2024 (1) TMI 1434 - HC - GST

Sections 61 and 73: Officer must consider taxpayer's Section 61 response before issuing Section 73 notice; failure voids proceedings

HC held that invocation of jurisdiction under Section 73 of the RGST/CGST Act, 2017 was invalid where proceedings had already been initiated under Section ... Validity of invocation of jurisdiction under Section 73 of the RGST/CGST Act, 2017 when proceedings under Section 61 had already been initiated and an explanation had been provided by the petitioner - HELD THAT:- In the present case, indisputedly, a notice under form No. GST ASMT-10 was issued to the petitioner on 01.09.2023 under Section 61 of the RGST Act, 2017. The notice clearly stated that during scrutiny of the return for the tax period under reference, discrepancies were noticed. The contents of the said notice clearly show that jurisdiction under Section 61 was invoked having noted certain discrepancies in the return of tax and not on the basis of any other material. The aforesaid notice was replied by the petitioner on 15.09.2023. A perusal of the reply shows that the petitioner, though, sought some time to file detailed reply, nevertheless, offered explanation as to why exception clauses (c) and (d) of Section 17(5) of the CGST Act, 2017 will not be applicable in the case of the petitioner and the petitioner would be entitled to avail ITC on plant and machinery. Thereafter, a show cause notice under Sections 7, 9, 50 and 73 of the RGST Act, 2017 was issued to the petitioner. In the present case, once notice under Section 61 was issued to the petitioner requiring its explanation pointing out certain discrepancies from the return, the proper officer, before he could assume jurisdiction to issue show cause notice under Section 73 of the Act, was mandated under the law to consider the explanation offered by the petitioner. The submission of learned counsel for respondents that the power under Section 73 could be invoked irrespective of whether satisfaction in terms of Section 61(3) was arrived at or not is misplaced both in law and on facts. Where show cause notice is based on discrepancies found in the return and not on any other independent material, the proper officer is obliged under the law to follow the mandate of Section 61 before invoking jurisdiction under Section 73 of the Act. Present is not a case that on any other material, the proceedings under Section 73 were initiated. Present is, on facts, a case where jurisdiction under Section 73 has been invoked and show cause notice has been issued on the basis of discrepancies found in the return. If that be so, jurisdiction under Section 73 could be invoked only after complying with the mandate of Section 61 and not otherwise. In the present case, the invocation of jurisdiction under Section 73 is based on discrepancies found in the return. If that be so, the mandate of Section 61 is required to be followed by the proper officer before assuming jurisdiction under Section 73 of the Act. Conclusion - The invocation of Section 73 was invalid due to the failure to consider the explanation under Section 61. The show cause notice and related actions were set aside. Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the invocation of jurisdiction under Section 73 of the RGST/CGST Act, 2017 was valid when proceedings under Section 61 had already been initiated and an explanation had been provided by the petitioner.Whether the explanation provided by the petitioner regarding discrepancies in the tax return was adequately considered by the authorities before issuing a show cause notice under Section 73.Whether the issuance of a show cause notice under Section 73 was permissible after the explanation provided by the petitioner was found satisfactory under Section 61 and communicated via FORM GST ASMT-12.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework revolves around the provisions of the RGST/CGST Act, 2017, particularly Sections 61 and 73. Section 61 deals with the scrutiny of returns, allowing the proper officer to verify the correctness of returns and seek explanations for discrepancies. Section 73 pertains to the determination of tax and other dues. The court also referenced a decision from the Allahabad High Court, which discussed the independence of Sections 61 and 73.Court's interpretation and reasoning:The Court interpreted that the statutory scheme under Section 61 requires the proper officer to scrutinize returns and seek explanations for discrepancies. If the explanation is satisfactory, no further action should be taken. The Court emphasized that the proper officer must apply their mind to the explanation provided before assuming jurisdiction under Section 73. The invocation of Section 73 without considering the explanation violates the statutory mandate.Key evidence and findings:The petitioner had responded to the notice under Section 61 by explaining that the input tax credit (ITC) on elevators and air conditioners should be available as they are part of 'plant and machinery.' The authorities issued a show cause notice under Section 73 without adequately considering this explanation. The issuance of FORM GST ASMT-12 indicated that the explanation was satisfactory, yet the show cause notice was not withdrawn.Application of law to facts:The Court found that the proceedings under Section 73 were initiated based on discrepancies found in the return, without considering the explanation provided by the petitioner under Section 61. The issuance of FORM GST ASMT-12, which indicated the explanation was satisfactory, should have precluded further proceedings under Section 73.Treatment of competing arguments:The petitioner's counsel argued that once the explanation under Section 61 is accepted, jurisdiction under Section 73 cannot be invoked. The respondent's counsel contended that the powers under Sections 61 and 73 are independent and that the explanation was not found satisfactory. The Court rejected the respondent's argument, emphasizing the need to follow the statutory mandate of considering explanations under Section 61 before invoking Section 73.Conclusions:The Court concluded that the assumption of jurisdiction under Section 73 without considering the explanation provided under Section 61 was illegal. The show cause notice and the assumption of power under the enclosure to ASMT-12 were declared unsustainable and set aside.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'The statutory scheme engrafted in Section 61 does not allow the authority to invoke powers under Section 73 of the Act and issue show cause notice unless the explanation submitted by the registered person is considered.'Core principles established:The Court established that the proper officer must consider the explanation provided under Section 61 before invoking jurisdiction under Section 73. If the explanation is satisfactory, further proceedings under Section 73 are not permissible.Final determinations on each issue:The Court determined that the invocation of Section 73 was invalid due to the failure to consider the explanation under Section 61. The show cause notice and related actions were set aside, and the petition was allowed.