GST Assessment Orders Set Aside for Non-Consideration of Scrap Sales Break-up

Case Title: Exide Industries Limited vs Deputy Commissioner (ST)-I & II
Court: High Court of Judicature at Madras
Petition Numbers: W.P. Nos. 5788 & 20278 of 2024
Date of Judgment: 29.08.2024
Category: Refund/Assessment – Mismatch of Turnover in Returns
Relevant Sections: Section 73, Section 74 of CGST Act, 2017; Rule 142 CGST Rules
Impugned Orders: Form GST DRC-07 dated 09.12.2023 & 26.04.2024

Facts of the Case (Paras 2–3):

• Exide Industries Ltd. is engaged in the manufacture of electric storage batteries. During quality testing, defective batteries are categorized as scrap and sold to smelters.

• The recovered lead is reused in manufacturing and its value is included under material cost, not shown as revenue.

• Petitioner paid GST on scrap and battery sales separately. However, respondents issued DRC-07 notices alleging mismatch between GSTR-3B and Profit & Loss turnover.

• Petitioner claimed scrap sales were classified under material costs, not turnover, but tax was paid. This explanation was not considered in assessment orders.

Question(s) in Consideration (Paras 2–4):

• Whether the impugned assessment orders are valid when the tax break-up between scrap sales and battery sales, though submitted, was not considered?

• Whether mismatch between GSTR-3B and financial statements without fraud/tax evasion warrants invocation of Section 73/74?

Observation of Court (Paras 5–8):

• Petitioner furnished split-up of tax paid on scrap and batteries for the first time before Court.

• Respondents admitted that such break-up was not considered at the assessment stage.

• Court observed this as a failure of natural justice and an opportunity must be given to the petitioner to present these details before the authority.

Judgment of the Court (Para 9–10):

• The High Court quashed the impugned DRC-07 assessment orders and remanded the matter for fresh consideration.

• Petitioner to submit additional objections/documents within two weeks.

• Assessing authority to provide personal hearing with 14 days’ notice and pass a fresh order on merits and in accordance with law.

Between Fine Lines:

• GST assessments must consider all evidence, especially when tax is already paid.

• Scrap sales accounted under material cost does not mean tax evasion.

• A mismatch between return and P&L is not sufficient ground for adverse orders without hearing the taxpayer.

• The Court reaffirms procedural fairness and the right to be heard.

• Assessing Officers must examine break-ups before passing DRC-07 orders.

Summary of Referred Cases:

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