The High Court
Case Details
IN THE HIGH COURT OF ORISSA AT CUTTACK W.P.(C) No.30711 of 2023 Along with W.P.(C) Nos.30716 and 30718 of 2023 (In the matter of an application under Articles 226 and 227 of the Constitution of India, 1950) M/s. Royal Granite, Ganjam (in all these cases) …. Petitioner(s) -versus- The Deputy Commissioner of CT & GST, Ganjam-I, Circle, Ganjam & Ors. (in all these cases) …. Opposite Party(s) Advocates appeared in this case through Hybrid Arrangement Mode: For Petitioner(s) For Opposite Party(s) : : Mr. Subrat Satpathy, Adv. Mr. Sunil Mishra, Standing Counsel for Revenue CORAM: DR. JUSTICE S.K. PANIGRAHI MR. JUSTICE G. SATAPATHY DATE OF HEARING: -29.11.2023 DATE OF JUDGMENT: -22.12.2023 Dr. S.K. Panigrahi, J. 1. The Petitioner through these Writ Petitions challenges the order passed by the Opp. Party No.2 on 17.06.2023 in rejecting the application filed on 06.02.2023 wherein the petitioner sought for review of the order and Signature Not Verified
Facts
Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 1 of 11 in terms of the direction contained in the order 10.04.2023 of this Court in W.P (C) No. 9491/2023. I. FACTUAL MATRIX OF THE CASE: 2. The petitioner is a proprietorship concern dealing with Decorative Stone Mine under the Orissa Minor Minerals (Concession) Rules 2014 and doing business of processed granite tiles, therefore granted GSTIN vide No. 21AESPN0157K1ZD under OGST Act 2017. In the financial year 2017-18, the petitioner has paid total Royalty of Rs. 1,34,72,988.00 to the State. Since payment of Royalty to State is a payment of tax on mining and not a business turnover there is no requirement to pay the OGST/CGST. Hence, the petitioner has not disclosed the figure in quarterly/annual return for FY 2017-2018. 3. In the month of February 2020, the Opp. Party No. 3 issued a letter to the petitioner to pay GST on the Royalty for the period 2017-18 to 2019- 20 under Reverse Charge Mechanism with an allegation of willful suppression of facts. However, in compliance with departmental oral instruction, the petitioner paid Rs. 16,48,590/- from July 2017 to December 2017 in DRC-3 towards SGST & CGST with protest. The Opp. Party No. 1 issued Show Cause Notice vide Ref No. ZD2108210072705 dated 16.08.2021 in DRC-1 under section 74 of the OGST Act. However, the Show Cause Notice issued under section 74 of the OGST Act does not disclose any specific violation of law. It only alleges non-declaration of turnover and non-payment of tax under Reverse Charge Mechanism, including alleged suppression of fact with willful misstatement to evade tax to which a proceeding has been initiated under section 74(5) of the Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 2 of 11 Act. A reply to SCN & DRC-01 was submitted by the petitioner mainly contending that Royalty payment data are available in the Mining Department and Royalty is not value of minerals rather it is a Tax on mining. Further tax cannot be imposed on the Tax Payer under the Reverse Charge Mechanism. 4. In-spite of the said reply to SCN, Ld. Opp. Party No. 1 confirmed the demand mentioned in SCN. Being aggrieved, the petitioner preferred an appeal under section 107 of the Act before the jurisdictional Appellate Authority/Opp. Party No. 2. The Appellate Authority/ Opp. Party No. 2 having heard the matter passed an order exparte without considering grounds taken in the reply to the Show Cause Notice (SCN). The Appellate authority raised a Summary of Demand in GST APL-04, vide No. ZD210722009098P dated 14.07.2022 and also issued a demand letter to pay balance amount of Rs. 26,22,312/-. Petitioner on receiving such letter which accompanied with the order of the appellate authority made an application for review of such order to the Appellate Authority i.e. Opp. Party No.2 and during pendency of said application,
Legal Reasoning
Petitioner moved this Court in W.P (C) No.9491/2023, with a prayer to quash the show cause notice, the order of the Adjudicating Authority as well as the Appellate Authority. 5. The Court on hearing the writ petition vide order dated 10.04.23 directed Opp. Party No. 2 to "consider the application for review and pass necessary order in accordance with law." After communication of order to the Opp. Party No. 2 by the petitioner, along with an application for personal hearing, though the O.P No. 2 passed an order Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 3 of 11 without giving an opportunity to the petitioner to place his contention. It is alleged that the order under Annexure-1 is influenced by previous finding, without complying with the order passed by this Court and without following principle of natural justice. II. PETITIONER’S SUBMISSIONS: 6. Learned counsel for the Petitioner(s) earnestly made the following submissions in support of his contentions: 7. The petitioner, in the earlier writ application (i.e. W.P.(C) No. 9491/2023), had challenged the Show Cause Notice, Demand Order & Order in 1st appeal issued by the Opp. Party No. 1 & 2 respectively. Upon hearing, this Court was pleased to direct the Opp. Party No. 2 to consider the application pending before it and pass appropriate order in accordance with law. However, without issuing any notice to the petitioner and without fixing for personal hearing, the said Opp. Party issued an order, rejecting contentions of the petitioner on three grounds which are contradictory to each other. The relevant portion of the order passed in WP(C) No.9491/2023 is quoted hereunder.
Decision
“The petitioner has filed this writ petition seeking to quash the show cause notice under Annexure-1 (Series), the order dated 23.11.2021 under Annexure-3 and the order dated 30.06.2022 under Annexure-5 (Series). Learned counsel for the petitioner contended that against the order under Annexure-5 series, the petitioner has already filed an application under Annexure-7 for review of the said order, but the same has not been considered and disposed of. Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 4 of 11 In view of the above, this writ petition stands disposed of directing Opp. Party No. 2 to consider the application of the petitioner under Annexure-7 and pass appropriate order in accordance with law." 8. The demand is not tenable as it is a double jeopardy and there is no suppression of turnover as the petitioner is a royalty payer and details of which are very much open to all through Govt. Portal. 9. Under section 109 of the CGST Act, the Central Govt. under the recommendation of GST Council has not constituted the National/ Regional Tribunal, hence the petitioner is remediless under the statute, compelled to challenge the impugned order dated 30.06.2022 and order dated 17.06.2023 under article 226 & 227 of the constitution of India before this Court. 10. In-spite of above reply to SCN, Ld. Opp. Party No. 1 confirmed the demand mentioned in SCN. Thus aggrieved by the same, the petitioner preferred an appeal under section 107 of the Act before the Jurisdictional appellate authority /O.P No. 2 taking same ground in short and a computer generated acknowledgement in GST APL-02 vide ARN# AD2103220000670, dated 03.03.2022 was forwarded to the appellant/ petitioner. 11. After acceptance of appeal, the Appellate Authority fixed different dates for hearing of appeal which was communicated to the petitioner by way of uploading into the GST Portal but due to poor acquaintance the petitioner/his staff failed to recognize the notices and subsequently on the last date, a time petition was advanced as the petitioner could Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 5 of 11 not contact his advocate to conduct the appeal. The appellate Authority/Opp. Party No.2 though uploaded another notice for hearing on portal but the same was also missed by the staff of the petitioner and it remained out of knowledge until a recovery reminder was received which was sent to the petitioner through email. But the appellate authority without any service of notice for hearing physically on the petitioner treated the notice uploaded through portal as sufficient and proceeded with the appeal ex-parte by passing an order without considering grounds and previous contentions advanced to show cause notice (SCN) and also raised a summary of demand in GST APL-04, vide No. ZD210722009098P, dated 14.07.2022. 12. Appellate Authority/Opp. Party No. 2 after adjudication of appeal raised a summary of demand in from APL-04 on 14.07.2022 and also initiated recovery proceeding vide letter No. 490 dated 01.02.2023 which has communicated to the petitioner through email referring to the order passed in appeal wherein it was directed to deposit an amount of Rs. 26,22,312/-. 13. The demand-cum-SCN was issued mainly on the allegation of willful suppression of royalty turnover given to Mining Deptt. It is submitted that, the same is not applicable to present case since the payment of Royalty is very much available with the Mining Department of State of Odisha. Royalty is a Tax and no further tax to be paid on the said amount. This issue is pending before nine judge bench of Apex Court for adjudication. Therefore, allegation of suppression of turnover of royalty is not acceptable in the eye of law. Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 6 of 11 14. It is pertinent to mention here that the adjudicating authority so does the learned appellate authority while passing order, have relied upon notification No. 11/2017 and order No. 03/ Odisha-AAR/2019/20 which are their departments’ internal circulation which was never communicated the petitioner and even in the SCN nothing was mentioned about it. Therefore, order passed by both adjudicating and appellate authority based on these notifications is mere surprise to the petitioner and beyond the principle of natural justice. 15. Further, the petitioner at the initial stage, on the request of the Department, paid Rs.16,48,590/- under protest. 16. Apart from all above, it is submitted that the assessing authority has given SCN after scrutiny (filed for the FY 2017-18) and in the SCN it is mentioned that "on scrutiny of returns it is noticed that the tax payer has neither declared the turnover nor paid any tax under reverse charge mechanism". To this, the petitioner submits that as per section 61 of the Act if the proper officer discovers any discrepancy on scrutiny, he should seek explanation from the registered person by issuing Form GST (ASMT-10) and in case of unsatisfactory explanation received he may proceed to determine tax under section 73 or 74". But in the present case, the AO without giving statutory opportunity under section 61, proceeded under section 74 of the Act which is beyond the scope of statutory mandate. 17. Petitioner filed an application dated 05.02.2023 (sent through post on dated 13.02.2023) before the Opp. Party No.2 with a prayer to review Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 7 of 11 the order dated 30.06.2022 which was subject matter in W.P.(C) No. 11706/2013. 18. While passing order dated 30.06.2022, the appellate authority should have examined as to whether Sec-107(12) of the OGST Act has been followed or not. It is submitted that the adjudicating authority without seeking any explanation while scrutiny of records as prescribed under section 61 of OGST Act has proceeded under section 74 of the Act which is complete non application of mind and confirming the same by the Appellate Authority i.e. O.P No. 2 in its order dated 30.06.2022 is contrary to Sub-Section 12 of Sec 107 of the OGST Act. III. COURT’S REASONING AND ANALYSIS: 19. Royalty is a tax. A cess on royalty being a tax on royalty, is beyond the competence of the State Legislature because section 9 of the Central Goods and Services Tax Act covers the field and the State Legislature is denuded of its competence under entry 23 of List II. 20. In the case of India Cement Ltd v State Of Tamil Nadu1, the Supreme Court has held that: Whether royalty is a tax is not very material for the purpose of determination of this question in this case. It is admitted that royalty is charged on the basis of per unit of minerals extracted. It is no doubt true that mineral is extracted from the land and is available, but it could only be extracted if there are three things: (1) Land from which mineral could be extracted. (2) Capital for providing machinery, instruments and other requirements. (3) Labour It is therefore clear that unit of charge of royalty is not only land but land + Labour + Capital. It is therefore clear that if royalty is a tax or an 11990 AIR 85 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 8 of 11 imposition or a levy, it is not on land alone but it is a levy or a tax on mineral (land), labour and capital employed in extraction of the mineral. It therefore is clear that royalty if is imposed by the Parliament it could only be a tax not only on land but no these three things stated above. It is not in dispute that the cess which the Madras Village Panchayat Act proposes to levy is nothing but an additional tax and originally it was levied only on land revenue, apparently land revenue would fall within the scope of entry 49 but it could not be doubted that royalty which is a levy or tax on the extracted mineral is not a tax or a levy on land alone and if cess is charged on the royalty it could not be said to be a levy or tax on land and therefore it could not be upheld as imposed in exercise of jurisdiction under Entry 49 List II by the State Legislature. Thus it is clear that by introducing this explanation to Section 115 clause (1) widening the meaning of word ’land revenue’ for the purposes of Section 115 and 116. When the Legislature included Royalty, it went beyond its jurisdiction under entry 49 List II and therefore clearly is without the authority of law. But this also may lead to an interesting situation. This cess levied under Section 115 of the Madras Village Panchayat Act is levied for purposes indicated in the scheme of the Act and it was intended to be levied on all the lands falling within the area but as this cess on royalty is without the authority the result will be that the cess is levied so far as lands other than the lands in which mines are situated are concerned but lands where mines are situated this levy of cess is not in accordance with that law. This anomaly could have been averted if the Legislature in this explanation had used words ’surface rent’ in place of royalty. Even if the lands where mines are situated and which are subject to licence and mining leases even for those lands there is a charge on the basis of the surface of the land which is sometimes described as surface rent or sometimes also as ’dead rent’. It could not be doubted that if such a surface rent or dead rent is a charge or an imposition on the land only and therefore will clearly fall within the purview of entry 49 List Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 9 of 11 H and if a cess is levied on that it will also be justified as tax on land falling within the purview of entry 49 and it will also be uniform as this cess would be levied in respect of the lands irrespective of the fact as to whether the land is one where a mine is situated or land which is only used for other purposes for which land revenue is chargeable.” 21. The demand-cum-SCN was issued mainly on the allegation of willful suppression of royalty turnover given to Mining Deptt. It is submitted that, the same is not applicable to present case as there is no willful suppression particularly when the payment of Royalty is very much available with the Mining Department of State of Odisha and that the petitioner with bona fide intention that the Royalty is a Tax and no further tax to be paid again. 22. It is pertinent to mention here that the adjudicating authority so also Ld. appellate authority while passing order, have relied upon notification No. 11/2017 and order No. 03/ Odisha-AAR/2019/20 which are their departments’ internal circulation which was never communicated to the petitioner and even in the SCN nothing was mentioned about it. Therefore, order passed by both adjudicating and appellate authority based on these notifications is beyond the principle of natural justice. 23. Further, though the petitioner at the initial stage on the request of the Department already paid Rs.16,48,590/- under protest. Ld Authority in its order mentioned that "it is seen that the appellant has not enclosed any supporting documents towards proof of payment as per demand raised". This shows hounding attitude of Revenue authorities just to collect revenue ignoring judicial approach and simultaneously both Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 10 of 11 authorities forgot that the demand raised was impugned before them, thus the appellate order and subsequent demand are liable to be quashed. 24. In view of the aforesaid discussion, this Court is of the opinion that the impugned order passed by the Opp. Party No.2 on 17.06.2023 in rejecting the application filed on 06.02.2023 should be quashed. 25. Accordingly, all these Writ Petitions are disposed of. G. Satapathy, J. I agree. Orissa High Court, Cuttack, Dated the 22nd Dec., 2023/ (Dr. S.K. Panigrahi) Judge (G. Satapathy) Judge Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: Assistant Registrar-cum-Senior Secretary Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 02-Feb-2024 17:41:25 Page 11 of 11