V.Janarthanan vs. The State Tax Officer (Ins)-Iii

Held

The Court quashed the impugned order to the extent it related to defect number 5, concerning the differential tax demand. The Court directed the respondent to re-examine the issue. The petitioner was instructed to produce necessary documents to substantiate that the work was completed prior to the notification changing the tax rate from 12% to 18%. If the petitioner failed to provide such documentation, the respondent was at liberty to re-confirm the demand. Regarding the imposition of penalty under Section 74, the petitioner was granted liberty to challenge it after final orders were passed. The Court did not decide on the penalty aspect at this stage. The ratio decidendi is that tax liability should be determined based on the facts and circumstances prevailing at the time of completion of the service, provided such evidence is duly presented by the assessee.

Facts

The petitioner, V. Janarthanan, filed a writ petition challenging an order dated 26.05.2025 passed by the respondent, the State Tax Officer (Ins)-III, for the assessment year 2022-23. The impugned order was preceded by notices DRC 01A dated 14.05.2024 and DRC 01 dated 29.05.2025. The petitioner had responded to the latter notice and attended a personal hearing. Out of five identified defects, demands for four were dropped. The dispute pertained to defect number 5, concerning a tax demand of 6% differential tax (18% instead of 12%) on work completed in 2020 but invoiced on 30.07.2022, after a rate change via Notification No.03/2022-Central Tax (Rate) dated 13.07.2022.

Key Issues

1. Whether the respondent was justified in imposing a 18% tax rate on work completed prior to the issuance of Notification No.03/2022-Central Tax (Rate), dated 13.07.2022, contrary to the petitioner's contention that the applicable rate should be 12% based on the completion date of the work. Petitioner's arguments: The petitioner argued that the work was completed in 2020, and the invoice raised on 30.07.2022 was merely for regularization. Therefore, the differential tax of 6% imposed by the respondent was unjustified. The petitioner relied on the principle that tax rates applicable at the time of completion of services should prevail. Respondent's arguments: The respondent contended that the petitioner failed to substantiate their claim regarding the completion date of the work during the proceedings, despite being given an opportunity. Consequently, the impugned order confirming the demand was justified, and the writ petition was liable to be dismissed. The respondent also raised the issue of an alternative remedy available to the petitioner through an appeal under Section 107 of the GST enactments.