Madras High Court Upholds GST Proceedings Over Mismatch Between Seigniorage Fees and Reported Turnover

The Madras High Court has upheld GST proceedings against a quarry operator. It held that a mismatch between seigniorage fees paid for mineral extraction and the value of outward supplies reported in GST returns was sufficient to justify the tax department's prima facie view that turnover had been suppressed.

Justice C. Saravanan dismissed writ petitions filed by KPR Enterprises for the 2018-19, 2019-20 and 2020-21 tax periods.

"Since the petitioner has paid a huge amount for the seigniorage fee, but has under-declared the value of the outward supply, it is evident that a prima facie case was made out for the invocation of the extended period of limitation under Section 74 of the respective GST enactments, as both under Section 73 and 74 of the respective GST enactments, the expression used is “Where it appears”," the court ruled

KPR Enterprises challenged assessment orders passed in July 2024. The proceedings followed an inspection and the issuance of intimation notices and show-cause notices by GST authorities.

The firm contended that another contractor, B.T. Nagaraj Reddy, extracted and sold the rock boulders. It argued that GST had already been discharged. It also claimed that no incriminating material was found during the inspection and that it was denied an opportunity of hearing.

The department relied on seigniorage fee records and estimated the quantity of boulders extracted. Those figures were used to estimate the value of supplies that, according to the department, had been short-declared in GSTR-1.

The court noted that the department estimated the escaped turnover using the National Standard Method.

"It is evident that the respondent has estimated the escaped turnover based on the National Standard Method in order to arrive at the value of supply short declared by the petitioner in the Returns to invoke the machinery under Section 74 of the respective GST enactments," the court held.

The court noted that the show-cause notices specifically alleged suppression of the value of outward supplies. They also contained the calculations relied upon by the department.

"Thus, there were sufficient materials / foundational facts available for the issuance of a notice under Section 74 to demand tax for the above tax period," the court observed.

The court found no procedural irregularity in the manner in which the proceedings were conducted. It consequently dismissed the petitions while granting liberty to pursue the statutory appellate remedy.

For Petitioner: S. Sathyanarayanan

For Respondent: V. Prashanth Kiran, Government Advocate