Judgment
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH FRIDAY, THE 13TH DAY OF OCTOBER 2023 / 21ST ASWINA, 1945 WP(C) NO. 26219 OF 2020 PETITIONER/S:
PRODAIR AIR PRODUCTS INDIA PRIVATE LIMITED, OFFICE NO.602, PENTAGON 5, MAGARPATTA CITY, HADAPSAR, PUNE-411013, MAHARASHTRA, REPRESENTED BY ITS AUTHORIZED SIGNATORY SRI. HEMEN KHOKHANI.
BY ADVS.ASWIN GOPAKUMAR; ANWIN GOPAKUMAR K.AMAL NATH NAIK; KANDAMPULLY VIKRAM NIRANJAN SUDHIR; RENOY VINCENT RESPONDENT/S:
1 STATE OF KERALA, REPRESENTED BY ITS SECRETARY (TAXES), GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695001.
2 THE ASSISTANT COMMISSIONER (SGST), OFFICE OF THE ASSISTANT COMMISSIONER, SPECIAL CIRCLE-II, SGST COMPLEX, PERUMANUR, ERNAKULAM-682015.
3 THE ASSISTANT COMMISSIONER(VAT), OFFICE OF THE ASSISTANT COMMISSIONER, SPECIAL CIRCLE-II, ERNAKULAM-682015.
OTHER PRESENT:
BY SRI MOHAMMED RAFIQ -SPL.GP THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 13.10.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
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J U D G M E N T
The present writ petition under Article 226 of the Constitution of India has been filed for quashing Ext.P21 show cause notice issued by the 2nd respondent under Section 73(1) of the KSGST Act 2017, and further prayer has been made for a writ of mandamus commanding the respondent to adjust or set off the proposed demand of tax in Ext.P21 show cause notice against the amounts, which the petitioner claims to be entitled to refund pursuant to Exts.P5, P6 and P7 applications.
Prayer has also been made for setting aside the levy of interest and penalty.
2.
The petitioner Company registered under the Companies Act is in the business of manufacture and sale of industrial gases. It is a wholly-owned subsidiary company of Air Products and Chemicals Inc. USA. It supplies atmospheric and processed gases such as Hydrogen, Nitrogen, Oxygen, Syngas etc to its customers in India.
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2.1 The petitioner is a registered dealer under the Kerala Value Added Tax 2003 (for short, ‘KVAT Act’), migrated to the GST regime pursuant to the rolling out of GST. The petitioner is an assessee under the provisions of the CGST/SGST Act 2017 and the Rules made thereunder. The petitioner was awarded the contract by the Bharat Petroleum Corporation Ltd (for short, ‘BPCL’) for the construction of a Hydrogen and Nitrogen production plant for BPCL’s Kochi Refinery, and a letter of acceptance of the bid of the petitioner was issued by the BPCL on 15.05.2013. The petitioner entered into an agreement dated 31.08.2013 with BPCL to Build, Own, Operate (BOO) and maintain a Hydrogen and Nitrogen manufacturing plant. The petitioner started supplying industrial gases to BPCL from the month of February 2017 onwards. At that point of time, the supply of gases made by the petitioner to the BPCL’s Kochi Refinery was exigible to VAT at the rate of 5%.
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2.2 According to the petitioner, natural gas is one of the major input components for the production of industrial gases, and natural gas was taxable at the rate of 14.5% under the KVAT Act. The petitioner claims that at the time of purchase of the raw material/inputs, the petitioner had paid the price of goods inclusive of the tax indicated in the invoice raised on them by the BPCL. Thereafter, availed the input tax credit of the tax so paid.
2.3 The petitioner, in its VAT returns filed for the months of April, May and June 2017, adjusted the input tax credit, which was, according to the petitioner, available in respect of raw materials purchased and used by them in the manufacture of industrial gases against the output tax payable. Thereafter, the petitioner filed revised returns adjusting its output VAT liability by availing the credit.
2.4 The petitioner had also filed two applications dated 12.04.2017 and 19.06.2017 in Form 25 of the KVAT Act for
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availing input tax credit in respect of capital goods, totalling Rs.69,80,009/-. According to the petitioner, as no decision was taken on the applications dated 12.04.2017 and 19.06.2017 at the time of filing returns for the month of June 2017, the petitioner had reflected only accumulated input tax credit to the tune of Rs.12,75,73,075/- as on 30.06.2017 and did not include the input tax credit with respect to the capital goods.
2.5 With effect from 01.07.2017, a new tax regime, i.e., Goods and Service Tax, was implemented throughout India as a result of the Constitution 101st Amendment. The petitioner became a dealer under the CGST/SGST Act 2017. Under Section 140 of the CGST/SGST Act 2017, the amount of Cenvat Credit/Input Tax Credit of eligible duties carried forward in the returns relating to the period ending with 30.06.2017 could be taken to the electronic credit ledger of the dealer. However, for successfully transferring the credit of unutilised input tax to the GST regime, a registered dealer would be required to file
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a declaration in Form GST TRAN-1 on or before 30.09.2017, which was subsequently extended from time to time.
2.6 The claim of the petitioner for the input tax credit of Rs.69,80,009/- in respect of capital goods by virtue of Exts.P5 and P6 applications were disallowed on the ground that the same was not reflected in the returns filed by the petitioner as on 30.06.2017. The petitioner had filed W.P.(C) No.10279/2020 for permitting to file revised returns for the month of June 2017. The learned Single Judge vide judgment dated 26.05.2020 disposed of the said writ petition by directing the 2nd respondent to transmit the Ext.P8 request to the Deputy Commissioner, Special Circle-II, Ernakulam, in order to facilitate the petitioner for filing revised returns. In pursuance of the direction passed by this Court, the petitioner was able to file revised returns for June 2017. According to the petitioner, despite filing revised returns, the petitioner was not refunded the input tax credit for which applications Ext.P5
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and P6 were filed. When the matter in respect of the refund of input tax credit on capital goods was still pending, the petitioner was issued the impugned show cause notice under Section 73(1) of the KSGST Act 2017 dated 12.10.2020 proposing the petitioner to pay an amount of Rs.22,16,72,997/- by rejecting the transitional credit availed by the petitioner. The petitioner has approached this Court by filing this present writ petition impugning the said show cause notice in Ext.P21.
3.
As per the show cause notice, the petitioner has availed SGST credit and CGST credit as per the electronic ledger dated 17.10.2017 and 27.12.2017 and as per GSTR 3B returns. As per TRAN-1, the petitioner had claimed and availed Rs.12,93,53,675/- under Section 140(1) of Kerala State Goods and Services Tax Act 2017. As per the show cause notice, the petitioner was not entitled to avail the input tax credit. It has also been stated that the petitioner is not entitled to avail input tax credit for raw material (natural gas) as it is not
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admissible and is outside the purview of the GST regime. It has been further said that the petitioner has availed Rs.69,80,009/- towards input tax with respect to transitional credit on capital goods by virtue of Section 140(2) of the Kerala State GST Act 2017. However, the petitioner did not have any such claim of capital goods as per the VAT returns filed prior to GST and did not have any unavailed portion of the tax credit claim with respect to capital goods.
3.1 The petitioner has been in litigation before this Court in respect of the disallowance of input tax credit for the Assessment Years 2015-16, 2016-17 and 2017-18. A Division Bench of this Court did not interfere with the Assessment Orders or show cause notice issued to the petitioner in respect of the Assessment Years 2015-16, 2016-17 and 2017-18 disallowing the input tax credit to the petitioner, but he was given liberty to adjudicate the issue before the Appellate Authority concerned and in respect of the Assessment Year
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2014-15, the petitioner was permitted to file a reply to the show cause notice to enable the Assessing Authority to complete the assessment for the said assessment year as per the judgment dated 03.04.2023 passed in W.A. No.374/2021 and other connected writ appeals.
4.
A preliminary objection has been raised regarding the maintainability of the writ petition against the show cause notice inasmuch as in the Writ Appeal itself, this Court did not interfere with the disallowance of input tax credit in respect of the Assessment Years 2015-16, 2016-17 and 2017-18 in the Assessment Orders and the petitioner was permitted to file appeals before the statutory Appellate Authority. The petitioner was also permitted to file a reply to the show cause notice for the Assessment Year 2014-15. Further submission has been made on behalf of the respondents that the petitioner has been issued show cause notice in respect of the petitioner availing ineligible input tax credit, and there is no violation of
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any of the fundamental rights of the petitioner. The show cause notice is not without jurisdiction, and disputed questions of fact are involved in the present case. Therefore, the writ petition is to be dismissed and the petitioner be permitted to file a reply to the show cause notice impugned in the present writ petition.
5.
The Supreme Court recently, in the case of the State of Punjab v M/s Shiv enterprises1 under the GST Act, has held that it would not be proper for the High Court to render an opinion on whether there was any evasion of tax or not and the same is to be left to be considered in appropriate proceedings by the competent authority. It has been further said that the High Court ought not to have entertained the writ petition against the show cause notice. The relevant portion of the order is extracted hereunder:
“4. From the notice dated 14.09.2021, it can be seen that the original writ petitioner was called upon to show cause within
1 Order dated 16.01.2023 in C.A. No.359/2023
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14 days from the receipt of the said notice, as to why the goods in question and the conveyance used to transport such goods shall not be confiscated under the provisions of Section 130 of the Punjab GST Act, 2017 and IGST Act, 2017 and CGST Act, 2017 and why the penalty and other charges payable in respect of such goods and the conveyance shall not be payable.
5. In the show cause notice, there was a specific allegation with respect to evasion of duty, which was yet to be considered by the appropriate authority on the original writ petitioner's appearing before the appropriate authority, who issued the notice. However, in exercise of powers under Article 226 of the Constitution of India, the High Court entertained the writ petition against the show cause notice and set aside the show cause notice under Section 130 of the Act by observing in para 29 as under: - "29. From the pleadings on record, it is clear that there is no allegation that the petitioner has contravened any provision of the Act or the rules framed thereunder much less with an intent to evade payment of tax. It is also not the case of the State that the petitioner did not account for any goods on which he is liable to pay tax under the Act or that he supplied any goods liable to tax under the Act without having applied for registration or that he supplied or received any goods in contravention of any of the provisions of the Act. From the perusal of show cause notice issued to the petitioner under Section 130, the case alleged against the petitioner is that of
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wrongful claim of input tax credit. The petitioner or for that matter any registered person shall be entitled to tax credit of input tax on any supply of goods or services, only when he shall is able to show that the tax in respect of such supply has been paid to the Government either in cash or through utilization of input tax credit admissible in respect of the said supply. Needless to reiterate any person can claim input tax credit under the provisions of the 2017 Act only if the same has been actually paid to the Government. Thus, the action of the respondents in initiating proceedings under Section 130 on the basis of show cause notice dated 14.09.2021 cannot be sustained.” Apart from the fact that the aforesaid is factually incorrect, even otherwise, it was premature for the High Court to opine anything on whether there was any evasion of the tax or not.
The same was to be considered in an appropriate proceeding for which the notice under Section 130 of the Act was issued.
Therefore, we are of the opinion that the High Court has materially erred in entertaining the writ petition against the show cause notice and quashing and setting aside the same.”
6.
Having considered the provisions of the Act, I am of the considered view that the show cause notice is neither nullity nor without jurisdiction. The show cause notice is only the commencement or initiation of the proceedings, and it is
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not totally unauthorised. The petitioner cannot claim that any of his fundamental rights get violated if he has been put to notice regarding the perceived illegal availment of the input tax credit as mentioned in the show cause notice.
6.1 Therefore, considering the said fact and the judgment of the Division Bench of this Court in W.A.
No.374/2021 and connected Writ Appeals and also the order in M/s Shiv Enterprises (supra), the present writ petition is dismissed without going into the merits of the show cause notice, leaving it open to the petitioner to file a reply to the show cause notice within 20.11.2023. The Assessing Authority will proceed with the adjudication of the impugned show cause notice in accordance with the law expeditiously.
The present writ petition stands dismissed.
Sd/- DINESH KUMAR SINGH JUDGE
jjj
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APPENDIX OF WP(C) 26219/2020
PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE KVAT RETURNS FILED BY THE PETITIONER FOR THE MONTH OF APRIL,2017.
EXHIBIT P2 TRUE COPY OF THE KVAT RETURNS FILED BY THE PETITIONER FOR THE MONTH OF MAY,2017.
EXHIBIT P3 TRUE COPY OF THE KVAT RETURNS FILED BY THE PETITIONER FOR THE MONTH OF JUNE,2017.
EXHIBIT P4 TRUE COPY OF THE REVISED RETURNS FILED BY THE PETITIONER FOR THE MONTH OF APRIL, 2017.
EXHIBIT P5 TRUE COPY OF THE APPLICATION DATED 12.04.2017 SUBMITTED BY THE PETITIONER FOR AVAILING ITC WITH RESPECT TO CAPITAL GOODS.
EXHIBIT P6 TRUE COPY OF THE APPLICATION DATED 19.06.2017 SUBMITTED BY THE PETITIONER FOR AVAILING ITC WITH RESPECT TO CAPITAL GOODS.
EXHIBIT P7 TRUE COPY OF THE REFUND APPLICATION DATED 17.10.2017 SUBMITTED BY THE PETITIONER BEFORE THE RESPONDENT.
EXHIBIT P8 TRUE COPY OF THE APPLICATION DATED 1.11.2017 SUBMITTED BY THE PETITIONER BEFORE THE RESPONDENT NO.2 SEEKING TO REVISE THE RETURNS FOR THE MONTH OF JUNE,2007.
EXHIBIT P9 TRUE COPY OF THE CIRCULAR NO.10/2017 DATED 22.06.2017.
EXHIBIT P10 TRUE COPY OF THE SCREENSHOT GIVING THE DETAILS OF THE FORM GST TRAN-1 SUBMITTED BY THE PETITIONER.
EXHIBIT P11 TRUE COPY OF THE LETTER DATED 23.01.2018 SUBMITTED BY THE PETITIONER BEFORE THE
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RESPONDENT NO.2.
EXHIBIT P12 TRUE COPY OF THE FORM GST ASMT-10 NOTICE DATED 19.10.2019 ISSUED BY THE RESPONDENT NO.2.
EXHIBIT P13 TRUE COPY OF THE REPLY DATED 06.12.2019 SUBMITTED BY THE PETITIONER IN RESPONSE TO EXT.P12 NOTICE.
EXHIBIT P14 TRUE COPY OF THE FORM GST DRC-O1 A DATED 16.01.2020 ISSUED BY THE RESPONDENTS NO.2.
EXHIBIT P15 TRUE COPY OF THE REPLY DATED 31.01.2020 SUBMITTED BY THE PETITIONER IN RESPONSE TO EXT.P14 NOTICE.
EXHIBIT P16 TRUE COPY OF THE LETTER DATED 26.03.2020 SUBMITTED BY THE PETITIONER BEFORE THE RESPONDENT NO.2 WITHOUT THE ANNEXURES.
Exhibit P17 TRUE COPY OF THE JUDGEMENT DATED 26.05.2020 IN WRIT PETITION(CIVIL) NO.10279 OF 2020 Exhibit P18 TRUE COPY OF THE REVISED RETURNS FILED BY THE PETITIONER FOR THE MONTH OF JUNE, 2017 Exhibit P19 TRUE COPY OF THE REPLY FILED BY THE PETITIONER ON 23.09.2020 Exhibit P20 TRUE COPY OF THE EMAILS AND LETTERS SENT BY THE PETITIONER TO THE AFORESAID AUTHORITIES SEEKING TO EXPEDITE THE PROCESS OF THE EXT.P7 REFUND APPLICATION.
Exhibit P21 TRUE COPY OF THE SHOW CAUSE NOTICE DATED 12.10.2020 ISSUED BY THE RESPONDENT NO.2 UNDER SECTION 73(1) OF THE KSGST ACT, 2017 FOR THE PERIOD 2017-18.
Exhibit P22 TRUE COPY OF NOTICE DATED 11/5/2022 ISSUED BY THE OFFICE OF RESPONDENT NO.2
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Exhibit P23 TRUE COPY OF REPLY DATED 16/5/2022 BY THE PETITIONER Exhibit P24 A TRUE COPY OF THE NOTICE DATED 29.09.2023 IN KVATA-72/2023 ISSUED BY THE OFFICE OF THE JOINT COMMISSIONER OF STATE TAX (APPEALS), MATTANCHERRY Exhibit P25 A TRUE COPY OF THE APPEAL PREFERRED BY THE PETITIONER AGAINST ORDER BEARING NO. 320703 19885/2017-18(VAT) DATED 16.07.2021