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2024 (6) TMI 479 - HC - GSTIssuance of notice u/s 74 (1), 122 (2) and 125 of the CGST, 2017 read with Rule 142 (1) of the Central Goods and Service Tax Rules, 2017 - demand of unpaid tax on Reverse Charge Mechanism (RCM) on purchase of cotton from agriculturist amounting to Rs. 3,73,95,300/- along with the penalty of equal amount under Section 122 (2) of the GST Act - Revenue neutrality - penalty u/s 122 (2) of the Act. HELD THAT - As the impugned order was passed during the pendency of the petition where the petitioner has challenged the jurisdiction of the respondent No. 1 to issue the show cause notice, the draft amendment was permitted and the petitioner was granted opportunity to make the submissions on merits, without relegating the petitioner to the alternative remedy, which would otherwise have been the normal course of proceedings. Therefore, the merits of the matter considered also as to whether the petitioner is liable for payment of GST on RCM basis under the provisions of the CGST Act or not, on RCM basis on the raw cotton purchased from the agriculturist. When the respondent No. 1 has issued the notice since 2022 pointing out to the petitioner that the petitioner is liable to pay the GST on RCM on the raw cotton purchased from agriculturist, the petitioner has not shown any willingness nor has given any reply except raising the technical pleas in response to the impugned show cause notice dated 30.8.2023 by reply dated 1.9.2023. The respondent No. 1 has considered the reply of the petitioner in detail and thereafter, has come to the conclusion relying upon the aforesaid Notification No. 43 of 2017 issued under Section 9 (3) of the CGST Act that the petitioner is liable to pay the GST under RCM on the raw cotton purchased from the agriculturist. On perusal of the show cause notice in Form GST DRC-01 as well as the impugned order is concerned, both refers to the Notification No. 43 of 2017 which was issued under Section 9 (3) of the CGST Act and, therefore, mentioning the Section 9 (4) in the notice would not make the notice illegal. The petitioner was made aware that the petitioner is liable to pay the GST under RCM on the basis of the Notification No. 43 of 2017 which is issued under Section 9 (3) of the CGST Act and, therefore, the contention of the petitioner that the notice and the order are passed under different Sections 9 (3) and 9 (4) cannot be accepted - On perusal of Section 9 (3) of the CGST Act, the same applies for payment of GST on RCM wherein the Government, on recommendation of the Council by notification, has specified the categories of supply of goods or services or both, the tax on which GST is to be paid on reverse charge basis by the recipient of such goods or services or both and the provisions of the Act to apply to such recipient as if he is the person liable for paying the tax - the contention raised on behalf of petitioner that the petitioner is not liable to pay the GST on RCM basis in absence of any notification under Section 9 (4) is not tenable because the petitioner is liable to pay tax on RCM basis as per provision of Section 9 (3) of the CGST Act. Revenue neutrality - HELD THAT - The contention of the petitioner that the entire exercise would be a revenue neutral, cannot accepted as the petitioner is not 100% EOU but is also only exporting 80% of its product and, therefore, payment of IGST on the export and getting refund of the same by the petitioner under the provisions of the IGST read with Section 54 of the CGST Act cannot absolve the petitioner from the liability to pay GST on RCM basis under Section 9 (3) of the CGST Act which is a charging section. Therefore, the submission made on behalf of the petitioner is not acceptable. Penalty levied under Section 122 (2) of the Act - HELD THAT - The respondent authorities have given cogent reasons for the same and, therefore, no interference is called for, more particularly when the petitioner was put to notice with regard to non-payment of GST under RCM on raw cotton purchased from the agriculturist since 2022. However, the petitioner did not consider the same to be a notice for avoiding the penalty and has invited the impugned order and, therefore, it is rightly believed by the respondent No. 1 that the petitioner has deliberately not paid the GST on RCM on the raw cotton purchased from the agriculturist contrary to the Notification No. 43 of 2017 issued under Section 9 (3) of the CGST Act and, therefore, no interference is required to be made for imposition of penalty by the impugned order. No interference is called for in the impugned order passed by the respondent No. 1 fastening the liability of amounting to Rs. 3,73,95,300/- along with the penalty of equal amount under Section 122 (2) of the GST Act upon the petitioner for non-payment of GST on RCM for the raw cotton purchased by the petitioner from 15.11.2017 onwards for the period for which the impugned order is passed. Petition dismissed.
Issues Involved:
1. Validity of the notice issued u/s 74(1) of the CGST Act. 2. Applicability of GST on Reverse Charge Mechanism (RCM) for raw cotton purchased from agriculturists. 3. Imposition of penalty u/s 122(2) of the CGST Act. Summary: 1. Validity of the Notice Issued u/s 74(1) of the CGST Act: The petitioner challenged the notice dated 30.8.2023 issued in Form GST DRC-01 u/s 74(1), 122(2), and 125 of the CGST Act, read with Rule 142(1) of the CGST Rules, for FY 2017-18 and 2018-19. The petitioner argued that the notice u/s 74(5) could not have been issued as an earlier notice was already issued u/s 73(5) for the same issue. The Court held that the notice issued u/s 74(1) was valid as there was further suppression of facts by the petitioner regarding non-payment of GST on RCM for FY 2018-19, allowing the respondent authority an extended period of 5 years for assessment. 2. Applicability of GST on RCM for Raw Cotton Purchased from Agriculturists:The petitioner contended that they were not liable to pay GST on RCM for raw cotton purchased from agriculturists. The Court referred to Notification No. 43 of 2017 dated 14.11.2017, which specifies that registered persons purchasing raw cotton from agriculturists are liable to pay GST on RCM w.e.f. 15.11.2017. The Court found that the petitioner was liable to pay GST on RCM basis under Section 9(3) of the CGST Act. The Court also dismissed the argument that the entire exercise would be revenue neutral, noting that the petitioner is not a 100% EOU but exports only 80% of its product. 3. Imposition of Penalty u/s 122(2) of the CGST Act:The petitioner argued against the imposition of a penalty, claiming there was no fraud or misrepresentation. The Court upheld the penalty imposed u/s 122(2), stating that the petitioner had deliberately not paid GST on RCM for raw cotton purchased from agriculturists, contrary to Notification No. 43 of 2017 issued u/s 9(3) of the CGST Act. The Court found that the respondent authorities had given cogent reasons for the penalty, and no interference was warranted. Conclusion:The petition was dismissed, and the impugned order dated 28.12.2023, which confirmed the demand of unpaid tax amounting to Rs. 3,73,95,300/- along with an equal amount of penalty u/s 122(2) of the CGST Act, was upheld. The Court found no merit in the petitioner's arguments and discharged the notice. Consequently, Civil Application No. 1 of 2023 was also disposed of.
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