2025 (9) TMI 970 - HC - GST

Interim relief denied; Section 74 GST interim orders refused for suppression of facts; Rs 5.50 crore treated as deposit

HC refused interim protection and declined to grant interim orders under Section 74 of the GST Act, finding suppression of facts to evade tax. The court ... Declination to grant any interim order/interim protection - invocation of provisions of Section 74 of the W.B.G.S.T./C.G.S.T. Act, 2017 - suppression of facts to evade payment of tax - HELD THAT:- In the light of the fact that the appellants/writ petitioners had paid Rs. 5,50,62,464/-, which according to the appellants, were compelled to be paid, which stand is being vehemently disputed by the C.G.S.T. authorities, till the writ petition is heard and decided, the said amount, which has been paid by the petitioners shall be treated as a deposit and shall abide by the final orders that may be passed in the writ petition. In the light of the fact that more than 50% of the demand has already been recovered from the petitioners, the interest of the Revenue stands sufficiently safeguarded. Even assuming an appeal had to be preferred against the impugned adjudication order, the appellants would be required to deposit only 10% of the disputed tax. Therefore, this is also one more reason to treat the payment of more than Rs.5.50 crores as a deposit till the writ petition is heard and disposed of. Let the writ petition be listed before the appropriate Bench in the daily list on 28th November, 2025. ISSUES PRESENTED AND CONSIDERED 1. Whether the provisions of Section 74 of the W.B.G.S.T./C.G.S.T. Act, 2017 could be invoked against the appellants for suppression of facts to evade payment of tax. 2. What is the legal effect of the State Government Notification (empanelment of flour mills and restrictions on private/commercial milling) on the taxability and transaction value of supplies by empanelled mills, and whether Central tax authorities can doubt such transactions when the State has recognised entitlement under the Notification. 3. Whether, in the absence of specific allegation of fraud, the transaction value can be doubted on the basis of investigations conducted largely without prior notice. 4. Whether amounts already paid/appropriated by the assessee (contended as paid under compulsion) should be treated as deposits pending adjudication and whether further recovery should be stayed; and whether a mechanism of pre-deposit for appellate remedy (10% of disputed tax) with refund of recovered balance is appropriate. 5. The scope of interim relief at the interlocutory stage: whether disputed questions of fact must be gone into to grant interim protection and the extent to which the Court may direct affidavit exchange without deciding disputed factual controversies. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Invocation of Section 74 (suppression to evade tax) Legal framework: Section 74 (and sub-sections cited, including penalty provisions) of the WBGST/CGST Act provides for adjudication and penalties where suppression of facts or fraud to evade tax is established. Precedent treatment: The Court notes that this issue was framed for consideration and, on prima facie reading of the show-cause notice and order in original, the Court found that invocation of Section 74 was not prima facie made out. Reference was made to decisions of advance ruling authorities favourable to assessee on related questions (not overruled). Interpretation and reasoning: On the material before the Court at the interlocutory stage, there was no prima facie case showing suppression of facts to attract Section 74. The Court emphasised that adjudication under Section 74 requires specific material of suppression or fraud; mere investigation or suspicion without particularised allegation is insufficient to sustain the provision at prima facie stage. Ratio vs. Obiter: Ratio - At interlocutory stage, Section 74 cannot be invoked without prima facie material of suppression/fraud. Obiter - Reference to advance rulings supportive of assessee is noted but not treated as binding precedent for final adjudication. Conclusion: Invocation of Section 74 was not prima facie established on the record; hence, continuation of recovery under that head was restrained for the purpose of interim relief. Issue 2 - Effect of State Notification (empanelment, prohibition on private milling, price structure) on taxability/transaction value Legal framework: The State Notification empanelled flour mills for public distribution, imposing conditions including prohibition on private/commercial milling without State consent and prescribing price structures for supplies under the public distribution scheme. Precedent treatment: The adjudicating authority admitted the applicable price structure. The Court observed that similarly situated mills have had proceedings dropped by the adjudicating authority and advance rulings have been favourable in analogous circumstances. Interpretation and reasoning: The Court queried whether a Notification by the State, which restricts commercial activity and recognises entitlement to supply at a specified price under public distribution, can be overridden by Central tax authorities in assessing transaction value. Where the State has satisfied itself of entitlement under the Notification, the Central authority's suspicion of transaction value demands stronger material; the statutory and policy context of empanelment and prescribed pricing is a relevant factor in assessing the commercial reality of transactions. Ratio vs. Obiter: Ratio - State Notification and its conditions are material in assessing transaction value and restrict the extent to which Central authorities may doubt transaction value absent concrete contrary material. Obiter - Observations about other mills' proceedings being dropped and advance rulings are noted as contextual support, not conclusive. Conclusion: The State Notification and prescribed price structure are significant in evaluating transaction value; Central authorities cannot lightly override such recognition without specific, cogent allegation or material indicating manipulation. Issue 3 - Ability to doubt transaction value absent specific fraud allegations and where investigations occurred largely without notice Legal framework: Transaction value under GST is to reflect the price actually paid or payable; authorities may doubt it if there is evidence of suppression, artificiality, or nexus to evasion. Precedent treatment: The Court treated the absence of specific fraud allegations as material; no settled precedent was overruled. Interpretation and reasoning: The Court held that when investigations and enquires are conducted mostly without notice and no specific allegation of fraud is made, doubting transaction value is unjustified at the interlocutory stage. The admissibility of recovery or imposition of liability requires substantiation beyond investigatory suspicion. The Court also noted that the adjudicating authority had admitted the applicable price structure, weakening a prima facie case of artificial pricing. Ratio vs. Obiter: Ratio - Absent specific, particularised allegations of fraud, transaction value should not be prima facie doubted merely on investigatory suspicion; interlocutory protection is appropriate. Obiter - Comments on investigatory procedure affecting fairness are contextual. Conclusion: The transaction value cannot be lightly impugned at the interim stage where there is no specific allegation of fraud and where the State's regulatory framework supports the assessed pricing. Issue 4 - Treatment of amounts paid/appropriated and stay of further recovery; appropriateness of pre-deposit mechanism (10%) and refund of recovered balance Legal framework: Principles governing interim relief in tax matters include preservation of revenue interest and equitable treatment of amounts recovered/paid pending final adjudication; statutory appellate regime contemplates pre-deposit for stay of recovery. Precedent treatment: The Court considered the statutory appellate scheme (10% pre-deposit for filing appeal) and analogous practice of departmental refunds/pre-deposits in granting interim measures. Interpretation and reasoning: The Court balanced revenue protection against possible hardship to the petitioners. Noting that more than 50% of the total demand had already been appropriated and that the appellants contended payment was under compulsion, the Court directed that the amount already appropriated be treated as a deposit pending final adjudication. The Court found the revenue interest adequately safeguarded by the substantial recovery already made and observed that appellate practice requiring only 10% deposit rendered treatment as deposit equitable. Accordingly, the Court stayed further recovery of the balance demand and suggested a mechanism allowing filing of statutory appeal with 10% pre-deposit, with refund of amounts already recovered beyond that pre-deposit. Ratio vs. Obiter: Ratio - Where a substantial portion of demand has been appropriated, the Court may treat such appropriation as a deposit and stay further recovery pending final adjudication, subject to conditions (e.g., pre-deposit consistent with appellate requirements). Obiter - The suggestion to permit filing of statutory appeal with retention of 10% pre-deposit as a condition is a practical directive tailored to this case. Conclusion: Amounts appropriated/payments contested by the appellants were ordered to be treated as deposit pending final disposal; further recovery stayed; appellants permitted to pursue statutory appeal subject to 10% pre-deposit, and the balance recovered to be refunded. Issue 5 - Scope of interlocutory relief and adjudication of disputed questions of fact at interim stage; procedural directions (affidavit exchange) Legal framework: Courts exercising writ jurisdiction may grant interim relief without resolving disputed factual controversies; interlocutory orders may direct exchange of affidavits to crystallise issues for final hearing. Precedent treatment: The Court explicitly refrained from deciding disputed factual questions at the interlocutory stage and limited itself to prima facie and legal issue determination. Interpretation and reasoning: The Court clarified that to decide the contested legal issues, disputed questions of fact need not be gone into at the interim stage. Consequently, the Single Bench's direction for affidavits in opposition and liberty to file reply was upheld and timelines for affidavit exchange were extended. The Court's interim directions (treatment of payment as deposit, stay of further recovery) were issued without resolving factual disputes, reserving them for final adjudication after exchange of affidavits and full hearing. Ratio vs. Obiter: Ratio - At the interlocutory stage, courts may grant interim protection based on prima facie legal conclusions and without adjudicating disputed facts, while directing exchange of affidavits and preserving parties' rights. Obiter - Procedural scheduling and timeline extensions are case-specific management orders. Conclusion: Disputed factual issues were to be left for final determination after affidavit exchange; interim relief was appropriately confined to legal and prima facie findings and procedural directions to progress the writ petition to final hearing.