2025 (8) TMI 481 - HC - GST

Proceedings under Section 73 barred after dropping Section 61(3), but Section 74 fraud cases remain valid

Amit Agarwal Versus Assistant Commissioner, CGST & CX & Anr.

The HC held that once proceedings under Section 61(3) were dropped after a satisfactory response by the petitioner, the proper officer could not initiate ... Initaition of subsequent proceedings for the same period, when once a proceeding had been initiated by the respondents and the same had been dropped - issuance of further SCNs - HELD THAT:- A notice under Section 61 of WBGST/CGST Act, 2017 had been issued which was duly responded by the petitioner. On the basis of the response filed by the petitioner the proper officer having found the response to be satisfactory did not proceed further. It is also to be noted that in respect of the self same period a show cause notice under Section 74 of the said Act has been issued. In the light of the above and having regard to the contention raised by the petitioner it important to consider whether the respondents having dropped the proceedings under Section 61(3) of the said Act was competent to proceed under Section 74 of the said Act. Section 61 of the said Act, inter alia, deals with the scrutiny of returns and related particulars furnished by the registered tax payer and the scope and power of the proper officer to verify the correctness of the returns and to inform the registered tax payer of the discrepancies, if any, noticed. If, on the basis of the explanation to be provided by the registered person in response to any notice identifying discrepancy, it is found that the discrepancies do not survive no proceeding is initiated and the same dropped - no proceedings under Section 73 of the said Act could have been initiated by the proper officer once, the proper officer had concluded that the proceedings must be dropped on the basis of the response filed by the petitioner to a notice under Section 61(1) of the said Act. Section 74, however, stands on entirely different footing. One must keep in mind and as would appear from the above, Section 74 deals with case of fraud, willful misstatement or suppression. The proper officer may not be in a position to identify on the basis of the disclosure made by the registered tax payer as to whether there had been fraud committed by the registered tax payer at the time of scrutiny under Section 61 of the said Act. The same may be detected later. The legislature in its wisdom has thought it fit to incorporate the provision of Section 74 of the said Act. The dropping of proceedings under Section 61(3) is not an impediment on the part of the proper officer for initiating proceedings under Section 74 of the said Act, though the same may be an impediment for the proper officer to initiate proceedings under Section 73 of the said Act once the notice under Section 61 is dropped in a given situation. It is well-settled that fraud vitiates all conducts. Admittedly, in this case a specific case of fraud has been made out against the petitioner. This apart from the conduct of the petitioner it would transpire that immediately after the issuance of the notice under Section 61 of the said Act in the year 2023 the petitioner had applied for and on the basis of such application immediately after dropping of the proceedings, the registration of the petitioner was cancelled. Petition dismissed. ISSUES: Whether initiation of proceedings under Section 74 of the WBGST/CGST Act, 2017 is permissible after proceedings under Section 61 have been dropped for the same tax period.Whether issuance of repeated or multiple show cause notices for the same cause and period is legally valid under the said Act.Whether the proper officer's decision to drop proceedings under Section 61(3) precludes initiation of proceedings under Section 73 or Section 74 for the same period.The scope and applicability of Sections 61 and 74 of the WBGST/CGST Act, 2017 in cases involving allegations of fraud, willful misstatement, or suppression of facts. RULINGS / HOLDINGS: Proceedings under Section 74 of the said Act can be initiated even after proceedings under Section 61 have been dropped, as Section 74 'stands on entirely different footing' dealing specifically with cases of fraud, willful misstatement, or suppression of facts.The dropping of proceedings under Section 61(3) is not an impediment for initiating proceedings under Section 74, although it may bar proceedings under Section 73 for the same period.The issuance of a show cause notice under Section 74 in respect of the same period is valid where 'a specific case of fraud has been made out' and the proper officer has relied on additional investigative material such as an 'Alert Circular.'Repeated show cause notices for the same cause and period are generally impermissible; however, this case does not involve multiple show cause notices but distinct proceedings under different sections based on different grounds.The judgments relied upon by the petitioner concerning prohibition of repeated proceedings and show cause notices do not apply to the facts of this case, as those cases involved different factual and legal circumstances. RATIONALE: The Court applied the statutory framework of the WBGST/CGST Act, 2017, particularly Sections 61 and 74, interpreting Section 61 as a provision for scrutiny of returns and initial verification, while Section 74 is designed to address cases involving fraud or willful misstatement.Section 61(3) empowers the proper officer to initiate further action if explanations are unsatisfactory, but if proceedings are dropped under this section, it does not bar the initiation of proceedings under Section 74 if fraud or suppression is later detected.The Court emphasized the legislative intent that 'fraud vitiates all conducts,' justifying separate proceedings under Section 74 notwithstanding prior dropping of Section 61 proceedings.The Court distinguished the present case from precedents cited by the petitioner, noting that those cases involved either final adjudications or multiple notices on the same grounds, which are absent here.No dissent or doctrinal shift was indicated; the judgment reaffirmed established principles regarding the distinct nature and purpose of Sections 61 and 74 within the GST framework.