2024 (3) TMI 438 - HC - GST

Section 74(1) CGST proceedings quashed after petitioner paid tax liability with interest following provisional audit report

The Telangana HC quashed proceedings under Section 74(1) of CGST Act against a petitioner who had irregularly availed Input Tax Credit. The petitioner ... Wrongfully availed input tax credit - payment under Section 73(5) of the C.G.S.T. Act prior to issuance of notice - bar on initiation of proceedings after payment under Section 73(6) - application of Section 74 for fraud, wilful mis-statement or suppression of facts - availability of writ remedy where exercise of statutory power is in excess of jurisdictionPayment under Section 73(5) of the C.G.S.T. Act prior to issuance of notice - bar on initiation of proceedings after payment under Section 73(6) - wrongfully availed input tax credit - Whether initiation of proceedings under Section 74 and issuance of show-cause notice after the petitioner had paid the tax and interest during audit was permissible, or whether Sub sections (5) and (6) of Section 73 precluded further proceedings. - HELD THAT: - The Court held that Sub section (5) permits a person chargeable with tax to pay the tax and interest on the basis of his own ascertainment or the proper officer's ascertainment before service of notice, and Sub section (6) mandates that on receipt of such information the proper officer shall not serve any notice under Sub section (1) in respect of that tax. The petitioner was served with the provisional audit findings on 14.10.2021 and paid the entire tax liability with interest on 28.10.2021; the final audit report acknowledged the payment. The show cause notice impugned was issued thereafter on 20.04.2022. The Court found that the facts fall squarely within Sub sections (5) and (6) of Section 73, and that once the tax and interest were discharged prior to issuance of notice, initiation of proceedings under Section 74 and passing of the impugned order were beyond jurisdiction and unsustainable. [Paras 15, 16, 17, 18, 19]Proceedings under Section 74 and the impugned order were quashed as barred by the operation of Section 73(5) and (6) once the tax and interest were paid prior to issuance of notice.Application of Section 74 for fraud, wilful mis-statement or suppression of facts - availability of writ remedy where exercise of statutory power is in excess of jurisdiction - Whether the respondents' contention that the case involved fraud or suppression justifying Section 74 could sustain the proceedings, and whether the petitioner was obliged to pursue statutory appellate remedies instead of a writ. - HELD THAT: - The Court observed that Section 74 is attracted only where strong material establishes fraud, wilful mis statement or suppression of facts to evade tax, and that such invocation is proper only if the conditions in Section 73(5) were not met. On the facts the petitioner had paid the tax and interest before notice; the attempt to characterise the conduct as fraudulent was rejected. Because the issuance of the show cause notice itself was held to be in excess of jurisdiction, the Court held that the petitioner need not be relegated to statutory appellate remedies and was entitled to invoke writ jurisdiction to quash the proceedings. [Paras 16, 17, 18, 19, 20]The respondents' contention of fraud/misstatement was negatived on the material before the Court and, as the proceedings were in excess of jurisdiction, the writ petition was maintainable and allowed.Final Conclusion: The writ petition is allowed; the impugned show cause proceedings under Section 74 and the order dated 15.11.2023 are quashed as barred by the operation of Section 73(5) and (6) where the petitioner had paid the tax and interest prior to issuance of the notice; the petitioner is not required to pursue statutory appellate remedies in view of excess of jurisdiction. Issues Involved:1. Legality of proceedings initiated under Section 74(1) of the C.G.S.T. Act.2. Applicability of Section 73(5) of the C.G.S.T. Act.3. Availability of statutory alternative remedy.Summary:Legality of proceedings initiated under Section 74(1) of the C.G.S.T. Act:The petitioner challenged the impugned order dated 15.11.2023 and the consequent demand on the grounds that the initiation of proceedings under Section 74(1) of the C.G.S.T. Act was illegal and without jurisdiction. The respondents contended that the wrongful availment of Input Tax Credit (I.T.C.) by the petitioner was a deliberate act to evade tax, invoking Section 74(1) due to elements of fraud and suppression of facts.Applicability of Section 73(5) of the C.G.S.T. Act:The petitioner argued that their case fell under Section 73(5) of the C.G.S.T. Act, which allows taxpayers to clear their tax liabilities along with interest before the issuance of a show-cause notice, thereby avoiding further proceedings. The court noted that the petitioner had discharged their tax liability along with interest immediately upon the audit findings being communicated and before the final audit report was published. Therefore, the court held that the case fell under Section 73(5) and that the initiation of proceedings under Section 74 was not justified.Availability of statutory alternative remedy:The respondents argued that the petitioner had an alternative statutory remedy available under Section 107 of the Act, which should preclude the writ petition. However, the court held that since the initiation of the show-cause notice itself was per se bad in law and an excess of jurisdiction, the petitioner was entitled to seek a writ remedy without undergoing the statutory appeal process.Conclusion:The court concluded that the action of the respondents in initiating proceedings under Section 74 and passing the impugned order was in excess of their jurisdiction. Consequently, the impugned order dated 15.11.2023 and the show-cause notice were set aside and quashed. The writ petition was allowed, and no costs were imposed.