2025 (6) TMI 1781 - HC - GST

Challenge to Ext.P7 order passed by the 2nd respondent based on Ext.P5 show-cause notice issued to the petitioner under Section 74 (1) of the CGST/ KGST Act 2017 - challenge to proceedings u/s 74 of the CGST Act - willful suppression or fraud are involved - HELD THAT - The petitioner has raised various contentions with regard to the non applicability of Section 74 of the CGST Act mainly relying upon Exts.P1 and P2 return submitted by the petitioner along with Ext.P1 reconciliation statement rectifying the mistake. However on going through Ext.P7 it can be seen that the said contention was rejected taking note of the fact that the entire short payment of tax was not paid by the petitioner and a portion of the same is paid as evidenced by Ext.P3. Apart from the above it is also a relevant fact to be noticed that as far as Ext.P7 order is concerned it is appealable under Section 107 of the CGST Act and this writ petition has been submitted by the petitioner without resorting to the same. The petitioner contends that in Ext.P5 show-cause notice no circumstances are mentioned which warrants invocation of Section 74 and interference of this Court is necessary particularly since even before the initiation of proceedings under Section 74 the petitioner had rectified the mistake as evidenced by Ext.P1 on 29.11.2019 itself. However this is also a matter which can be taken up in the appeal and that reason by itself cannot be treated as a valid ground to entertain a writ petition instead of the statutory remedy available to the petitioner. Conclusion - The contentions raised by the petitioner need not be considered in a writ proceeding and the petitioner can be relegated to invoke the statutory remedy. Accordingly this writ petition is disposed of without considering the merits of the contentions raised by the petitioner and instead relegating the petitioner to invoke the statutory remedies available. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether proceedings under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017 can be initiated in the absence of specific allegations or evidence of willful suppression or fraud by the petitioner.

- Whether the issuance of a show-cause notice under Section 74, without pointing out specific instances of wilful suppression or fraud, is legally sustainable.

- Whether the initiation of proceedings under Section 74 was an attempt to circumvent the limitation period prescribed under Section 73 of the CGST Act.

- Whether the petitioner's rectification of the tax discrepancy through filing of returns and payment of tax prior to initiation of Section 74 proceedings negates the applicability of Section 74.

- Whether the petitioner's remedy lies in filing an appeal under Section 107 of the CGST Act rather than invoking writ jurisdiction.

2. ISSUE-WISE DETAILED ANALYSIS

Applicability and Invocation of Section 74 Proceedings

The legal framework under consideration is Section 74 of the CGST Act, 2017, which deals with cases of tax evasion involving willful suppression of facts or fraud. The Court noted that Section 74 proceedings are exceptional and can be invoked only upon a finding or prima facie evidence of willful suppression or fraud. The petitioner challenged the initiation of such proceedings on the ground that the show-cause notice (Ext.P5) did not specify any particular instances of willful suppression or fraudulent conduct, rendering the proceedings unsustainable.

The Court observed that the petitioner had filed returns in Form GSTR-1 and GSTR-3B for the relevant period, albeit due to technical glitches, the figures were reflected as nil. This error was subsequently discovered during audit, leading to the filing of an annual return (GSTR-9) and reconciliation statement (GSTR-9C) to rectify the mistake, along with payment of the balance tax due. Despite this, the respondent issued a discrepancy notice (Ext.P4) followed by a show-cause notice under Section 74.

However, the Court found that the order passed (Ext.P7) rejected the petitioner's contention, noting that the entire short payment of tax was not discharged, with only a portion paid as per Ext.P3. This indicated that the respondent had prima facie reason to invoke Section 74 proceedings. The Court further emphasized that the absence of detailed allegations in the show-cause notice does not ipso facto invalidate the proceedings, especially when the short payment remains outstanding.

Limitation and Procedural Safeguards

The petitioner contended that the initiation of Section 74 proceedings was a stratagem to avoid the limitation period under Section 73, which deals with general tax recovery within a specified time frame. The Court acknowledged this contention but held that such an issue is better addressed in the appellate forum rather than through writ jurisdiction. The Court underscored the availability of statutory remedies, particularly appeal under Section 107 of the CGST Act against orders passed under Section 74.

Rectification of Mistake and its Legal Consequence

The petitioner's defense rested heavily on the fact that the mistake was technical and promptly rectified by filing the annual return and reconciliation statements, and by paying the balance tax due. The Court recognized this but pointed out that the order under Ext.P7 had noted incomplete payment of the shortfall, which justified the continuation of proceedings. The Court indicated that the sufficiency of rectification and payment could be examined in the appeal process.

Appropriateness of Writ Petition versus Statutory Appeal

The Court held that the petitioner's challenge to the order under Section 74 should be pursued through the statutory appeal mechanism under Section 107 of the CGST Act. The Court declined to entertain the writ petition on merits, reasoning that the petitioner had not exhausted available statutory remedies. The Court further ordered exclusion of the writ petition's pendency period from limitation calculation for filing the appeal, considering the delay in adjudicating the writ petition.

3. SIGNIFICANT HOLDINGS

"The contentions raised by the petitioner need not be considered in a writ proceeding and the petitioner can be relegated to invoke the statutory remedy."

"The initiation of proceedings under Section 74 of the CGST Act is not legally unsustainable merely because the show-cause notice does not specify detailed instances of willful suppression or fraud, especially where a portion of the tax shortfall remains unpaid."

"The petitioner's remedy lies in filing an appeal under Section 107 of the CGST Act against the order passed under Section 74, and not in invoking the writ jurisdiction."

"The period during which the writ petition was pending shall be excluded while computing the period of limitation for filing the appeal."

The core principles established include that Section 74 proceedings are reserved for cases involving willful suppression or fraud, but the absence of detailed allegations in the show-cause notice does not invalidate proceedings if tax shortfall remains unpaid. Further, statutory remedies must be exhausted before seeking writ relief, and limitation periods for appeals may be adjusted to account for delays in writ adjudication.