2025 (6) TMI 1558 - HC - GST

Initaition of proceedings u/s 73 of the CGST Act or not - entitlment to avail the benefit of the Amnesty Scheme introduced under Section 128A of the CGST Act 2017 - HELD THAT - Under identical circumstances in Balaji Packaging s case 2025 (4) TMI 169 - KARNATAKA HIGH COURT this Court disposed of the petition by holding that In view of the aforesaid facts and circumstances and the submission made by learned counsel for the petitioner that the petitioner intends to avail the benefit of Amnesty Scheme under Section 128(A) of the CGST Act I deem it just and appropriate to set aside the impugned order at Annexure-D and remit the matter back to respondent No. 5 for reconsideration afresh in accordance with law by issuing certain directions. The present petition also deserves to be disposed of in terms of the aforesaid judgment passed by this Court - matter is remitted back to the respondent for reconsideration afresh in accordance with law.

Summary

The core legal questions considered by the Court in this matter are:

• Whether the impugned orders passed under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017 are sustainable or ought to be quashed and the proceedings be treated as initiated under Section 73 of the CGST Act.
• Whether the petitioner is entitled to avail the benefit of the Amnesty Scheme introduced under Section 128A of the CGST Act, 2017, which provides waiver of interest and penalty for certain tax periods.
• The validity and applicability of Section 146 of the Finance (No.2) Act, 2024 and Notification No.21/2024 - Central Tax dated 08.10.2024, which extend benefits of waiver of interest and penalty only to notices issued under Section 73 and not Section 74 of the CGST Act.
• Whether the impugned show cause notices, orders in Form DRC-07, and other related proceedings require quashing or reconsideration in light of the above issues.
• Whether the respondent authority should be directed to re-adjudicate the matter treating it as a proceeding under Section 73 and allow the petitioner to avail the Amnesty Scheme under Section 128A.

Issue-wise detailed analysis is as follows:

1. Validity of Proceedings under Section 74 versus Section 73 of the CGST Act

The legal framework distinguishes between Section 73 and Section 74 proceedings. Section 73 applies to cases of tax not paid or short paid due to reasons other than fraud or willful misstatement, whereas Section 74 applies to cases involving fraud, willful misstatement, or suppression of facts. The petitioner contended that the proceedings should have been initiated under Section 73 and not Section 74, enabling them to avail the Amnesty Scheme under Section 128A.

The Court examined the Joint Development Agreement and Supplementary Agreement, which revealed that the petitioner-company was a co-owner along with others, including a director against whom orders under Section 73 had been passed. The Court noted that in identical circumstances, this High Court in a precedent case held that proceedings initiated under Section 74 should be treated as if initiated under Section 73, thereby allowing the petitioner to avail the Amnesty Scheme.

The Court reasoned that since the petitioner and co-owners were similarly situated, the same principle should apply. The Court also observed that the Revenue had passed orders under Section 74 against other co-owners, but not under Section 73, which was inconsistent and unjust.

The Court thus set aside the impugned orders passed under Section 74 and directed the matter to be reconsidered treating the proceedings as under Section 73(9) of the CGST Act.

2. Entitlement to Amnesty Scheme under Section 128A of the CGST Act

Section 128A was recently inserted to provide an Amnesty Scheme allowing waiver of interest and penalty for certain tax periods if the taxpayer complies within prescribed timelines. The Finance (No. 2) Act, 2024 and Notification No. 21/2024 extended this benefit only to proceedings initiated under Section 73 and not Section 74.

The petitioner sought to avail this Amnesty Scheme, but the impugned orders under Section 74 barred such benefit. The Court noted the petitioner's submission and the precedent judgment where the Court allowed a similar petitioner to avail the Amnesty Scheme by treating the proceedings as under Section 73.

The Court held that the petitioner is entitled to file an application to avail the Amnesty Scheme and if such application is filed, the respondent authority shall grant the benefit in accordance with law.

3. Validity of Section 146 of the Finance Act and Notification No. 21/2024

The petitioner challenged the constitutional validity of Section 146 of the Finance (No. 2) Act, 2024 and the related notification, contending that restricting waiver benefits only to Section 73 proceedings and excluding Section 74 is arbitrary and ultra vires the Constitution.

The Court did not expressly rule on the constitutional validity but kept all rival contentions open, refraining from expressing any opinion on this aspect. Instead, the Court disposed of the petition on the basis of the petitioner's entitlement to the Amnesty Scheme if proceedings are treated under Section 73.

4. Quashing of Impugned Orders and Show Cause Notices

The petitioner challenged multiple orders including the Order-in-Original Ref. No. 292/2024-2025 AC SD5 dated 27.03.2025, summary orders in Form DRC-07 dated 27.03.2025, and show cause notice dated 12.05.2023. The Court found merit in the petitioner's submission that these orders were passed under Section 74 proceedings and thus barred the petitioner from availing the Amnesty Scheme.

The Court set aside these impugned orders and remitted the matter back to the respondent authority for fresh adjudication treating the proceedings as under Section 73, directing the authority to pass appropriate orders within a stipulated timeframe.

5. Directions for Re-adjudication and Procedural Compliance

The Court directed the petitioner to appear before the respondent authority on specified dates without awaiting further notice. The respondent was directed to reconsider the matter afresh under Section 73(9) of the CGST Act and pass appropriate orders within one to two weeks from the petitioner's appearance.

The Court further directed that if the petitioner files an application to avail the Amnesty Scheme under Section 128A, the respondent must grant the benefit in accordance with law.

All other rival contentions on the matter were kept open, and the Court expressed no opinion on them.

Significant holdings and principles established:

"The matter is remitted back to the respondent for reconsideration afresh in accordance with law."

"Respondent shall pass appropriate orders by treating the proceedings as one under Section 73 of the CGST Act instead of Section 74 of the CGST Act and pass appropriate orders under Section 73(9) of the CGST Act."

"The petitioner is also entitled to file an application to avail the benefit of Amnesty Scheme and if such an application is filed before the respondent, the respondent shall grant petitioner the benefit of Amnesty Scheme, as contemplated under Section 128(A) of the CGST Act, in accordance with law."

Core principles established include:

• Proceedings initiated under Section 74 may be re-characterized as proceedings under Section 73 where appropriate, enabling the taxpayer to avail benefits under the Amnesty Scheme.
• The Amnesty Scheme under Section 128A is a beneficial provision and taxpayers should be allowed to avail it if eligible, even if initial proceedings were under Section 74.
• The Court exercises supervisory jurisdiction to ensure that the Revenue authorities act consistently and fairly, particularly in cases involving co-owners or similarly situated persons.
• Quashing impugned orders and remitting the matter for fresh adjudication is appropriate where procedural or substantive irregularities affect the taxpayer's rights.