Held by
Hon’ble High Court of Jharkhand
In the matter of
M/s. Sri Ram Stone Works Vs. State of Jharkhand & Others
(W.P. (T) No. 5535 of 2024)
The Petitioner is engaged in the business of the sale of stone boulders, stone chips, etc., and is having GST registration in the state of Jharkhand. The Petitioner received Notice under Section 61 of the CGST Act, 2017 on the ground that goods are sold at below the prevailing Market value.
Hon’ble High Court held that the Clear Objective of Section 61 of the JGST Act is to enable an Assessing Officer to point out discrepancies and errors in the return filed by the registered person. In the given case, the competent officer has compared the price at which the Petitioners have sold their goods with the prevalent market price. Therefore, notices are wholly without jurisdiction and beyond the scope of Section 61 of the Act.
Also, it is settled law that unless transactions of sale are shown to be sham transactions or the mere fact that the goods were sold at a concessional rate would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value. Therefore, the notices issued under Section 61 are wholly without jurisdiction and are liable to be set aside.
1. Brief Facts of the Case:
- M/s Sri Ram Stone Works (“The Petitioner”) is engaged in the business of the sale of stone boulders, stone chips-etc and is having GST registration in the state of Jharkhand.
- In exercise of the power given under Section 61 of the JGST Act, 2017, Notices were issued to the Petitioners stating that they sold stone-boulders/stone chips below the prevalent market price.
- Accordingly, the petitioner was directed to show Cause as to why proceedings under Section 73/74 should not be initiated against them.
- The petitioner furnished a response stating that the scope of Section 61 of the Jharkhand GST Act, 2017, read with Rule 99 of the Jharkhand GST Rules, 2017, is limited to the extent of the discrepancy occurring in the returns.
- Therefore, comparing the taxable value of supply disclosed by Petitioners in their returns with that of the market price of goods is beyond the scope of Section 61 of the Act.
- Despite such a reply being filed, in some cases, subsequent notices in Form GST ASMT-10 were again issued, and all such notices are under challenge in the instant writ petitions.
2. Relevant Legal Extract
Section 61 of the JGST Act is reiterated below for ready reference:
The Petitioner contended that the Scope of Section 61 is limited to discrepancies in the GST Law, and the impugned notices do not relate to any of the discrepancies in the returns filed by the Petitioners. Rather, the notice is issued on the ground that the taxable value disclosed in the returns is less than the prevalent market price.(1) The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.
(2) In case the explanation is found acceptable, the registered person shall be informed accordingly, and no further action shall be taken in this regard.
(3) In case no satisfactory explanation is furnished within thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74.”
3. Contention of the Petitioner
The Petitioner contended that:
- The notice issued in Form GST ASMT-10 is wholly without jurisdiction, and the Respondent authorities have exceeded their jurisdiction, as such notices do not relate to any of the discrepancies in the returns filed by the Petitioners.
- Rather, the notice is issued on the ground that the taxable value disclosed in the returns filed by the Petitioners is less than the prevalent market price.
- Also, As per Section 15 of JGST Act, 2017, value of supply of goods or services is the transaction value i.e. the consideration received towards such supply, and, merely because consideration is less than prevalent market price cannot be a cause for invoking proceedings of ‘scrutiny of returns under Section 61 of the Act’.
- Further, a dealer is entitled to carry out the business in the manner best suited to it, and, merely because goods are sold at lower than market value, it can’t become a base for proceedings under Section 61 of JGST Act, unless it is alleged that goods have been sold at a price higher than the price as reflected in the returns.
4. Contention of the Respondent:
The Respondent contended that:
- In certain cases, the notices were issued to compare the taxable value of goods reflected in returns with market value; however, later on, other issues relating to discrepancies in returns were also highlighted.
- As per Section 61 of the JGST Act, the competent authority can, while verifying the correctness of the return, inform the dealer about the discrepancies noticed in its returns and require the dealer to correct the same.
- However, if the dealer fails to correct such discrepancy, further proceedings can be initiated under Sections 65, 66, or 67 of the JGST Act, or SCN can be issued under Section 73 or 74 of the GST Act.
- Further, the notice is merely a procedural notice having no adverse civil consequences, and Petitioners, instead of approaching this Court, should have replied to the same.
- If the reply is found satisfactory, no further proceedings would have been initiated against the Petitioners.
- Therefore, the writ petition filed by the respective Petitioners is premature and is liable to be dismissed by this Court.
5. Analysis and Findings by the Court
Hon’ble High Court made the following findings and Analysis:
- The Clear Objective of Section 61 of the JGST Act is to enable an Assessing Officer to point out discrepancies and errors in the return filed by the registered person.
- The section itself provides that if, after pointing out the corrective measures are not undertaken by registered persons, the proper officer may initiate appropriate action, including action under Sections 65 to 67 and Sections 73 or 74 of the Act.
- Under the GST law, three separate enabling provisions are provided:
- At the preliminary stage of return filing: Section 61;
- Investigating provisions: Section 65 to Section 71 (Includes Audit, Search & Seizure, arrest, etc);
- Adjudicatory Provisions: Sections 73 & 74 (Show Cause Notice)
- In the given case, the notices are issued under Section 61, and instead of pointing out discrepancies in the returns filed, the competent officer has compared the price at which Petitioners have sold their goods with the prevalent market price.
- We are of the firm opinion that notices issued based on price comparison are wholly without jurisdiction and beyond the scope of Section 61 of the Act.
- Also, it is settled law that unless transactions of sale are shown to be sham transactions, or the mere fact that the goods were sold at a concessional rate would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value.
- Therefore, the notices issued under Section 61 are wholly without jurisdiction and are liable to be set aside.
- Accordingly, it is clarified that no action can be taken merely because of a difference in transaction value and the prevalent market value of goods. However, the Assessing Officer would be at liberty to issue fresh notices relating to discrepancies in the returns, if any.
6. Final Order:
The Hon’ble High Court held that:
- Instant writ petitions are allowed, and impugned notices issued under Section 61 of the JGST Act are hereby quashed and set aside.
