2025 (7) TMI 399 - HC - GST

Section 74 CGST Act wrongly applied when GST paid before show-cause notice without fraud or suppression

ULTRATECH CEMENT LIMITED Versus UNION OF INDIA AND OTHERS

The HC held that Section 74 of CGST Act, 2017 was wrongly exercised by authorities against the petitioner who had already paid GST with interest before ... Power u/s 74 of CGST Act, 2017 wrongly exercised by the Authorities - petitioner has already paid the GST along with interest prior to the issuance of show-cause notice - suppression of facts - HELD THAT:- Considering that there is vacancy of Chairman in the State Tribunal as also the language of Section 74 of the Act, 2017 on reading of which, it is explicit that unless there is fraud or any wilful-misstatement or suppression of facts, the said Section would not attract and further considering the plea taken by the petitioner that similar nature of issue is pending before different high Courts and in the Hon’ble Supreme Court, this Court is of the view that a strong case is made out in favour of the petitioner for grant of interim relief. On due consideration, Instant Petition is admitted for hearing. The core legal questions considered by the Court in this matter are:Whether the power under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017 ('the Act, 2017') has been correctly invoked by the tax authorities in the present case.The scope and applicability of Section 74 of the Act, 2017, specifically whether it applies only in cases involving fraud, willful misstatement, or suppression of facts to evade tax.The effect of prior payment of GST along with interest by the petitioner on the exercise of powers under Section 74.The interplay between the present proceedings and similar issues pending before the Hon'ble Supreme Court and various High Courts, including whether interim relief is warranted.The procedural requirement under Section 112(8) of the Act, 2017 regarding payment of a percentage of the disputed tax amount before filing an appeal.The impact of the vacancy of the Chairman in the State Tribunal on the proceedings and relief sought.Issue-wise Detailed Analysis1. Validity and Scope of Section 74 of the CGST Act, 2017The legal framework centers on Section 74 of the CGST Act, 2017, which empowers tax authorities to initiate proceedings in cases where tax has not been paid or has been short paid, or where input tax credit has been wrongly availed or utilized, specifically by reason of fraud, willful misstatement, or suppression of facts to evade tax. The petitioner contends that this provision is attracted only in such cases and not otherwise.The Court examined the language of Section 74, noting its explicit requirement of fraud or willful misstatement or suppression of facts as a precondition for its invocation. The petitioner had already paid the GST amount along with interest before the issuance of the show-cause notice, which, according to the petitioner, negates the applicability of Section 74.The Court considered precedents including orders from the High Courts of Gujarat and Delhi, and a Supreme Court order, which involve similar issues related to levy of GST on royalty payments under mining leases and the applicability of Section 74. These authorities have granted interim relief or stayed recovery, underscoring the contentious nature of the issue and the requirement for careful application of Section 74.The Court acknowledged the petitioner's submission that similar issues are sub judice before the Supreme Court and various High Courts, indicating a recognized legal uncertainty and the need for judicial clarity.2. Effect of Prior Payment of GST and InterestThe petitioner's payment of GST along with interest prior to the show-cause notice was a significant fact. The petitioner argued that such payment removes the basis for invoking Section 74, which is designed to address deliberate evasion or fraud rather than mere disputes or errors corrected by payment.The Court noted this submission and the petitioner's reliance on the fact that the payment was made voluntarily and prior to the initiation of proceedings under Section 74. This was considered relevant in assessing whether coercive action under Section 74 was justified.3. Interplay with Pending Proceedings and Interim ReliefThe petitioner referred to multiple ongoing cases before the Supreme Court and various High Courts involving similar questions, including the scope of Section 74 and the levy of GST on royalty payments. The petitioner sought interim relief on the basis that these issues are being examined at higher judicial levels, and that enforcement actions pending final adjudication would cause undue hardship.The Court took judicial notice of these pending proceedings and the fact that several High Courts had granted interim relief in analogous matters. Given the vacancy of the Chairman in the State Tribunal and the pendency of similar issues, the Court found that a strong case existed for granting interim relief to the petitioner to prevent coercive steps pending final adjudication.4. Procedural Requirement under Section 112(8) of the CGST Act, 2017Respondent counsel submitted that as per Section 112(8), an appeal cannot be filed unless the appellant deposits in full the admitted amount and ten percent of the disputed tax amount, subject to a maximum ceiling. This procedural safeguard aims to ensure bona fide appeals and prevent frivolous litigation.The petitioner was urged to comply with this requirement by depositing the stipulated amount before proceeding with the appeal. The Court noted this submission but did not make a final determination on this point in the interim order, focusing instead on the merits of the Section 74 invocation and the interim relief.5. Vacancy of Chairman in the State TribunalThe vacancy of the Chairman in the State Tribunal was highlighted as a factor impacting the petitioner's ability to seek timely relief through the tribunal mechanism. This institutional gap contributed to the Court's decision to grant interim relief, recognizing that the petitioner's recourse to the tribunal was presently impaired.Conclusions on IssuesThe Court concluded that the powers under Section 74 of the CGST Act, 2017 should be exercised only in cases involving fraud, willful misstatement, or suppression of facts, and not in routine disputes where tax has been paid along with interest. Given the petitioner's prior payment and the pendency of similar issues before higher courts, the Court found that coercive action under Section 74 was premature.Considering the vacancy in the State Tribunal and the procedural safeguards under Section 112(8), the Court admitted the petition for hearing and granted interim relief, restraining the authorities from taking coercive steps against the petitioner until the next date of hearing.Significant HoldingsThe Court explicitly held that:'It is explicit that unless there is fraud or any wilful-misstatement or suppression of facts, the said Section [74] would not attract.'Further, the Court emphasized the importance of the pendency of similar issues before the Supreme Court and High Courts, stating:'Considering the plea taken by the petitioner that similar nature of issue is pending before different High Courts and in the Hon'ble Supreme Court, this Court is of the view that a strong case is made out in favour of the petitioner for grant of interim relief.'The Court's interim order restrained the tax authorities from taking coercive action, preserving the petitioner's rights pending final adjudication.