The Karnataka High Court recently ruled that a writ petition challenging an intimation of tax ascertainment under Section 73(5) of the CGST/KGST Act, 2017, is premature if no Show Cause Notice (SCN) under Section 73(1) has been issued.
The court emphasized that an intimation under Section 73(5) is not a final tax demand but merely provides an opportunity for the taxpayer to either pay the ascertained tax with interest or contest the claim.
Background of the Case
The petitioner, Sri Nanjundappa Constructions, received an intimation of tax ascertainment under Section 73(5) of the Central Goods and Services Tax Act, 2017 (CGST Act) and the Karnataka Goods and Services Tax Act, 2017 (KGST Act). This intimation required the petitioner to pay the ascertained tax along with applicable interest. The petitioner contested this intimation, arguing that they were not liable to pay tax on royalty.
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Petitioner’s Arguments:
- The petitioner challenged the tax intimation (Annexure-D) before the Karnataka High Court.
- The petitioner contended that the tax on royalty was not applicable and that the intimation under Section 73(5) was unjustified.
Respondent’s Arguments:
- The Additional Government Advocate argued that the writ petition was premature since the intimation under Section 73(5) is not a final demand but an opportunity for the petitioner to respond or pay the tax.
- If the petitioner failed to pay the tax or contest the intimation, a Show Cause Notice (SCN) would be issued under Section 73(1), followed by a final order under Section 73(9).
- The respondent highlighted that the petitioner had the right to submit objections against the intimation.
Court’s Observation and Ruling
After hearing both parties and reviewing the writ petition and the provisions of the CGST/KGST Act, the Karnataka High Court ruled that the writ petition was premature.
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Key Findings:
- The intimation under Section 73(5) is not a final demand but a communication of ascertained tax liability.
- The petitioner has the right to either pay the tax with interest or contest it by filing a response.
- If the petitioner fails to respond or pay, the authorities are required to issue a formal Show Cause Notice under Section 73(1) and subsequently pass an order under Section 73(9).
- Since no SCN under Section 73(1) was issued and no final order under Section 73(9) was passed, the writ petition was considered premature.
Court’s Order:
- The writ petition was dismissed as premature.
- The court affirmed that the petitioner retains the right to challenge the tax demand after receiving a formal Show Cause Notice under Section 73(1).
Conclusion
The Karnataka High Court’s ruling clarifies that an intimation under Section 73(5) of the CGST/KGST Act, 2017 is not a final tax demand but an opportunity for the taxpayer to respond or settle the tax liability. Filing a writ petition at the stage of intimation, without a Show Cause Notice, is premature. Taxpayers are advised to wait for a formal SCN under Section 73(1) before seeking legal remedies.
This decision sets a clear precedent on how taxpayers should approach tax intimations under Section 73(5) of the CGST/KGST Act, ensuring that due process is followed before initiating legal action.
Case Title: Sri Nanjundappa Constructions v. Union of India
Writ Petition No.: 34742 of 2024 (T-RES)
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