Assessment order quashed for invoking Section 74 without establishing fraud, wilful misstatement or suppression of facts

The HC set aside an assessment order invoking Section 74 of the GST Act. The court held that the extended limitation period under Section 74 can only be invoked when tax evasion occurs due to fraud, wilful misstatement, or suppression of facts. These constitute jurisdictional facts that must be established before invoking the extended period. The assessing officer failed to make any finding regarding fraud, wilful misstatement, or suppression of facts in the assessment order. Since the jurisdictional prerequisites were not satisfied, the entire proceedings were vitiated and the assessment order was quashed for lack of jurisdiction.

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The core legal questions considered by the Court in the present matter are:

1. Whether invoking the extended period of limitation under Section 74 of the GST Act without recording a finding of fraud, wilful misstatement, or suppression of facts is valid and within jurisdiction.

2. Whether the existence of an efficacious alternative remedy by way of appeal bars the exercise of writ jurisdiction under Article 226 of the Constitution of India.

3. Whether procedural infirmities, such as non-service of certain notices (ASMT 10 and DRC 01A), affect the validity of the impugned assessment order.

Issue 1: Validity of invoking extended period under Section 74 of the GST Act without a finding of fraud, wilful misstatement, or suppression of facts

The relevant legal framework is Section 74 of the GST Act, which allows the proper officer to invoke an extended period of limitation for assessment where it appears that tax has not been paid or short paid or input tax credit wrongly availed "by reason of fraud, or any wilful misstatement or suppression of facts to evade tax." The existence of these elements is a jurisdictional fact and a condition precedent for invoking the extended period.

The Court emphasized that the Assessing Officer must demonstrate the existence of fraud, wilful misstatement, or suppression of facts to validly invoke Section 74. Without such a finding, the order invoking the extended period is without jurisdiction and liable to be quashed.

Precedents under analogous provisions were considered, including:

• CCE v. H.M.M. Ltd., where it was held that the show-cause notice must specify the particular commission or omission constituting fraud or suppression to extend the limitation period, ensuring the assessee has a fair opportunity to respond.
• CCE v. Pepsi Foods Ltd., which reiterated that penalty under similar provisions is a punishment for deliberate deception with intent to evade duty, and without a finding of fraud or misstatement, penalty imposition is unsustainable.
• A decision under the Income Tax Act (CIT v. Elgi Ultra Industries Ltd.) was also cited, underscoring that reopening assessments beyond the normal period requires a finding of failure to disclose material facts fully and truly.

In the instant case, the Court found that the impugned assessment order dated 10.05.2024 did not contain any finding or even an allegation of fraud, wilful misstatement, or suppression of facts. The learned Additional Government Pleader could not point to any such finding during the proceedings.

Accordingly, the Court held that the invocation of Section 74 without establishing the jurisdictional fact of fraud or suppression vitiates the entire assessment proceeding and renders the order without jurisdiction.

Issue 2: Availability of efficacious alternative remedy and exercise of writ jurisdiction

The respondent contended that since the impugned order is appealable, the writ petition should not be entertained. The Court acknowledged the well-settled principle that the existence of an effective alternative remedy generally restrains courts from exercising discretionary writ jurisdiction under Article 226.

However, the Court clarified that this principle is a self-imposed restriction and not an absolute bar. Exceptions exist, particularly where the authority acts without jurisdiction. Since the Court found the impugned order to be without jurisdiction due to the absence of a finding of fraud or suppression, this exception applies, justifying the exercise of writ jurisdiction despite the availability of an appeal.

Issue 3: Procedural infirmities relating to service of notices

The petitioner raised that the impugned proceedings suffered from procedural defects as notices ASMT 10 and DRC 01A were not served on the petitioner. However, the Court declined to delve into this aspect, focusing solely on the jurisdictional issue under Section 74.

Significant holdings and principles established:

- The Court held that "the existence of 'jurisdictional fact' is sine qua non for the exercise of power" under Section 74 of the GST Act. Specifically, fraud, wilful misstatement, or suppression of facts to evade tax must be found before invoking the extended period of limitation.

- The Court stated: "Failure to record the existence of the above jurisdictional fact while invoking the extended period under section 74 of the Act, would vitiate the entire proceedings."

- It was emphasized that the show-cause notice and assessment order must clearly specify the nature of fraud or suppression relied upon, to enable the assessee to meet the case.

- The Court reaffirmed that the existence of an alternative remedy does not bar writ jurisdiction where the impugned order is without jurisdiction.

- The impugned assessment order dated 10.05.2024 was quashed on the ground that it was issued without any finding or allegation of fraud, wilful misstatement, or suppression of facts, thereby lacking jurisdiction.

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