Assessing Officer is to consider the Assessee's reply with an open mind before concluding the assessment

[CA Bimal Jain]

The Hon'ble Madras High Court in the case of SL Lumax Ltd. v. Deputy Commissioner of State Taxes-II [2024 (3) TMI 220 - MADRAS HIGH COURT] disposed of the writ petitions by holding that the show cause notices (“SCN”) issued to the Petitioner were prima facie indicative of pre-judgment and directed the assessing officer to conclude the assessments after considering the Petitioner's materials, including HSN Explanatory Notes and relevant judgments.

Facts:

M/s. SL Lumax Ltd. (“the Petitioner”), engaged in manufacturing and supplying electrical lighting or signaling equipment used in motor vehicles, had been classifying and paying taxes on the goods under Chapter 8512. The Revenue Department (“the Respondent”) issued an intimation in Form DRC-01A, stating that the goods were classifiable under Chapter 8708 and not 8512, indicating the amount payable by the Petitioner. The Petitioner replied, stating that the goods were correctly classified under Chapter 8512. Thereafter, the impugned SCNs were issued on January 01, 2024 (“the Impugned SCN”).

Issue:

Whether Show Cause Notification issued without considering the relevant materials or judgment provided by the Petitioner is valid?

Held:

The Hon'ble Madras High Court in 2024 (3) TMI 220 - MADRAS HIGH COURT held as under:

• Noted that, the Petitioner has placed on record the notes under Section XVII, which deals with chapter 85 along with the HSN Explanatory notes. In multiple judgments of this Court and the Supreme Court, the HSN Explanatory notes have been referred to and relied upon as an authoritative guide to issues relating to classification. The Petitioner has also placed for consideration Instruction No. 1/2022 Customs dated January 05, 2022, which refers to several judgments of the Supreme Court. If the petitioner/assessee placed this material before the assessing officer, it is needless to say that the assessing officer is under an obligation to consider this material with an open mind in an objective manner before concluding the assessment.
• Held that, the Impugned SCN issued to the Petitioner was prima facie indicative of pre-judgment, as the Petitioner was called upon to pay a quantified sum, and not show cause as to why the said amounts were not payable.
• Directed the assessing officer to conclude the assessments by taking note of the following observations:

a) The assessing officer is under an obligation to consider the Petitioner's materials, including the HSN Explanatory Notes and relevant judgments, with an open mind in an objective manner before concluding the assessments.

b) In multiple judgments of this Court and the Supreme Court, the HSN Explanatory Notes have been referred to and relied upon as an authoritative guide to issues relating to classification.

(Author can be reached at [email protected])

Discussions to this article

[Sadanand Bulbule]

Dear Sir

The State GST authorities are not at all aware of or caring for HSN Explanatory Notes under the CTA to determine the correct classification of goods under HSN attracting the correct rate of tax. Besides discarding the factual and legal position summarily, they are passing reckless orders foisting unimaginable tax liability. I have brought this matter to the knowledge of the CBIC in the month of January 2024 with series of reminders requesting to issue suitable guidelines.

Probably in pursuance of that, of late guidelines are in place for conducting joint audit both by the CGST and the SGST authorities at least in sensitive cases. Hope this might enlighten the State authorities to understand the fundamentals of HSN, Explanatory Notes etc., and its proper application paving the way for ease of adjudication.

[Sadanand Bulbule]

Plz refer the following CBIC letter indicating the details of framework for joint audit:

 No. GADT/PndC/APLN/4/2021-PandC Date: 03.04.2024