2025 (10) TMI 61 - HC - GST

Petitioner required to pursue statutory appeal under Section 107 GST after paying 10%; limitation period tolled

HC dismissed the writ petition and relegated the petitioner to the statutory appellate remedy under the GST Act, holding that disputed claims of ... Time limitation for completion of audit carried out u/s 65 of GST Act - petitioner had obtained input tax credit from non-existent persons or entities which have been set out for the purposes of issuing fake input tax credit certificates - HELD THAT:- It is clear that the claims and counter claims placed can be resolved only by going through the documents and materials relied upon by the petitioner and the respondents. Such an exercise would require this Court to go into complicated questions of fact and conduct an enquiry as to whether the facts alleged by the petitioner or the facts alleged by the respondents are true and correct. That is an exercise which cannot be carried out by this Court. It would be best that such an exercise is carried out by the appellate authority who would be competent to go into these issues. Inasmuch as the petitioner had paid 10% of the disputed tax, during the course of this Writ Petition, nothing prevents the petitioner from approaching the appellate authority. As far as the issue of limitation is concerned, the fact remains that the Writ Petition filed by the petitioner has been pending and it would only be appropriate to exclude such time from the calculation of limitation. In such an event, nothing would preclude the petitioner from moving the appellate authority. In these circumstances, this Writ Petition is disposed of relegating the petitioner to the alternative remedy of appeal provided under the GST Act. Needless to say, the appellate authority, shall take up the appeal without going into the question of limitation for the purpose of filing of the appeal. ISSUES PRESENTED AND CONSIDERED 1. Whether an audit under Section 65 must be completed within three months from the commencement date (subject to possible six-month extension by the Commissioner) and whether failure to complete within that period renders subsequent audit notices/reports invalid. 2. How the commencement date for the three-month audit period is to be determined - either the date records/documents are made available by the registered person or the actual date audit commences at the business premises, whichever is later. 3. Whether an assessment under Section 74 (for non-payment of tax due to fraud, willful mis-statement or suppression of facts) is maintainable where the notice and assessment do not, on their face, disclose the requisite ingredients of fraud, willful mis-statement or willful suppression of facts. 4. Whether invocation of Section 74 to escape limitation under Section 73 is permissible when the material before the assessing authority does not establish the statutory prerequisites for Section 74. 5. Whether limitations for filing appeals should be extended or excluded where a writ petition was pending and whether payment during the writ (a part prepayment) can be treated as the statutory pre-deposit for entertaining the statutory appeal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Mandatory time-limit for completion of audit under Section 65 Legal framework: Section 65 prescribes that an audit shall be completed within three months from the commencement date and permits the Commissioner to extend by a further six months if satisfied with reasons recorded in writing. Precedent treatment: The Court does not refer to any binding precedents overruling or modifying this provision; it treats the statutory time-limit as part of the statutory scheme. Interpretation and reasoning: The Court acknowledges the statutory timeline and the requirement of a written, reasoned extension by the Commissioner. The petitioner's contention was that audit commenced when documents were made available on 28.12.2022 and therefore the three-month period ended on 28.03.2023; subsequent discrepancy notices and audit reports issued after that date (without a recorded extension) would be beyond the permissible period. The Court notes the contention but refrains from resolving factual contests about the actual commencement date and whether a valid extension was recorded. Ratio vs. Obiter: The Court treats the mandatory nature of the time limit as relevant but does not lay down a conclusive ratio on whether the specific audit here was invalid for breach of time-limit because resolution requires factual inquiry. This part is largely obiter in respect of the present petition's disposal, while affirming that the statutory scheme contemplates time limits and recorded extensions. Conclusions: The Court recognizes the legal requirement and the petitioner's arguable breach but declines to quash the audit solely on that ground without a factual enquiry by the appropriate authority or appellate forum. Issue 2 - Determination of the commencement date for the audit period Legal framework: Section 65 specifies commencement as either the date on which records/documents called for are made available by the registered person or the actual date audit commences at the business premises, whichever is later. Precedent treatment: No specific precedent is applied or overruled; statutory text governs. Interpretation and reasoning: The Court records the petitioner's submission that records were produced on 28.12.2022 and that this should fix the commencement date. However, the Court finds that this factual question - whether records were effectively made available or whether audit commenced on a later date - requires document-level scrutiny and factual findings not appropriate in writ proceedings. Ratio vs. Obiter: The statement that the commencement date is a factual issue requiring enquiry is obiter as to the petition's final disposal but reflects the Court's approach to statutory interpretation and fact-sensitive inquiries. Conclusions: The commencement date question is unresolved by the Court and is left for the appellate authority to consider in the appeal where evidence can be examined. Issue 3 - Maintainability of Section 74 assessment absent clear averments of fraud/willful mis-statement/suppression Legal framework: Section 74 enables assessment where tax has not been paid due to fraud, willful mis-statement or suppression of facts; Section 73 governs general assessment for other cases (subject to limitation). Section 74 carries different consequences and a different limitation regime. Precedent treatment: No precedent is cited overruling the statutory test for invoking Section 74; the code requires that requisites be made out in notice/order. Interpretation and reasoning: The petitioner argued Section 74 could not be invoked because the notice/order did not make out ingredients of fraud or willful mis-statement/suppression. The respondents contend the show cause notice and factual inquiries (non-existent suppliers, non-goods vehicles, lack of evidence for movement of goods) justify Section 74. The Court observed that the assessing officer consistently alleged non-existence of suppliers and deficiencies in transport documentation but concluded that resolution of these factual disputes requires an evidentiary record and cannot be determined by the writ court. Ratio vs. Obiter: The Court does not finally decide whether Section 74 was rightly invoked; it treats the issue as fact-intensive and therefore remits factual adjudication to the appellate authority. This is obiter as to the legal correctness of the impugned order but binds the process for further adjudication. Conclusions: The maintainability of Section 74 in the present case is left open; the Court directs the appellate authority to consider the factual matrix and legal requisites of Section 74 afresh on appeal. Issue 4 - Invocation of Section 74 to circumvent limitation under Section 73 Legal framework: Section 73 prescribes limitation for general assessments; Section 74 provides an extended period where fraud/willful mis-statement/suppression is established. Invoking Section 74 requires material satisfying statutory ingredients. Precedent treatment: The Court refers to the statutory dichotomy but does not rely on authority addressing deliberate invocation of Section 74 to avoid limitation; it treats the contention as factual/legal mixed question. Interpretation and reasoning: The petitioner alleged that Section 74 was invoked to avoid lapse of limitation under Section 73 and that neither notice nor order disclosed the necessary allegations. The respondents countered with factual assertions of fake input tax credit and non-movement of goods. The Court determined that whether invocation of Section 74 was legitimate is a matter that requires detailed factual examination and is unsuitable for determination in writ proceedings. Ratio vs. Obiter: The Court does not establish a binding ratio that misuse of Section 74 can be decided on writ grounds; it leaves the issue to appellate adjudication. Accordingly, the observations are obiter concerning the substantive misuse question. Conclusions: The Court does not set aside the assessment on this ground but permits the petitioner to agitate the point before the appellate authority; limitation will be addressed by the appellate forum in the context of evidence and law. Issue 5 - Treatment of pendency of writ for limitation and status of payment made during writ as pre-deposit Legal framework: Statutory appeal provisions require pre-deposit under Section 107; limitation for filing appeals is ordinarily governed by statutory prescription, but equitable/exclusion principles may apply where litigation was pending in another forum. Precedent treatment: The Court exercises discretion consistent with practice of excluding the period of writ pendency from calculation of limitation and treating amounts paid in writ proceedings as satisfying pre-deposit requirements where appropriate. Interpretation and reasoning: The petitioner paid 10% of disputed tax during the writ. The Court held that time during which the writ petition was pending may be excluded for calculation of limitation for filing the statutory appeal. The Court further directed that the 10% payment made will be treated as the statutory pre-deposit required under Section 107 and that consequences of stay arising from such payment shall apply to the petitioner. Ratio vs. Obiter: The directions constitute the operative ratio for disposition of this petition - (a) exclusion of writ pendency for limitation purposes, (b) treating the 10% payment as pre-deposit, and (c) permitting the appeal to be filed within three weeks without limitation objection by the appellate authority. Conclusions: The petitioner is granted three weeks to file the statutory appeal; the appellate authority is directed to entertain the appeal without raising limitation objection; the 10% payment is treated as pre-deposit and the stay consequences attendant to such pre-deposit shall apply. FINAL DISPOSITIONAL DIRECTIONS (operative conclusions) The Writ Petition is disposed of by relegating the petitioner to the statutory appeal remedy. The appellate authority shall take up the appeal without entertaining limitation objections relating to the period the writ was pending. The petitioner is given three weeks to file the appeal. The payment of 10% of the disputed tax during the writ shall be treated as the statutory pre-deposit under Section 107 and the stay consequences of such pre-deposit shall apply. Pending miscellaneous petitions stand closed and there shall be no order as to costs.