The court ruled that confusion about GST application does not constitute fraud or willful misstatement needed to invoke penalties under the Goods and Services Tax Act, thus quashing the show cause notice.

ORDER

This writ petition has been filed against the impugned show cause notice dated 20.04.2022 issued by the 3rd respondent and the impugned orders dated 27.04.2023 and 18.03.2024 passed by the 4th & 5th respondents.

2. Petitioner's submission:

2.1 The learned Senior counsel appearing for the petitioner would submit that in this case, the challenge was made with regard to the issuance of show cause notice and passing of original order dated 27.04.2023 and appeal order dated 18.03.2024 under Section 74 of the Goods and Services Tax Act, 2017 (hereinafter called as “the Act”). 2.2 The petitioner is a limited company, incorporated under the Companies Act, 1956, and engaged in manufacturing and trading automotive tyres, tubes and flaps. Initially, the impugned show cause notice dated 20.04.2022 was issued by the respondents against the petitioner with regard to the validity of earlier tax payment method and proposing penalties. Upon receipt of the said notice, a reply was filed by the petitioner on 28.04.2022. However, without considering the said reply, the original order dated 27.04.2023 was passed by the 4th respondent. Aggrieved over the said original order, an appeal was preferred by the petitioner, however, without proper consideration, the said appeal was also rejected by the 5th respondent vide impugned order dated 18.03.2024. Hence, this petition.

2.3 He would submit that in this case, the petitioner made a supply of tyres, tubes and flaps (TTF) in a carry strapping form. As on the date of introduction of GST, i.e., with effect from 01.07.2017, all the three items are chargeable to GST at the rate of 28%. Therefore, whenever they effected the supply, they had raised separate invoices for each items and send it to the manufacturers.

2.4 He would also submit that for the purpose of convenience, the tyres, tubes and flaps are sent together by rising separate invoices. Therefore, at no point of time, the aforesaid items were supplied under a single invoice treating it as a “composite supply”. Under these circumstances, with effect from 15.11.2017, the rate of duty against the tube was reduced from 28% to 18%. Likewise, from 01.01.2019, the duty liability of the flaps was reduced from 28% to 18%. Accordingly, the invoices were raised and supplies have been effected by the petitioner. However, there was a confusion among the industries as to whether effecting the supply of TTF in a carry strapping form is a “composite supply” or “individual supply”. Therefore, on 12.01.2019, the petitioners had sent a communication that they are going to treat the supply of TTF in carry strapping as a “composite supply” and pay the short payment of additional 10%, along with the interest, for the tubes for the period between 15.11.2017 and 13.01.2019 and for the flaps for the period between 01.01.2019 and 13.01.2019. Accordingly, the entire tax amount, along with the interest, has been paid during the month of May 2022.

2.5 In the meantime, the Director General of GST Intelligence (DGGI) had initiated investigation against the petitioner on the supply of TTF on 21.01.2019 and took a view that in this case, the supply was effected as a “composite supply”, for which, the petitioner should have paid the tax dues at the rate of 28%.

2.6 According to the respondents, though the petitioner's communication, for payment of the tax amount at the rate of 28%, was effected on 12.01.2019, the actual duty was paid only in the month of May 2022, i.e., subsequent to the investigation conducted by the DGGI dated 21.01.2019. Therefore, the respondents had arrived at a d