The Madras High Court in the case of VELA AGENCIES REP BY ITS PROPRIETOR D. JAGANNATHAN VERSUS ASSISTANT COMMISSIONER ST FAC vide W. P. No. 11030 of 2024 And W. M. P. Nos. 12108 And 12109 of 2024 dated 26.04.2024, held that if the tax authority changes the basis for imposing tax liability after receiving a reply to the initial notice, it must issue a new show cause notice. This ensures that the taxpayer has a fair opportunity to respond to the new grounds. It prevents authorities from changing the basis of their claims without notifying the taxpayer and giving them an opportunity to respond. Since, in the present case the impugned order was based on a different premise from the show cause notice, it violated due process and was set aside.

Facts of the Case:- In this case, the original show cause notice was issued on the basis of alleged sales suppression, with a proposed tax liability of Rs. 8,27,252/-. However, the impugned order was based on a different ground (a comparison between the GSTR-3B return and the GSTR-2A), resulting in a different tax liability of Rs. 14,97,072/-.Also, a reversal was made of Input Tax Credit from the electronic credit ledger of the petitioner to the extent of Rs. 7,52,047/- on 15.02.2024. 

The Counsel representing the department accepted notice and argued that, considering the petitioner’s response to the intimation, they were not entitled to Input Tax Credit, thereby justifying the imposition of tax liability.

The Petitioner argued that impugned order does not proceed on the basis of sales suppression however, so if the department intended to modify the tax proposal in light of the petitioner's reply, the matter requires reconsideration.

Held:-  The Court held as under:-

• If the tax authority changes the basis for imposing tax liability after receiving a reply to the initial notice, it must issue a new show cause notice. This ensures that the taxpayer has a fair opportunity to respond to the new grounds.
• The electronic credit ledger of the petitioner was debited to the extent of Rs. 7,52,047/-. This action was taken without proper justification or appropriate procedural steps, further complicating the case.
• Since the impugned order was based on a different premise from the show cause notice, it violated due process and was set aside.

The court decided to set aside the impugned order and directed the tax authority to initiate fresh proceedings by issuing a new show cause notice if it intends to pursue the matter. This approach ensures procedural fairness and compliance with the principles of natural justice. It prevents authorities from changing the basis of their claims without notifying the taxpayer and giving them an opportunity to respond.

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