No wilful GST tax evasion under Sec. 74 when tax paid fully via credit ledger before notice

The HC held that since the petitioner had discharged the entire tax liability through the electronic credit ledger before any notice was issued, there was no wilful mis-statement or suppression attracting Sec. 74 of the GST Act. The petitioner's failure to offset the tax from the credit ledger was inadvertent. The court directed the AO to pass a fresh de novo order under Sec. 73, after giving the petitioner an opportunity of hearing, within three months. The invocation of Sec. 74(1) was set aside and the petition was disposed of accordingly.

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ISSUES:

Whether interest and penalty under Section 74 of the GST Act can be levied when the outstanding tax liability was discharged by offsetting input tax credit from the electronic credit ledger after audit query but before issuance of any show-cause notice.Whether the provisions of Section 128A of the GST Act, inserted with effect from 01.11.2024, allowing waiver of interest or penalty or both for demands raised under Section 73 for tax periods from 01.07.2017 to 31.03.2020, apply to the present case.Whether the adjudicating authority should have proceeded under Section 73 of the GST Act instead of Section 74, given the absence of wilful mis-statement or suppression by the petitioner.The scope and effect of Section 75(2) of the GST Act in directing the proper officer to pass a fresh order under Section 73 in light of new statutory provisions.

RULINGS / HOLDINGS:

The Court held that there was "no wilful mis-statement or suppression" by the petitioner to attract the provisions of Section 74 of the GST Act, as the petitioner inadvertently did not offset the tax liability from the electronic credit ledger at the relevant time but subsequently discharged the liability.The Court recognized the applicability of the newly inserted Section 128A of the GST Act, which provides for conditional waiver of interest and penalty relating to demands raised under Section 73 for the relevant tax periods, subject to certain conditions.The Court directed that the impugned orders passed under Section 74 and confirmed on appeal be quashed and set aside, and remanded the matter with a direction under Section 75(2) of the GST Act to the Assessing Officer to pass a fresh de novo order under Section 73, providing the petitioner an opportunity of hearing within three months.The Court emphasized that the fresh order under Section 73 would enable the petitioner to avail the benefit of Section 128A, as per the proviso to Section 128A(1) and relevant GST Council resolutions and Circular No. 238/32/2024-GST dated 15.10.2024.

RATIONALE:

The Court applied the statutory framework of the GST Act, particularly Sections 73, 74, 75(2), and the newly inserted Section 128A, alongside the Central Goods & Services Tax Rules, 2017 (Rule 164), and relevant GST Council decisions and Circulars.The Court interpreted the distinction between wilful suppression under Section 74 and technical or inadvertent delay in offsetting input tax credit, holding that the latter does not warrant penalty and interest under Section 74.The Court relied on the legislative intent expressed in the Finance (No. 2) Act, 2024 and the 53rd GST Council Meeting Minutes, which introduced Section 128A to provide relief for delayed compliance in specified tax periods.The Court noted the procedural requirement under Section 75(2) for the Assessing Officer to pass a fresh order under Section 73 upon direction by the Court, thereby enabling the benefit of Section 128A to be availed by the petitioner.No dissent or doctrinal shift was recorded; the judgment reflects application of recent statutory amendments and administrative clarifications to the facts.

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