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 immediately discharged the entire tax liability with interest upon receiving the provisional audit report, before the final audit report was published. The court held that since the petitioner complied with Section 73(5) and (6) by paying tax and interest promptly after being informed of the liability, no further proceedings under Section 74 could be initiated. The respondents' action was deemed to exceed their jurisdiction, and the petitioner was not required to exhaust statutory remedies given the jurisdictional excess.

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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.

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