2024 (4) TMI 1223 - HC - GST

Tax Proceedings Halted: Section 73(4B) Violation Leads to Termination of Investigation Due to Unreasonable Delay

M/s Kanak Automobiles Private Limited Versus The Union of India through Ministry of Finance, New Delhi; Additional /Joint Commissioner, CGST The Directorate General of GST Intelligence

The HC analyzed Section 73 of the Finance Act, 1994, regarding tax proceedings delay. Despite Section 73(4B) not being strictly mandatory, the Court found ... Delay in conclusion of proceedings under the Finance Act, 1994 - requirement of completion of proceedings within one year - HELD THAT:- There is absolutely no proceedings taken within the one year period. In fact, the first notice, even according to the counter affidavit, was on 21.09.2023, as per Annexure-P-3, which was seven months after the period granted by the Hon’ble Supreme Court. The delay as projected in the counter affidavit is with respect to adjournments sought after 21.09.2023 which does not impress upon us to find that every probable step was taken by the Assessing Officer and it was only due to the frequent adjournment requests that the proceedings were delayed. Looking at the true import and spirit of the provision, which required expediency on the part of the Assessing Officer, the same has not been scrupulously complied with, in the present case. Conclusion - It is agreed that it is not an absolute mandate that the proceedings should be completed within one year from the notice; but it requires the statutory authority to take all possible steps, so to do and conclude the proceedings within an year. No steps were taken in the entire one year period, which results in the frustration of the goal of expediency as required statutorily. The proceedings cannot be continued. Petition allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered by the Court was whether the delay in concluding proceedings initiated under the Finance Act, 1994, specifically under Section 73, was justified. The petitioner argued that the proceedings should have been completed within one year as per Section 73(4B), while the respondents contended that this timeframe was not mandatory.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework revolves around Section 73 of the Finance Act, 1994. Section 73(1) sets a limitation period of thirty months for issuing a show-cause notice from the relevant date, which is the due date for filing returns. However, the proviso extends this period to five years in cases involving fraud, collusion, willful misstatement, or suppression of facts. Section 73(4B) suggests that proceedings should ideally be completed within one year.The respondents relied on the precedent set in the case of Commissioner, GST and Central Excise v. M/s Swati Menthol and allied Chemicals Ltd., where the Supreme Court extended the period for concluding proceedings due to specific circumstances.Court's Interpretation and ReasoningThe Court interpreted Section 73(4B) as not imposing a mandatory requirement to conclude proceedings within one year. Instead, it serves as a guideline for the Assessing Officer to expedite the process wherever possible. The Court emphasized that the legislative intent behind this provision is to ensure expediency in concluding proceedings.Key Evidence and FindingsThe Court noted that the show-cause notice was issued within the permissible five-year period. However, no action was taken to conclude the proceedings within the one-year period after the Supreme Court's extension of the limitation due to the pandemic. The first notice for hearing was issued significantly later, in September 2023, well beyond the one-year period.Application of Law to FactsThe Court applied the legal framework to the facts by acknowledging that while the one-year period is not mandatory, it is indicative of the need for expediency. The lack of any steps taken within this period was seen as a failure to comply with the spirit of the provision.Treatment of Competing ArgumentsThe petitioner argued that the proceedings should have been completed within one year, as suggested by Section 73(4B). The respondents countered that the provision is not mandatory and that the petitioner's own requests for adjournments contributed to the delay. The Court, however, found that the delay was primarily due to the inaction of the Assessing Officer rather than the petitioner's conduct.ConclusionsThe Court concluded that the proceedings could not be continued due to the failure to take any steps within the one-year period, as required by the spirit of Section 73(4B). The writ petition was allowed, and the proceedings were effectively terminated.SIGNIFICANT HOLDINGSThe Court held that Section 73(4B) of the Finance Act, 1994, while not imposing a mandatory deadline, requires the Assessing Officer to take all possible steps to conclude proceedings within one year. The Court emphasized the importance of adhering to the legislative intent of expediency in tax proceedings.The Court also distinguished the present case from the precedent in M/s Swati Menthol and allied Chemicals Ltd., noting that the Supreme Court's decision was based on specific circumstances and exercised under Article 142 of the Constitution, which does not apply to High Courts.The final determination was that due to the lack of action within the stipulated period, the proceedings could not be continued, and the writ petition was allowed.