Petitioner's challenge to Section 74 WBGST/CGST Act order dismissed for late payment after investigation commenced

The HC dismissed a writ petition challenging an order under Section 74 of the WBGST/CGST Act, 2017 regarding extended limitation period. The petitioner made payments only after investigation commenced, not prior to it. The court held that the distinction regarding authority to issue show cause notices after payment should be decided by appellate authorities, particularly since the petitioner failed to contemporaneously challenge the show cause notice dated 30th September 2022. The court excluded the period between writ petition filing and order date from limitation computation for appeal purposes. Petition disposed of.

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The core legal questions considered by the Court in this matter revolve around the validity and maintainability of a writ petition challenging an order passed under Section 74 of the WBGST/CGST Act, 2017, specifically concerning invocation of the extended period of limitation for tax recovery. The principal issues include:

• Whether the extended period of limitation under Section 74 of the Act can be invoked for mere delayed payment of GST without any fraudulent intent or suppression of facts.
• The scope and applicability of Sections 73(5) and 73(6) of the Act regarding payment of tax along with interest prior to issuance of a show cause notice and consequent liability.
• Whether the invocation of extended limitation is justified when the petitioner made payments within three months, in light of Section 122(1)(iv) of the Act.
• The maintainability of the writ petition at this stage, given the availability of statutory remedies such as appeal.
• The factual basis for invocation of extended limitation, particularly in relation to the claim and utilization of Input Tax Credit (ITC) on invoices issued by non-existent entities and suppression of outward taxable supplies.
• The treatment of delay in payment and non-declaration of outward supplies as grounds for invoking extended limitation.

Issue-wise Detailed Analysis:

1. Invocation of Extended Period of Limitation under Section 74 of the Act

The legal framework governing the extended period of limitation is encapsulated in Section 74 of the WBGST/CGST Act, 2017, which allows for initiation of proceedings beyond the normal limitation period if there is evidence of fraud, willful mis-statement, or suppression of facts to evade tax. The Court noted that the show cause notice dated 30th September 2022 invoked the extended period on two grounds: (a) utilization of ITC on invoices from non-existent suppliers without receipt of goods, and (b) suppression of outward taxable supplies to evade GST.

The Court observed that invocation of the extended period is contingent on a prima facie finding of fraudulent conduct or suppression of facts. The petitioner challenged this on the ground that mere delayed payment of GST cannot attract extended limitation. The Court acknowledged the petitioner's reliance on Sections 73(5) and 73(6), which provide that if tax is paid along with interest before issuance of a show cause notice, no further liability arises. However, the Court noted that in the present case, payments were made only after investigation was initiated, not prior to issuance of the show cause notice.

Precedents cited by the petitioner, including judgments in Adecco Fexione Workforce Solutions Ltd and Uniworth Textiles Ltd, were distinguished on facts. The Court highlighted that those cases did not involve investigations or allegations of suppression or fraud, unlike the present matter. The Supreme Court in Uniworth had observed that mere non-payment is not equivalent to collusion or willful mis-statement, but the Court refrained from making any positive findings in this regard to avoid prejudice.

The Court emphasized that the extended period was invoked based on evidence discovered during investigation, including identification of five non-existent suppliers and suppression of outward supplies, which justified the extended limitation invocation.

2. Applicability of Sections 73(5) & (6) and Section 122(1)(iv) of the Act

Sections 73(5) and (6) provide that if an assessee pays the tax along with interest before issuance of a show cause notice, no further penalty or demand arises. Section 122(1)(iv) stipulates that penalty for collection of tax without payment is not leviable if payment is made within three months.

The petitioner argued that since payment was made within three months, no penalty or extended limitation should apply. The Court noted that the payments were made only after investigation and issuance of the show cause notice, thus these provisions did not preclude the initiation of proceedings under Section 74. The Court left the determination of these contentions to the appellate authorities, given the absence of contemporaneous challenge and incomplete factual record before it.

3. Maintainability of the Writ Petition

The respondent contended that the writ petition was filed belatedly after the order in original was passed, without exhausting statutory remedies, and therefore was not maintainable. The Court agreed that the petitioner had an efficacious alternative remedy in the form of appeal and that the writ petition was not the appropriate forum to challenge the order at this stage.

Nonetheless, since the petitioner raised substantive issues, the Court addressed them to an extent but refrained from deciding on merits, emphasizing the need for the petitioner to avail the statutory appellate process.

4. Factual Basis for Invocation of Extended Limitation

The show cause notice alleged that the petitioner claimed and utilized ITC on invoices from non-existent entities without receipt of goods, and suppressed outward supplies to evade tax. The Court noted that the investigation revealed these facts, which justified invoking the extended period. The petitioner's claim of adequate balance in the credit ledger was not accepted as sufficient to negate these findings.

The Court observed that had the officers of the Directorate General of GST Intelligence (DGGI) not launched the investigation, the evasion would have remained undetected, supporting the invocation of extended limitation.

5. Treatment of Delay in Payment and Non-Declaration of Outward Supplies

The petitioner argued that mere delay in payment or non-declaration of outward supplies does not warrant invocation of extended limitation. The Court noted that the show cause notice specifically mentioned intent to suppress the value of outward supplies and non-payment of GST thereon, discovered during investigation. This factual finding distinguished the case from those where delay alone was involved.

The Court declined to entertain merits of delayed payment or non-declaration at this stage, as these issues are better suited for appellate consideration.

6. Exclusion of Limitation Period During Pendency of Writ Petition

At the petitioner's request, the Court excluded the period during which the writ petition was pending from the computation of limitation for filing appeal. The writ petition was filed on 5th March 2025, and the Court ordered that the period between filing and the date of this order shall be excluded, effectively extending the time available for appeal by that duration.

Significant Holdings and Core Principles:

"The extended period of limitation under Section 74 of the WBGST/CGST Act, 2017, can be invoked where there is prima facie evidence of fraud, willful mis-statement, or suppression of facts to evade tax, as distinguished from mere delayed payment."

"Payment of tax along with interest prior to issuance of show cause notice under Sections 73(5) and (6) may preclude further liability; however, payments made post-investigation and show cause notice issuance do not bar initiation of proceedings under Section 74."

"Mere non-payment or delayed payment of GST does not, per se, justify invocation of the extended period of limitation unless accompanied by fraudulent intent or suppression, as established by investigation."

"The writ petition challenging an order under the GST Act is not maintainable at a belated stage without exhausting statutory remedies such as appeal."

"Where investigation reveals suppression of outward supplies and utilization of ITC on invoices from non-existent entities, the invocation of the extended period of limitation is justified."

"The period during which a writ petition is pending may be excluded from the limitation period for filing an appeal, thereby extending the time available to the petitioner."

Final determinations included dismissal of the writ petition on the ground of maintainability, direction to the petitioner to avail statutory remedy by filing an appeal, and exclusion of the writ petition pendency period from limitation for appeal purposes. The Court refrained from adjudicating the merits of the extended limitation invocation, leaving factual and legal determinations to the appellate authorities.

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