2025 (9) TMI 1593 - HC - GST

Section 73 notice quashed for failure to follow mandatory Section 61 and Rule 99 scrutiny and notice procedures

M/s. Pepsico India Holdings Pvt. Ltd. Versus The Union of India And 3 Ors, The Additional Commissioner Office of Principal Commissioner GST And Excise Commissionerate, Superintendent Range 1f Goods And Services Tax Guwahati Division-I Guwahati, Principal Commissioner CGST And Excise Commissionerate, Guwahati

HC held that the demand-cum-show cause notice under Section 73 was without jurisdiction and set aside it and all consequential actions, because the proper ... Wrongful availment and utilization of ITC - mismatch between the details furnished by the petitioner in its annual return filed in the form GSTR-9C and the reconciliation statement filed in FORM of GSTR-9C - precondition necessary for the invocation of the jurisdiction of the proper officer under Section 61 is absent - HELD THAT:- The case projected before this Court is that the impugned demand-cum-show cause notice dated 05.09.2023 issued by the respondent/revenue, is without jurisdiction in view of the non-compliance with the procedures laid down under Section 61 of the CGST Act, 2017, read with Rule 99 of the CGST Rules. It is evident that u/s 61, the proper officer is required to scrutinize the return and the related particulars furnished by the registered person to verify their correctness and, if any discrepancies are noticed, to inform the registered person in the prescribed manner. If the explanation provided by the registered person is found to be acceptable, the officer shall inform the registered person accordingly, and no further action is required to be taken in this regard. In the event that no satisfactory explanation is furnished within a period of 30 days from the date on which the discrepancies are communicated by the proper officer, or within such further period as may be permitted by him, or where the registered person, after accepting the discrepancies, fails to take corrective measures in the return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action, including proceedings under Section 65, 66, or 67, or proceed to determine the tax and other dues under Section 73 or 74 of the CGST Act. Whether a demand-cum-show cause notice issued under Section 73 of the CGST Act, based solely on discrepancies noticed in the returns filed, could have been validly issued by the proper officer without due compliance with the procedure prescribed under Section 61 read with Rule 99 of the CGST Rules? - HELD THAT:- A bare perusal of Section 73 reveals that the proceedings under Section 73 can also be initiated in cases where Input Tax Credit has been wrongly availed or utilized under the provisions of the GST Act, 2017 the assessment procedure is prescribed under Chapter XII. Essentially GST is a self assessed tax payable under the Act. The registered person shall self assess the taxes payable and furnish a return for each period as specified under section 39. Where the person is unable to determine the value of goods or services or both or determine the rate of tax payable, then the provisions under section 60 will be applicable. In order to verify the correctness of returns submitted by the assessee under Chapter XII, the only provision prescribed is Section 61, which deals with the scrutiny of returns. Section 64 provides for summary assessment in special cases. Therefore, before issuing a demand-cum-show cause notice under Section 73 to a registered person, the proper officer must conclude that the registered person has wrongly availed or utilized Input Tax Credit. From the scheme of the Act read with the Rules, such conclusion and finding by the proper officer can only be arrived at upon scrutiny of the returns. Such scrutiny of the return is specifically provided for under section 61. The absence of any procedure required to be undertaken by the proper officer as mandated under section 61 does not reflect that any opportunity to the petitioner was given as contemplated under section 61 by issuance of GST ASMT-10 Form or notice. Consequently, there was no opportunity granted to the petitioner to explain before the proper officer in respect of the discrepancies purported to have been noticed by the proper officer. The provisions of Section 73 are very specific and are meant for the recovery or determination of tax not paid or short paid, or Input Tax Credit wrongly availed or utilized, for any reason other than fraud. Therefore, where the statute itself prescribes a procedure enabling the registered taxpayer to rectify any defects, subject to such defects being brought to their notice as per the prescribed procedure, and if the explanation or rectification offered is found acceptable by the proper officer, there arises no occasion to invoke proceedings under Section 73, as has been purportedly done by the issuance of the impugned show cause notice. That opportunity mandated by the act appears to have not been furnished to the registered office. Coming to the facts of the present case, it is seen that the only ground for issuance of the show cause notice is demand of tax for wrong availment of Input Tax Credit amounting to Rs. 19,51,41,111/- by the petitioner. This assumption of power by the respondent authority under section 73 has to be preceded a conclusion arrived at by the revenue - the procedure prescribed under section 61 was not followed and on the basis of the non disclosure of information under Table 14 of Form GSTR-9C which was considered to be mandatory by the revenue required invocation of the powers of the proper officer under section 73. Whether the information sought for under Table 14 of Form GSTR-9C was mandatorily required to be furnished by the assessee was optional and therefore was not submitted by the assessee as erupted for non submission of the said form? - HELD THAT:- The circulars pressed by the petitioner in support of its contention that the information required to be furnished under Table 14 of GSTR-9C was optional will be referred to later in the paragraphs. However, even assuming that this information was mandatory and was not furnished by the petitioner, this non-furnishing formed the basis of the discrepancy noticed by the revenue; therefore, if jurisdiction under Section 73 of the CGST Act, 2017, was to be invoked, the procedure prescribed under Section 61 was nonetheless mandatorily required to be followed by the revenue. The revenue was duty bound in law to bring this discrepancy to the notice requiring the assessee to submit its explanation as per the procedure prescribed. It is only in the event of the assessee failure to submit explanation as required and/or in the event the explanation was not found satisfactory, the proceedings under section 73 could have been invoked. No other provision under the Act has been pointed out by the revenue to support their contention that the discrepancy noticed was due to the assessee's failure to furnish information under Table 14 of GSTR-9C, which was mandatory; therefore, proceedings under Section 73 could have been invoked without following the procedure prescribed under Section 61 of the Act, 2017. The position that is evident from the pleadings in respect of the notifications issued by the competent authority whereby submission of information in Table 14 in Form GSTR-9C was made optional for the assessment year 2017-18 till the year 2022-23, is not disputed by the revenue. This Court is of the considered view that the invocation of jurisdiction under Section 73, without mandatorily following the procedure prescribed under Section 61 read with Rule 61 of the Act, 2017, read with Rule 99 of the Rules, 2017, is contrary to the prescribed procedure and opposed to the very scheme of the Act. This Court holds that the revenue, through the proper officer, invoked its jurisdiction under Section 73 without due compliance with the procedure prescribed under Section 61; therefore, such invocation of jurisdiction is completely unauthorized, and consequently, all further actions taken thereunder must be held to be contrary to the provisions of law. The assessee cannot proceed to invoke the provisions under Section 61 as the same would now be barred by limitation. The impugned order is set aside - petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a demand-cum-show cause notice under Section 73(1) of the CGST Act can be validly issued by the proper officer solely on the basis of alleged discrepancies in returns without first complying with the scrutiny procedure mandated by Section 61 read with Rule 99 (including issuance of Form GST ASMT-10)? 2. Whether non-furnishing of information in Table 14 of Form GSTR-9C (reconciliation of ITC with expenses in audited financial statements) could constitute a 'discrepancy' for invoking Section 61/Section 73 when submission of Table 14 was made optional by notifications/instructions issued by the competent authority for the relevant years? 3. Whether reliance on departmental notifications/instructions that made Table 14 optional binds the revenue authorities and renders a show cause notice issued contrary to those instructions invalid? 4. Whether availability of alternative statutory remedies precludes judicial review under Article 226 when the authority's exercise of jurisdiction is alleged to be unauthorized or in excess of statutory procedure? ISSUE 1 - Validity of issuing Section 73 notice without compliance with Section 61/Rule 99 Legal framework: Section 61(1) empowers the proper officer to scrutinize returns and inform registered persons of discrepancies in the prescribed manner and seek explanation; Section 61(2) mandates cessation of further action where explanation is found acceptable; Section 61(3) permits initiation of further action (including under Section 73) only where explanation is not satisfactory or not furnished within the prescribed period. Rule 99(1) prescribes issuance of notice in FORM GST ASMT-10 on noticing discrepancy and seeking explanation within 30 days. Precedent treatment: The Division Bench judgment considered (subsequently affirmed by dismissal of SLP) held that where a show cause notice is based on discrepancies noticed in returns, the mandate of Section 61 (and Rule 99) must be followed before invoking Section 73; other precedents distinguishing assessment routes (e.g., where independent material exists) were noted as distinguishable. Interpretation and reasoning: The Court construed the statutory scheme as requiring a two-step process-scrutiny and communication of discrepancy with an opportunity to explain (Section 61/Rule 99), and only thereafter, if explanation unsatisfactory or not furnished, initiation of proceedings under Section 73. Where the show cause notice stems solely from discrepancies in returns, the authority cannot bypass the prescribed scrutiny step; issuance of ASMT-10 and consideration of the reply (including issuance of ASMT-12 where explanation acceptable) are conditions precedent to validly invoking Section 73. Ratio vs. Obiter: Ratio - A Section 73 notice predicated solely on return discrepancies is invalid if issued without prior compliance with Section 61/Rule 99 (including ASMT-10 procedure). Obiter - Distinctions with cases where proceedings under Section 73/74 arose from independent material were discussed but not essential to decision. Conclusion: The impugned Section 73 show cause notice is vitiated for failure to comply with the mandatory procedure under Section 61 and Rule 99; absence of issuance of FORM GST ASMT-10 and denial of the statutory opportunity to explain renders the notice without jurisdiction. ISSUE 2 - Whether non-furnishing of Table 14 of GSTR-9C constitutes a discrepancy when submission was made optional by Notifications Legal framework: Form GSTR-9C Table 14 required reconciliation of ITC with expenses per audited financial statements; however, executive notifications/instructions amended the instructions to render filling Table 14 optional for specified FYs and extended that optionality through later notifications up to FY 2022-23. Precedent treatment: The Court relied on the administrative act (series of notifications) and the principle that departmental circulars/instructions, when in operation, bind the revenue; earlier Supreme Court authority (as discussed) supports binding effect of Board's instructions on departmental action. Interpretation and reasoning: The Court found that the notifications explicitly conferred an option not to fill Table 14 for the relevant years. Since the petitioner legitimately exercised that option, non-submission could not be treated as a statutory error or discrepancy. Even assuming arguendo that Table 14 was mandatory, the Court held that the revenue still was required to follow the Section 61 scrutiny procedure before invoking Section 73. Ratio vs. Obiter: Ratio - Where competent authority has made submission of a data field optional by notification, failure to furnish that optional data cannot legitimately constitute a discrepancy enabling revenue to proceed without following Section 61 procedure. Obiter - Detailed interaction with competing decisions on mandatory nature of Table 14 was not necessary given the procedural infirmity. Conclusion: The non-furnishing of Table 14-given the binding notifications making it optional-did not amount to a discrepancy supporting immediate invocation of Section 73; consequently the demand based on alleged wrongful availment of ITC on that ground cannot stand. ISSUE 3 - Binding effect of notifications/instructions and consequence of revenue acting contrary thereto Legal framework: Executive notifications/instructions forming part of the statutory framework govern operational details; judicial authorities have held that while circulars are not binding on courts or assessees per se, the revenue cannot act contrary to instructions/circulars issued by the Board and a show cause notice contrary to an existing Board circular is bad ab initio. Precedent treatment: The Court applied established principles that departmental instructions under the relevant statutory scheme bind revenue officials and that revenue cannot adopt a stance contrary to such instructions; reliance was placed on settled jurisprudence reiterated by higher courts. Interpretation and reasoning: Because the notifications made Table 14 optional and these notifications were not disputed by the revenue, the revenue was bound to operate within that regime. Issuing a demand contrary to such instructions was therefore arbitrary and without authority. Ratio vs. Obiter: Ratio - Revenue action contrary to binding notifications/instructions that were in force is legally impermissible and renders resulting show cause notices unsustainable. Obiter - Broader consequences for other fact patterns were indicated but not decided. Conclusion: The revenue was bound by the notifications making Table 14 optional; action inconsistent with those notifications is ultra vires and invalid. ISSUE 4 - Availability of alternative statutory remedy vs. jurisdictional challenge under Article 226 Legal framework: Article 226 judicial review may be available notwithstanding existence of alternative statutory remedies where the statutory authority's exercise of jurisdiction is unauthorized or contrary to statutory prescription. Precedent treatment: Reliance on Supreme Court authority establishing that where a statutory authority acts without jurisdiction or in a manner contrary to statutory scheme, presence of alternate remedies does not preclude writ jurisdiction. Interpretation and reasoning: The Court held that because the revenue's invocation of Section 73 was unauthorized (for failure to follow Section 61/Rule 99 and in view of binding notifications), the petitioner was entitled to challenge the action by way of writ despite availability of departmental remedies; the alleged alternative remedy did not bar judicial review of jurisdictional excess. Ratio vs. Obiter: Ratio - Writ jurisdiction is available to challenge unauthorized/excessive exercise of statutory power even if alternate remedies exist. Obiter - The Court noted limited circumstances where alternative remedies should be exhausted, but these were not determinative here. Conclusion: The petition attacking jurisdictional excess was maintainable; the objection regarding alternative remedies is rejected. FINAL CONCLUSIONS 1. The issuance of the impugned demand-cum-show cause notice under Section 73(1) without prior compliance with Section 61 read with Rule 99 (including issuance of FORM GST ASMT-10 and consideration of explanation) is unauthorized and vitiates the notice. 2. Notifications/instructions making Table 14 of Form GSTR-9C optional for the relevant years were binding on the revenue; non-submission of optional Table 14 cannot be treated as a discrepancy to justify bypassing the Section 61 procedure. 3. In these circumstances the impugned show cause notice is set aside as being in excess of jurisdiction and contrary to the statutory scheme and binding instructions; the writ petition is allowed on these grounds.