2025 (7) TMI 785 - HC - GST

Initiation of proceedings u/s 74 of the CGST Act 2017 - supporting documents not filed - HELD THAT - In the present case there is no dispute on the aspect that the petitioner s supplier went into liquidation and in that situation the petitioner expresses their difficulties in getting the certificate from the Chartered Accountant however the petitioner obtained the certificate from their Chartered Accountant and filed the same in order to prove their case. Merely for not furnishing the Chartered Accountant s Certificate the proceedings were initiated under Section 74. Ultimately Circular No.183/15/2022-GST dated 27.12.2022 was issued in order to ensure that the supplier has remitted the amount with regard to the supply of goods which is nothing but just for verification of the transaction. On the other hand even without following the said Circular the respondent can independently verify any particular transaction and all the other issues raised in the show cause notice. In this case the petitioner had expressed their inability to produce a Chartered Accountant Certificate from their supplier however they had produced a certificate from their Chartered Accountant whereby they confirmed the supplies effected goods received and payment made along with GST - this Court is inclined to remit this matter back to the respondent by directing the respondent to consider the present matter as a proceedings initiated under Section 73 of GST Act and dealt with the same in accordance with law. This Court feels that it is appropriate to set aside the impugned assessment order. Accordingly the impugned order passed by the respondent dated 18.03.2024 is set aside and the matter is remanded to the respondent for fresh consideration in which case the respondent is directed to consider the notice issued under Section 74 as Section 73 of the CGST Act and proceed to pass appropriate orders accordingly. Petition disposed off by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the initiation of proceedings under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, was justified in the present case, given the petitioner's inability to initially produce a Chartered Accountant's certificate due to the supplier's liquidation;

(b) Whether the impugned assessment order passed under Section 74 was sustainable in law, especially when the petitioner subsequently furnished a Chartered Accountant's certificate confirming the supplies and GST payments;

(c) Whether the proceedings ought to have been initiated and adjudicated under Section 73 of the CGST Act instead of Section 74, considering the facts and circumstances;

(d) The appropriate course of action regarding the disputed tax amount in light of the petitioner's willingness to deposit the said amount;

(e) The application and interpretation of Circular No. 183/15/2022-GST dated 27.12.2022, concerning verification of transactions and the requirement of Chartered Accountant certificates in such GST assessments.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Justification for invoking Section 74 proceedings and sustainability of the impugned order

The relevant legal framework involves Sections 73 and 74 of the CGST Act, 2017. Section 73 deals with determination of tax not paid or short paid due to reasons other than fraud or willful misstatement, whereas Section 74 applies where tax is not paid due to fraud or willful misstatement or suppression of facts.

The respondent initiated proceedings under Section 74, alleging that the petitioner had fraudulently availed excess input tax credit (ITC) without actual receipt of goods or services, based on differences noted between GSTR-2A and GSTR-3B returns and failure to furnish documentary evidence. The impugned order (para 5) emphasized that the taxpayer had availed excess ITC and willfully falsified returns to utilize undue ITC for outward supplies, thus attracting penal provisions under Section 122.

However, the petitioner contended that the supplier had gone into liquidation, making it impossible initially to obtain a Chartered Accountant's certificate. Subsequently, the petitioner did obtain and filed such a certificate confirming receipt of goods, payment made, and GST compliance. The Court noted that the petitioner's explanation was not disputed and that the certificate was produced to justify the claimed ITC.

The Court observed that despite production of the certificate, the respondent did not consider or give any findings on the certificate's validity or content. The impugned order was passed mechanically without applying mind to the newly furnished evidence. This failure to consider critical evidence was held to be legally unsustainable.

The Court also referred to Circular No. 183/15/2022-GST dated 27.12.2022, which aims to verify whether the supplier has remitted tax on supplies, and noted that the respondent could independently verify transactions even without strict reliance on such certificates. The petitioner's certificate was a valid piece of evidence that warranted consideration before concluding fraud or willful misstatement.

Issue (c): Whether proceedings should be under Section 73 instead of Section 74

The Court highlighted the distinction between Sections 73 and 74. Section 74 is invoked in cases involving fraud or willful misstatement, while Section 73 applies to cases of non-payment or short payment of tax without such fraudulent intent.

Given that the petitioner had no dispute regarding the supplier's liquidation and had furnished a certificate to substantiate the ITC claimed, the Court found no sufficient basis for invoking Section 74, which carries more severe consequences and penal provisions. The Court opined that the matter ought to be treated as a case under Section 73, allowing for a more appropriate and fair adjudication of the tax liability.

Issue (d): Disputed tax amount and conditions for remand

The petitioner expressed readiness to deposit the entire disputed tax amount of Rs. 81,12,876/- if the impugned order was set aside and the matter remanded for fresh consideration under Section 73. The Court accepted this condition and made the setting aside of the impugned order and remand contingent upon the petitioner depositing the disputed amount within two weeks of receipt of the order.

Issue (e): Application of Circular No. 183/15/2022-GST and procedural propriety

The Court noted that Circular No. 183/15/2022-GST provides procedural guidance to ensure that suppliers have remitted the GST on supplies made, which is relevant for verification of ITC claims. However, the Court clarified that even without strictly following the Circular, the respondent has independent authority to verify transactions and documents.

In the present case, the petitioner produced a Chartered Accountant's certificate confirming the supplies and GST payment. The respondent failed to apply mind or render findings on this certificate, which the Court found to be a procedural lapse and a mechanical exercise of power. Such failure undermines the principles of natural justice and fair adjudication.

3. SIGNIFICANT HOLDINGS

The Court held that:

"Merely for not furnishing the Chartered Accountant's Certificate, the proceedings were initiated under Section 74."

"When such certificate is produced by the petitioner, the respondent is supposed to have applied his mind and arrived at a wise conclusion after verifying all the transaction along with the relevant documents."

"No findings were rendered with regard to the aforesaid Chartered Accountant certificate produced by the petitioner. Therefore, it is clear that the respondent had arrived at a conclusion in a mechanical manner and passed the impugned order under Section 74 of the GST Act."

"The said impugned order is not sustainable in law and the same is liable to be set aside."

"The respondent is directed to consider the notice issued under Section 74 as Section 73 of the CGST Act and proceed to pass appropriate orders accordingly."

Core principles established include:

(i) The necessity of applying mind and considering all relevant evidence, including Chartered Accountant certificates, before passing an order under Section 74;

(ii) The importance of distinguishing between cases warranting initiation under Section 74 (fraud/willful misstatement) and those under Section 73 (non-fraudulent short payment or non-payment of tax);

(iii) The procedural fairness owed to taxpayers, including the requirement that authorities must not pass mechanical or non-speaking orders;

(iv) The procedural option to remit matters back for fresh consideration under the correct statutory provisions when the initial order is found unsustainable.

Final determinations:

The impugned order dated 18.03.2024 passed under Section 74 was set aside. The matter was remanded to the respondent for fresh consideration treating the proceedings as initiated under Section 73, subject to the petitioner depositing the entire disputed tax amount within two weeks. No costs were imposed, and connected petitions were closed accordingly.