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Issues: (i) Whether a consolidated show cause notice and order covering multiple financial years is valid under Section 74 of the Central Goods and Services Tax Act, 2017; (ii) Whether the disputed input tax credit demands are sustainable; (iii) Whether invocation of Section 74 of the Central Goods and Services Tax Act, 2017 and the consequential penalty are sustainable; (iv) Whether interest is payable under Section 50 of the Central Goods and Services Tax Act, 2017 on tax determined as payable.
Issue (i): Whether a consolidated show cause notice and order covering multiple financial years is valid under Section 74 of the Central Goods and Services Tax Act, 2017.
Analysis: Sections 74(1), 74(2) and 74(10) prescribe the conditions and limitation for issuance of a demand notice and order, but do not require separate notices for each financial year. A consolidated notice covering more than one tax period is permissible where each period is within the prescribed limitation and the noticee suffers no prejudice to its right of defence or appeal.
Conclusion: A consolidated show cause notice and order for multiple financial years are valid. This issue is decided against the assessee.
Issue (ii): Whether the disputed input tax credit demands are sustainable.
Analysis: The prior-year input tax credit reflected in the subsequent year's return was not rejected on legal ineligibility, but for want of proof that the benefit had not already been granted. Verification of that factual position is required. The claims concerning payment under an incorrect tax head and credit availed under incorrect heads also require verification of revenue impact and compliance with Section 49 of the Central Goods and Services Tax Act, 2017 and Rule 88A of the Central Goods and Services Tax Rules, 2017. A fair opportunity to furnish supporting evidence is required.
Conclusion: The three disputed input tax credit components require fresh factual verification and determination in accordance with law; no final tax liability is fixed on these components.
Issue (iii): Whether invocation of Section 74 of the Central Goods and Services Tax Act, 2017 and the consequential penalty are sustainable.
Analysis: Section 74 applies only where non-payment, short-payment, erroneous refund, or wrongful availment of input tax credit is attributable to fraud, wilful misstatement, or suppression of facts with intent to evade tax. The show cause notice must disclose foundational facts supporting such allegations; mechanical recitation of those expressions is insufficient. The burden of proving mala fides lies on the Department. The relevant input tax credit particulars were disclosed in statutory returns, and the notice did not establish fraud, deliberate suppression, or mens rea to evade tax.
Conclusion: The confirmation of demand and penalty under Section 74 is set aside in favour of the assessee. Tax, interest and penalty, if any, shall be determined under Section 75(2) of the Central Goods and Services Tax Act, 2017 as if the notice had been issued under Section 73(1).
Issue (iv): Whether interest is payable under Section 50 of the Central Goods and Services Tax Act, 2017 on tax determined as payable.
Analysis: Interest under Section 50 is a statutory consequence of tax validly determined as payable.
Conclusion: Interest is payable on the tax ultimately determined as payable. This issue is decided against the assessee.
Final Conclusion: Consolidation of tax periods does not invalidate the demand proceedings, but liability must be determined after factual verification under the ordinary demand framework, with statutory interest following the lawful determination of tax.
Ratio Decidendi: Section 74 can be invoked only where the show cause notice discloses foundational facts establishing fraud, wilful misstatement, or deliberate suppression with intent to evade tax; a bare allegation founded on disclosed return particulars is insufficient.
Fraud threshold for GST demands: disclosed return particulars require foundational evidence before extended demand and penalties apply.
Section 74 permits a consolidated GST demand notice covering multiple financial years where each period is within limitation and the taxpayer's defence and appeal rights are not prejudiced. Prior-year input tax credit reported later, payments under an incorrect tax head, and credit taken under incorrect heads require factual verification of prior benefit, revenue impact, and compliance with Section 49 and Rule 88A. Section 74 requires foundational facts proving fraud, wilful misstatement, or deliberate suppression intended to evade tax; bare allegations based on disclosed returns do not suffice. In their absence, tax, interest, and penalty require determination under the ordinary demand framework. Interest follows tax lawfully determined payable.
Consolidated show cause notice for multiple financial years - Opportunity to substantiate input tax credit claims - Extended limitation for fraud or wilful suppression - Interest on tax payableConsolidated show cause notice for multiple financial years - Validity of a consolidated show cause notice and adjudication order covering multiple financial years. - HELD THAT: - Section 74 contains no stipulation that a separate notice must be issued for each financial year. Where the demand for the entire period is within the prescribed limitation, clubbing multiple financial years in one notice is not prohibited and does not impair the noticee's appellate rights; issuance of a consolidated DRC-07 likewise causes no prejudice. [Paras 8, 9, 17]The consolidated proceedings were held not to be vitiated merely because they covered more than one financial year.Input tax credit reconciliation - Opportunity to adduce documentary evidence - Sustainability of input tax credit-related demands arising from a GSTR-3B and GSTR-2A mismatch, payment under an incorrect tax head, and credit availed under incorrect heads. - HELD THAT: - The admissibility of the prior-period credit was not rejected on legal grounds, but for want of proof that it had not already been considered. The original authority was best placed to verify that claim. Likewise, whether payment under an incorrect head caused revenue loss, and whether credit taken under incorrect heads was utilised consistently with the statutory restrictions, required factual verification after affording the appellant an opportunity to produce supporting evidence. [Paras 22, 23, 24, 25]The three input tax credit-related demands were remanded to the original authority for fresh determination after verification and consideration of additional evidence, without adjudication on their merits.Invocation of Section 74 for fraud or wilful suppression - Extended period of limitation - Invocation of Section 74 and imposition of penalty for the input tax credit-related demand in the absence of fraud, wilful misstatement, or suppression of facts with intent to evade tax. - HELD THAT: - Recourse to Section 74 requires foundational facts establishing fraud, wilful misstatement, or deliberate suppression with intent to evade tax; mechanical use of those expressions is insufficient. The show cause notice did not specify how fraud, wilful misstatement, or suppression had occurred, and the relevant credit entries were disclosed in statutory returns on the basis of which the audit was conducted. [Paras 27, 29, 31, 32]The confirmation of demand and penalty under Section 74 was set aside; any tax found payable on remand is to be determined under Section 75(2), treating the notice as one issued under Section 73(1).Statutory interest on tax payable - Liability to interest on tax ultimately determined as payable. - HELD THAT: - Interest under Section 50 follows the determination of tax payable. Since the tax liability required fresh adjudication, the consequential interest had to be recomputed. [Paras 33, 34]Interest is payable on the tax ultimately determined as payable and shall be reworked upon fresh adjudication.Final Conclusion: The challenge to the consolidated proceedings was rejected. The input tax credit disputes were remanded for fresh adjudication, while the demand and penalty under Section 74 were set aside and any tax liability is to be determined under the framework applicable to Section 73 proceedings.