Facts of the Case

The petitioner, M/s. Karthika Material Suppliers, challenged the assessment order dated 02.02.2026 passed by the State Tax Officer under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017. The dispute arose in relation to the levy of GST on seigniorage fees, an issue which is already pending consideration before the Hon'ble Supreme Court of India. The petitioner contended that the assessment order had been passed without jurisdiction and in violation of statutory provisions, despite judicial directions in similar matters requiring authorities to await the Supreme Court's decision before passing final orders.

Issues Involved

  1. Whether the assessment order passed under Section 74 could be sustained when the taxability of seigniorage fees is pending before the Hon'ble Supreme Court.
  2. Whether the assessing authority acted contrary to earlier directions of the High Court by passing a final assessment order.
  3. Whether the petitioner should be granted another opportunity to submit supporting documents and contest the assessment.

Petitioner's Arguments

  • The petitioner submitted that the entire dispute relates to the levy of GST on seigniorage fees, which is presently pending before the Hon'ble Supreme Court of India.
  • It was argued that the Madras High Court had already directed in similar cases that authorities should await the decision of the Hon'ble Supreme Court before passing final orders.
  • Therefore, the impugned assessment order deserved to be quashed as being contrary to the judicial directions already issued.

Respondent's Arguments

  • The State contended that the High Court had permitted assessing authorities to continue assessment proceedings.
  • However, according to the respondent, only the implementation or operation of appellate orders was directed to remain in abeyance until the Supreme Court rendered its decision.
  • The respondent relied upon earlier orders passed by the Madras High Court in M/s. Marginal M Sand vs. State Tax Officer and Tvl. Rajapalayam Cement and Chemicals Limited vs. Assistant Commissioner in support of its stand.

Court Order / Findings

The Madras High Court observed that in the earlier cases relied upon by the parties, while the assessing authorities were permitted to proceed with the assessment, they had been specifically directed not to pass final orders until the Hon'ble Supreme Court decided the issue relating to the levy of GST on seigniorage fees.

The Court also noted that the petitioner had not responded to the show cause notice or produced supporting documents before the assessing authority. Nevertheless, considering that the very incidence of tax itself was under consideration before the Hon'ble Supreme Court, the Court found it appropriate to grant another opportunity to the petitioner.

Accordingly, the Court:

  • Set aside the assessment order dated 02.02.2026.
  • Remanded the matter to the assessing authority for fresh consideration.
  • Directed the petitioner to submit a detailed reply along with supporting documents within two weeks.
  • Directed that although the authority may reconsider the matter, the final order shall remain in abeyance until the Hon'ble Supreme Court decides the issue.
  • Further directed that if the fresh order results in tax demand or penalty, the same may be communicated to the petitioner, but enforcement and recovery proceedings shall remain stayed until the Supreme Court pronounces its judgment.
  • Clarified that the petitioner would be entitled to take further legal remedies depending upon the outcome of the Supreme Court's decision.

Important Clarification

  • Where the core issue of taxability is pending before the Hon'ble Supreme Court, the High Court may grant relief by setting aside the assessment and remanding the matter.
  • Even after fresh adjudication, enforcement of tax liability may be directed to remain in abeyance until the Supreme Court settles the legal issue.
  • Failure to respond to the show cause notice does not automatically disentitle a taxpayer from relief where the foundational legal issue itself remains undecided.
  • No condition for deposit of 25% was imposed in the present case since the very incidence of tax was under judicial scrutiny before the Hon'ble Supreme Court.

Section Involved

  • Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017

Link to Download the Order-https://mytaxexpert.co.in/uploads/1784628617_1791compressed.pdf

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