2021 (7) TMI 859 - HC - GST

Levy of GST - Composition scheme - the turn over after the GST regime came to force is less than ₹ 1 crore - whether the authorities were right in directing the petitioner to pay tax at 28% and also as to what the word preceding financial year appearing in Section 10(1) of Act would mean? - HELD THAT - The word preceding financial year appearing in Section 10 (1) of the Act is the crux of the issue. If the word preceding financial year is restricted to the period commencing from GST regime, then all the assesses, who have submitted their returns with false declarations in the GST regime for the financial year 2017-2018, would go scot free and would not be liable to pay any tax, as there would not be any preceding financial year in the GST regime for the period 2017-2018. This could not have been the intention of the legislature at all. If the intention of the legislature was to exclude the declarations made under VAT regime, the same would have found place in Section 10(1) of the Act itself - As the tax to be paid is to be determined under the new regime, the legislature thought it fit to fix a limit in the turn over of the preceding financial year for the purpose of extending the benefit under the composite scheme. A reading of the objects and reasons and the provisions of GST Act makes it clear that GST Act has only replaced VAT Act. All the taxes to be paid under VAT are subsumed into a single tax called GST, simplifying the tax collection process and making it easier not only to the customer, but also the State and Central authorities. The argument that the turn over in the financial year starting from 1.7.2017 has only to be taken into consideration ignoring the previous turn over in the VAT regime does not sound to reason, because when the legislature at more than one place used the word preceding financial year , it would only mean that as on 1.7.2017, the turn over of the previous year under the VAT regime has to be reckoned with for the purpose of extending benefit under GST regime, provided the self-declarations made are correct - by switching over from VAT to GST system, tax payment/collection on intra state supply of goods is being continued, but, however, in a different mode, thereby avoiding inconvenience and hardship to one and all. In the instant case, the dispute in so far as interpretation of the word previous financial year arose only for the financial year 2017-2018, as the GST regime commenced from 1.7.2017. If the intention of the legislature was that the turn over of the financial year under GST regime is only to be taken into consideration, then there would have been a clarification of the word preceding financial year - the word preceding appearing before the word financial year cannot be ignored and if done, one would doing mockery of the words financial year does not exceed ₹ 50 lakhs . Therefore, to fix a parameter for extending the benefits under the scheme and for payment of less tax in case of manufacturers and for those engaged in making supplies, the legislature thought it fit to take into account the turn over of the previous financial year. The collection of tax under the GST Act, 2017 is not in addition to the provisions of VAT, but, this is being introduced as a substitute to VAT Act to deal with both goods and services, so as to maintain uniformity across the length and breadth of the country. This has been introduced to meet the requirements under the recommendations of the GST council, in which all the States and Union territories are the stakeholders - there are no illegality in taking into consideration the previous year s turn over (under VAT regime) for the purpose of extending benefits under the composite scheme or for collecting taxes and penalty. Petition dismissed.

Summary

Issues Involved:
1. Legality of directing the petitioner to pay GST at 28% from 1.7.2017.
2. Interpretation of the term "preceding financial year" in Section 10(1) of the GST Act.
3. Validity of the petitioner's claim to pay tax under the composite scheme.

Detailed Analysis:

1. Legality of directing the petitioner to pay GST at 28% from 1.7.2017:
The petitioner firm, engaged in the furniture business, claimed to have opted for the composite scheme under Section 10(1) of the GST Act and paid taxes accordingly. The Department initially accepted these payments but later issued a show cause notice on 14.2.2018, rejecting the petitioner's claim under the composite scheme due to a turnover of ?2.09 crores in the previous year under the VAT regime. Despite the petitioner's explanation, the Department confirmed the demand for GST at 28% (14% S.GST and 14% C.GST) from 1.7.2017, along with interest and penalty. The petitioner’s appeal was also rejected, leading to the present writ petition.

2. Interpretation of the term "preceding financial year" in Section 10(1) of the GST Act:
The core issue was the interpretation of "preceding financial year" in Section 10(1) of the GST Act. The petitioner argued that the term should only consider the period after the GST regime commenced on 1.7.2017, and not the turnover under the VAT regime. Conversely, the Department contended that the term includes the turnover from the VAT regime, as the GST Act replaced the VAT Act, and all taxes under VAT were subsumed into GST. The court highlighted that the GST Act aimed to create a unified tax system, replacing multiple state and central taxes, including VAT.

3. Validity of the petitioner's claim to pay tax under the composite scheme:
The petitioner claimed to have paid GST under the composite scheme based on self-declaration for four quarters. However, the court noted that the option exercised by the petitioner required verification. The delay in verification by the authorities due to the transition to the new regime did not prevent them from directing the petitioner to pay the correct tax if the self-declaration was found incorrect. The court emphasized that the term "preceding financial year" in Section 10(1) of the GST Act includes the turnover from the VAT regime, as excluding it would allow taxpayers to evade taxes for the financial year 2017-2018. The legislature's intent was clear in using the term "preceding financial year" to include the turnover from the VAT regime for determining tax liability under the GST regime.

Conclusion:
The court dismissed the writ petition, affirming that the authorities were correct in considering the turnover from the VAT regime as part of the "preceding financial year" for the purpose of the composite scheme under Section 10(1) of the GST Act. The petitioner's argument to exclude the VAT regime turnover was rejected, and the demand for GST at 28% from 1.7.2017 was upheld. The court found no illegality in the Department's actions and concluded that the transition from VAT to GST aimed to maintain uniformity and prevent tax evasion.