M/S. Sree Vinayagar Transports vs. The Deputy State Tax Officer - 2

Held

The Court held that the payment of tax on royalty was settled by the larger bench of the Supreme Court in *Mineral Area Development Authority and others Vs. Steel Authority of India and others* (2024 INSC 554). Consequently, the petitioner became liable to pay tax on royalty only thereafter. The Court found that this cannot be termed as suppression of material facts for invoking Section 74 of the GST Act, 2017. However, the Court acknowledged that the petitioner is liable to pay the tax and the Revenue is entitled to collect interest on the delayed payment, as the petitioner gained by not paying tax earlier. Nevertheless, the Court ruled that the petitioner cannot be penalized with charges as the proceedings were not based on wilful suppression of material facts. Therefore, the order of assessment was upheld only in respect of the tax and interest components, while the imposition of penalty was set aside. The Court directed that the penalty alone imposed against the petitioner be set aside.

Facts

The petitioner, M/s.Sree Vinayagar Transports, filed writ petitions challenging orders of assessment passed by the Deputy State Tax Officer-2, Virudhunagar II Circle. These orders, dated 08.01.2024 and 09.01.2024, were issued under Section 74 of the GST Act, 2017, for the tax periods 2018-19, 2019-20, 2020-21, and 2021-22. The respondent authority alleged suppression of vital factors in the petitioner's GST returns. The petitioner argued that they obtained mining licenses and supplied stones, and that the taxability of royalty was a subject of conflicting Supreme Court judgments until a larger bench decision in 2024 clarified it. The respondent contended that the petitioner failed to reply to notices, did not appear before the authority, and had an alternative remedy of appeal.

Key Issues

1. Whether the petitioner's non-disclosure of royalty payments in their GST returns for the periods 2018-19 to 2021-22 constitutes suppression of material facts warranting proceedings under Section 74 of the GST Act, 2017, given the evolving legal position on the taxability of royalty? Petitioner's arguments: The petitioner contended that they obtained mining licenses and supplied stones. They relied on the conflicting Supreme Court judgments in *India Cement Limited* and *Kesoram Industries* regarding the taxability of royalty. They argued that the subsequent larger bench decision in *Mineral Area Development Authority* (2024 INSC 554) clarified that royalty is taxable, and therefore, their prior non-disclosure was not wilful suppression. They submitted that tax has been paid, and penalty and interest should not be levied as the liability arose due to a change in legal interpretation. Respondent's arguments: The respondent argued that the petitioner did not submit any reply or appear before the authority, and the writ petitions were filed to delay recovery. They asserted that the petitioner had an alternative remedy under Section 107(1) of the TNGST Act, 2017. They also argued that the petitioner's admission of paying royalty and the subsequent tax liability indicated suppression of facts, justifying the assessment under Section 74.