2025 (7) TMI 1767 - HC - GST

Proceedings under Section 73 GST cannot start without fraud or suppression; natural justice must be followed

MC Bauchemie India Pvt Ltd & Anr. Versus Union Of India & Ors.

The HC held that proceedings under Section 73 of the GST Act cannot be initiated solely based on a mismatch between turnover in the E-way bill and Form ... Jurisdiction u/s 73 of the GST Act to initiate the proceedings for determination of the tax which is either short paid, not paid as described therein only on the basis of the difference in turnover of the E-way bill and the turnover as per form GSTR-9 filed by the petitioner -impugned order passed without considering the submissions of the petitioner and without granting personal hearing - mismatch between the turnover as per the E-way bill with Form GSTR-09 - Excess Input Tax Credit (ITC) claimed on account of non-reconciliation of the information - under declaration of ineligible Input Tax Credit (ITC) under Section 17(5) of the GST Act - Violation of principles of natural justice. HELD THAT:- The scheme of GST Act is clear to the effect that when there is any fraud, willful misstatement or suppression by the assesses then proceedings for determination of tax either not paid, short paid etc., are required to be initiated u/s 73 of the GST Act. In the facts of the case, the E-way bill is required to be issued by the assessee in case of movement of the goods as provided u/s 68 of the GST Act read with Rule 138 of the GST Rules and, therefore, for determination of the tax which is either not paid or short paid, in absence of any willful misstatement, fraud or suppression by the petitioner, the respondent authority could not assume jurisdiction to initiate proceedings u/s 73 of the GST Act. In the facts of the present case, admittedly the impugned show cause notice dated 26.12.2023 is issued u/s 73 of the GST Act and there is no allegation of fraud, willful misstatement or suppression by the petitioner in the entire proceedings. For the issuance of show cause notice under Section 74 of the GST Act, the respondent authority has to alteast come to a prima facie conclusion that there is fraud, willful misstatement or suppression by the assessee and for that the respondent authority is required to carry out preliminary investigation to find out such fraud, willful misstatement or suppression on the part of the assesse to initiate the proceeding u/s 74 of the GST Act which would entail rigors of higher amount of interest, penalty and also give an extended period for assumption of jurisdiction by the respondent authority. The respondent authority could not have assumed the jurisdiction under Section 73 / 74 of the GST Act in absence of any fraud, willful misstatement or suppression for issuance of notice on the ground of difference between the turnover as per E-way bill and turnover declared by the assessee in Form GSTR-09 - the other contentions of the petitioner regarding not granting opportunity of hearing or not assigning reasons by the respondent authority are not dealt with. The impugned show-cause notice dated 27.12.2023 and consequential Order-in-Original dated 10.03.2024 and orders dated 12.03.2025 and 23.10.2024 are hereby quashed and set aside - Petition allowed. ISSUES: Whether a show-cause notice under Section 73 of the GST Act can be issued solely on the ground of mismatch between turnover declared in E-way bills and turnover declared in Form GSTR-09, absent any allegation of fraud, willful misstatement, or suppression of facts.Whether the respondent authority was justified in assuming jurisdiction under Section 73 of the GST Act without granting personal hearing or adequately considering the petitioner's submissions.Whether the impugned orders comply with the requirement of recording reasons in quasi-judicial proceedings. RULINGS / HOLDINGS: The respondent authority could not assume jurisdiction under Section 73 of the GST Act based solely on the difference between turnover as per E-way bills and turnover declared in Form GSTR-09, in the absence of any fraud, willful misstatement, or suppression of facts. The issuance of the show-cause notice on this ground was held to be 'without jurisdiction.'The failure to grant personal hearing and the cursory rejection of the petitioner's submissions rendered the Order-in-Original an 'unseasoned order' liable to be quashed and set aside.Quasi-judicial authorities are required to record clear and explicit reasons in support of their orders; mere cursory reasons or failure to address submissions violates principles of natural justice and established precedent. RATIONALE: The Court applied the statutory framework of the GST Act, particularly Sections 7, 9, 68, 73, and 74, and Rule 138 of the GST Rules, to determine the scope and jurisdiction of tax demand proceedings.Section 73 applies to cases of tax not paid or short paid 'for any reason other than fraud or any willful misstatement or suppression of facts,' while Section 74 applies where fraud or willful misstatement or suppression is alleged, requiring a prima facie finding before initiation.The Court emphasized that a mere mismatch between E-way bill turnover and GSTR-09 turnover does not prima facie establish fraud or suppression, and thus cannot trigger Section 73 proceedings.The Court relied on established principles of administrative law requiring quasi-judicial authorities to provide reasoned orders, citing the Apex Court's decision emphasizing the 'basic principle of natural justice' that 'every quasi-judicial order must be supported by reasons.'The Court noted that the respondent authority failed to provide adequate reasons and did not grant an opportunity of personal hearing, thereby violating procedural fairness under Section 75(4) of the GST Act and natural justice norms.