Facts of the Case

The petitioner, a Private Limited Company registered under the Companies Act, 2013, with sister concerns Santhoshimatha Oil Packaging Industries, Kakinada, and Santhoshimatha Oils and Fats Private Limited, Nellore, was inspected on 25.11.2020 under the Goods and Services Tax Act, 2017. Based on discrepancies in a recovered order book relating to sales of palmolein oil and palm fatty acid, the department alleged suppression of turnover. A show-cause notice dated 26.04.2021 was followed by DRC-01A/DRC-01 dated 29.09.2021 under Section 74(1), proposing a combined tax liability of Rs.14,96,92,177 IGST, Rs.7,23,99,139 CGST and Rs.7,23,99,139 SGST for 2017-18 to 2019-20. A personal hearing was held on 02.11.2021, and the petitioner filed a further reply on 08.12.2021 on the issue of IGST already paid on ocean freight under reverse charge, an issue also pending before this Court in an earlier writ petition where coercive recovery had been stayed by order dated 20.11.2019. Despite this, DRC-07 dated 10.02.2022 was issued, purportedly not pressing the ocean-freight demand, prompting the present petition.

Issues Involved

  1. Whether the DRC-07 order dated 10.02.2022 could confirm/refer to a demand on ocean freight when this Court had earlier stayed coercive recovery of tax on ocean freight.
  2. Whether the impugned order was passed without affording the petitioner an opportunity of personal hearing, in violation of principles of natural justice and Rule 26 of the CGST Rules.

Petitioner's Arguments

  • When this Court had already stayed collection of tax on ocean freight, the authorities ought not to have raised or pursued a demand for ocean freight in the impugned proceedings.
  • The proceedings clearly indicate that no personal hearing was granted before passing the impugned order.
  • Despite DRC-07 noting the ocean-freight demand as "not pressed," there remains every possibility of the department still collecting it, contrary to the Court's stay.

Respondent's Arguments

  • The objections filed by the petitioner were duly considered before passing the order; the claim of no personal hearing is incorrect.
  • Credit was given for the ocean freight amount already paid by the petitioner, and no loss was caused to it.

Court Order/Findings

  • Having regard to the rival submissions, the Court set aside the impugned proceedings in DRC-07 dated 10.02.2022.
  • The matter was remanded to the first respondent, who shall deal with it afresh and pass appropriate orders after affording the petitioner an opportunity of personal hearing, in accordance with law.
  • The writ petition was disposed of at the admission stage with the consent of both parties, with no order as to costs.

Important Clarification

  • Where a demand is stated to be "not pressed" in an order, but the underlying record leaves scope for its continued pursuit, and a prior court stay on that very demand exists, the order is liable to be set aside rather than left to ambiguity.
  • A factual dispute over whether a personal hearing was actually granted before an adverse tax order is a valid ground for remand, without the Court going into the merits of the tax demand itself.

Sections Involved

  • Section 74 of the CGST Act, 2017 — determination of tax not paid or short paid by reason of fraud, wilful misstatement or suppression of facts.
  • Section 65 of the SGST Act, 2017 — audit of registered persons by tax authorities.
  • Section 50 of the CGST Act, 2017 — interest on delayed payment of tax.
  • Rule 26 of the CGST Rules, 2017 — method of authentication of documents/returns, cited as a ground of irregularity in the petition.

Decision – In Favour of

The matter is disposed of with directions, in favour of the Petitioner only to the limited extent of remand — the DRC-07 order is set aside for fresh adjudication after a proper personal hearing. The Court has not recorded any finding on the merits of the underlying tax liability or the ocean-freight dispute.

Related Case Laws

No related case laws are available on this site at present.

Case Details

  • Court: High Court for the State of Andhra Pradesh
  • Case No.: Writ Petition No.8100 of 2022
  • Coram: Hon'ble Sri Justice C. Praveen Kumar and Hon'ble Smt. Justice V. Sujatha
  • Date of Order: 12.04.2022

Link to Download the Order

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