

b. That the claimant must have received the goods or service or both in respect of which input tax credit is claimed. c. That the taxes charged in respect of the supply is paid by the supplier.

d. That the return under Section 39 of the Act is furnished by the supplier.

10. The impugned orders have proceeded to reject the claim of Input Tax Credit by the petitioner on the ground that goods were not actually 15/25

involved. A reading of the impugned orders would show that the following questions of fact are in dispute insofar as claim of ITC which is common and primary issue in all the four impugned orders viz., a. Whether goods are involved or not.

b. Whether the alleged supply of timber is genuine or fictitious. c. Whether there was transfer of title.

d. What is the trade practise in relation to Timber. e. Whether there was constructive or notional delivery of goods. f. Whether the alleged supplier/ receipient is real or fictitious. The additional issues involved in the four impugned orders such as correctness of the claim of credit under Form TRAN-1, Business promotion expenses, Transport Charges would again give rise to the following questions of fact which requires examination: g. Whether documentary evidence in support of the claim of credit under TRAN-1, if any produced, if so whether adequate. h. Whether the levy of tax on timber clearing and transport charges had suffered appropriate taxes, if any.

i. Whether business promotion expense had suffered appropriate taxes, if any.

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11. This Court cannot examine the above disputed questions of fact, more so, in the light of the fact, this Court has found that the impugned orders have been made after complying with the procedure set-out under Section 74(1) of the GST Act, 2017 and has been made setting out reasons in support of the conclusion.

12. It is submitted by the learned counsel for the petitioner that the reasons in the impugned orders are inadequate/ insufficient, warranting interference for the Respondents to arrive at the above conclusion. The above contention viz., the reasons being inadequate / insufficient cannot be a reason warranting interference under Article 226 of the Constitution of India as it has been consistently held that if there is some evidence/reason, examination of adequacy or sufficiency of the same is alien to the jurisdiction under Article 226 of the Constitution of India.

13. It is trite law that adjudication of disputed questions of fact is outside the purview of Article 226 of the Constitution of India. It may be necessary to remind ourselves that in fiscal matters one must exercise 17/25

greater restraint while exercising powers under Article 226 of the Constitution of India. In this regard, it may be relevant to refer to the following judgments:

(i) State Bank of Travancore v. Mathew K.C., reported in (2018) 3 SCC 85:

''10. In United Bank of India v. Satyawati Tondon (2010) 8 SCC 110, the High Court had restrained Satyawati Tondon v. State of U.P., [2009 scc OnLine All 2608] further proceedings under Section 13(4) of the Act, Upon a detailed consideration of the statutory scheme under the SARFAESI Act, the availability of remedy to the aggrieved under Section 17 before the Tribunal and the appellate remedy under Section 18 before the Appellate Tribunal, the object and purpose of the legislation, it was observed that a writ petition ought not to be entertained in view of the alternate statutory remedy available holding :(SCC pp.123 & 128, paras 43 & 55).

43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrievedperson and that this Rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial insitutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only 18/25

contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.'' (ii) Thansingh Nathmal v. Supdt. of Taxes, reported in (1964) 15 STC 468 :

"7..........The jurisdiction of the High Court under Article 226 of the Constitution is couched in wide terms and the exercise thereof is not subject to any restrictions except the territorial restrictions which are expressly provided in the Articles. But the exercise of the jurisdiction is discretionary: it is not exercised merely because it is lawful to do so. The very amplitude of the jurisdiction demands that it will ordinarily be exercised subject to certain self-imposed limitations. Resort that jurisdiction is not intended as an alternative remedy for relief which may be obtained in a suit or other mode prescribed by statute. Ordinarily the Court will not entertain a petition for a writ under Article 226, where the petitioner has an alternative remedy, which without being unduly onerous, provides an equally efficacious remedy.

Again the High Court does not generally enter upon a determination of questions which demand an elaborate examination of evidence to establish the right to enforce which the writ is claimed. The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by statute for obtaining relief.

tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up."

(emphasis supplied) (iii) Assistant Collector of Central Excise vs.Dunlop India Ltd., reported in (1985) 1 SCC 260 :

''3. In Titaghur Paper Mills Co. Ltd. v. State of Orissa [(1983) 2 SCC 433, it was held that where the statute itself provided the petitioners with an efficacious alternative remedy by way of an appeal to the Prescribed Authority, a second appeal to the tribunal and thereafter to have the case stated to the High Court, it was not for the High Court to exercise its extraordinary jurisdiction under Article 226 of the Constitution ignoring as it were, the complete statutory machinery. That it has become necessary, even now, for us to repeat this admonition is indeed a matter of tragic concern to us. Article 226 is not meant to shortcircuit or circumvent statutory procedures. It is only where statutory remedies are entirely ill-suited to meet the demands of extraordinary situations, as for instance where the very vires of the statute is in question or where private or public wrongs are so inextricably mixed up and the prevention of public injury and the vindication of public justice require it that recourse may be had to Article 226 of the Constitution. But then the Court must have 20/25

good and sufficient reason to bypass the alternative remedy provided by statute. Surely matters involving the revenue where statutory remedies are available are not such matters.'' (emphasis supplied)

14. It may also be relevant to refer to the recent judgment of the Hon'ble Supreme Court of India in the case of State of Maharastra and Others vs. Greatship (India Limited), reported in 2022 SCC Online SC 1262, wherein it was held as under:

"14. ......the High Court ought not to have entertained the writ petition under Article 226 of the Constitution of India challenging the assessment order in view of the availability of statutory remedy under the Act."

15. Yet another reason why it may not be appropriate to entertain these writ petitions is that the challenge to the impugned orders are on the ground of inadequacy or insufficiency of reasons/ materials, which again is beyond the realm of judicial review. In this regard, it may be relevant to refer to the following judgments:

1. S. Ganga Saran & Sons (P) Ltd. v. ITO, reported in (1981) 3 SCC 143 :

"6.....The court, of course, cannot investigate into the 21/25

adequacy or sufficiency of the reasons which have weighed with the Income Tax Officer in coming to the belief......"

2. Partap Singh (Dr) v. Director of Enforcement, reported in (1985) 3 SCC 72 :

9......It was also submitted that the reasons must be sufficient for a prudent man to come to the conclusion that the income escaped assessment and that the Court can examine the sufficiency or adequacy of the reasons on which the Income Tax Officer has acted. Negativing all the limbs of the contention, this Court held that "if there are in fact some reasonable grounds for the Income Tax Officer to believe that there had been any nondisclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income Tax Officer to issue notice under Section 34".

The Court in terms held that whether these grounds are adequate or not is not a matter for the court to investigate."

3. DGIT v. Spacewood Furnishers (P) Ltd., reported in (2015) 12 SCC 179 :

"25. The remaining findings of the High Court with regard to the satisfaction recorded by the authorities appear to be in the nature of an appellate exercise touching upon the 22/25

sufficiency and adequacy of the reasons and the authenticity and acceptability of the information on which satisfaction had been reached by the authorities. Such an exercise is alien to the jurisdiction under Article 226 of the Constitution."

4. State of J&K v. Trikuta Roller Flour Mills (P) Ltd., (2018) 11 SCC 260 :

"9.....the Court will not examine the sufficiency or adequacy of the reasons or materials, in the manner of an appellate authority, to substitute its own wisdom for that of the Government....."

16. For all the reasons stated above, these writ petitions are dismissed. This Court has only recorded what is set out in the impugned order and not examined the merits of the same, the Appellate Authority shall decide the merit, uninfluenced by any of the observations made herein. It is made clear that the period spent in these writ petitions shall be excluded in reckoning the limitation, if any, for the purpose of admitting the appeal if the petitioner chooses to avail the statutory remedy by way of appeal. There shall be no order as to costs. Consequently, connected miscellaneous petitions are closed.

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24.11.2022 Index: Yes/No Speaking order: Yes/No mka To:

1.State Tax Officer (Review Cell-1), Office of Deputy Commissioner (ST) (Inspection), C.T.Buildings, Palayamkottai, Tirunelveli,Tamil Nadu - 627 002. 2.State Tax Officer (State Tax Intelligence Wing), Office of Deputy Commissioner, State Tax Intelligence Wing, Collection and Tax Due Section, Tirunelveli, Tamil Nadu- 627 002.

MOHAMMED SHAFFIQ, J.

mka 24/25

W.P.(MD).Nos.9631, 9633, 9637 and 9641 of 2021 and WMP.(MD).Nos.7373, 7380, 7384 and 7386 of 2021 24.11.2022 25/25