Four Co-Op Mills’ Factory Works Miss 12% GST Concession; Tribunal Upholds ₹1.41-Crore Demand, Finding Government Status Unproven And Buildings Meant For Industry

In FY 2018–19, the Appellant executed works contracts for four co-operative spinning mills and charged GST at 12%.

Following an audit, the State Tax Officer issued a notice under Section 73 and demanded differential tax on the basis that the supplies were taxable at 18%, disallowed input tax credit (ITC) of Rs. 4,19,476 for mismatch with GSTR-2A, and raised other demands.

The first appellate authority set aside the demand under Section 16(4) and nullified the Section 122 penalty, but otherwise upheld tax, interest and penalty, including the differential-rate demand and ITC disallowance.

The Appellant appealed to the Tribunal, relying, among other things, on Government involvement in the projects and supplier-side reporting failures to support its claims for the concessional rate and ITC.

Section 9(1) of the CGST Act authorises the notified tax rates; under the version of Sl. No. 3(vi) of Notification No. 11/2017-Central Tax (Rate) applicable in 2018–19, the concessional rate required both an eligible recipient and works meeting the specified use condition.

Paragraph 4(x) defined a “Government Entity” by reference to statutory constitution or establishment by Government with at least 90% participation by equity or control, for an entrusted function.

Sections 15(1), 50(1), 50(3), 73(8)–(9), 16(2) and 155 govern valuation, interest, penalty and ITC eligibility; Section 16(2)(c) requires that the tax charged on the supply be paid to Government, and Section 155 places the burden of proving ITC eligibility on the claimant.

Circular No. 183/15/2022-GST prescribed evidence, including supplier or professional certificates in specified mismatch cases, to verify that condition for FY 2017–18 and 2018–19.

The Tribunal also applied the principles that interest is compensatory (Pratibha Processors v. Union of India, para. 66), promissory estoppel cannot compel conduct contrary to law (Kasinka Trading v. Union of India, para. 69), and the ITC claimant must prove the genuineness of the claim (State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd., para. 74).

An advance ruling binds only the applicant and the relevant officers in that case under Section 103(1).

The Tribunal accepted the additional grounds and documents because they elaborated the existing case and were not opposed.

The Government’s role in funding, sanctioning and supervising the projects did not make it the recipient or determine the statutory tax rate: the societies invited the tenders, contracted with the Appellant, were named as employers or owners, and were invoiced for the works.

The record did not establish that the societies were set up by statute or established by Government as required by paragraph 4(x); independently, the factory buildings were intended for spinning cotton into yarn for sale and therefore for industry and commerce, not predominantly for non-commercial use.

Interest under Section 50(1) followed from the unpaid tax irrespective of bona fides, while the Section 73(9) penalty applied in the absence of timely payment under Section 73(8); the separate Section 122 penalty had already been nullified.

Cum-tax treatment was unavailable because the Appellant’s invoices and sales records described the receipts as exclusive of tax.

On ITC, the Appellant supplied no invoice-wise reconciliation or certificates establishing that the tax on the disputed supplies had been paid; portal evidence that suppliers filed GSTR-3B did not prove payment of tax on the relevant supplies.

The burden under Sections 16(2)(c) and 155 therefore remained undischarged, and the Appellant had already had an opportunity to provide the required evidence, so remand was unwarranted.

It confirmed differential tax of Rs. 65,43,016, interest under Section 50(1) of Rs. 60,25,718, penalty under Section 73(9) of Rs. 6,96,250, disallowed ITC of Rs. 4,19,476, and confirmed Section 50(3) interest of Rs. 4,80,160, for a total demand of Rs. 1,41,64,620.

The proper officer was directed to adjust the amounts already paid and communicate any balance payable; the first appellate authority’s holding regarding eligibility for refund of the balance IGST part-payment was left undisturbed.

There was no order as to costs.