2025 (10) TMI 1022 - HC - GST

Writ allowed; proceedings quashed for failure to establish jurisdictional facts under Section 74(1) and limitation

HC allowed the writ petition and quashed the impugned proceedings, holding that the jurisdictional facts required under Section 74(1) of the Act were not ... Maintainability of petition - availability of alternative remedy - invocation of extended period of limitation - suppression of facts or not - HELD THAT:- No where, the elements envisaged under Section 74(1) of the Act have been shown to be present. Thus, in view of the absence of the jurisdictional facts, the impugned proceedings will have to be quashed. The impugned order is quashed. The Writ Petition is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a reassessment/order issued within the extended period under Section 74 of the TNGST/CGST Act is valid where the show cause notice and assessment/order do not record or demonstrate the jurisdictional facts of fraud, wilful misstatement or suppression of facts. 2. Whether invocation of the extended period under Section 74 requires specific allegations in the show cause notice identifying which element (fraud, wilful misstatement or suppression of facts) is alleged and supporting material for the same. 3. Whether, in the absence of any finding or material showing the existence of the jurisdictional facts required by Section 74, the reassessment proceedings are liable to be quashed despite being within the extended time-limit. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reassessment within extended period absent jurisdictional facts Legal framework: Section 74(1) permits reopening/reassessment beyond the normal period (up to five years) only where it appears that tax was not paid/short paid/erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts to evade tax. The existence of those circumstances is a precondition (jurisdictional fact) for invoking the extended limitation. Precedent treatment: Prior authorities applying analogous extended-reopening provisions have held that the department must specifically put the assessee on notice as to which omission/commission is alleged to justify extension and that penalty or extended action cannot be sustained absent a finding of deliberate deception, fraud or equivalent culpability. Those authorities were treated as binding guides for interpreting Section 74. Interpretation and reasoning: The Court construes Section 74 as creating a jurisdictional threshold: the extended period may be invoked only if the proper officer can show existence of fraud, wilful misstatement or suppression of facts. Absent such jurisdictional facts, exercise of power under the extended period is without authority and vitiates the proceedings. The show cause notice and final order must therefore either allege and explain which of the Section 74 ingredients are in issue and must be supported by material, or a finding must be recorded in the assessment proceedings. Ratio vs. Obiter: Ratio - Extension of limitation under Section 74 is conditional upon existence of jurisdictional facts (fraud/wilful misstatement/suppression) and cannot be mechanically invoked; absence of such facts renders the proceedings void. Observational/obiter - Reference to administrative or circular guidance reinforcing the same proposition. Conclusion: Reassessment/order passed within the extended period is invalid where neither the show cause notice nor the order adduces or records any material or finding demonstrating the jurisdictional facts required by Section 74; such proceedings must be quashed. Issue 2 - Requirement of specific allegations and material in the show cause notice when invoking Section 74 Legal framework: The procedural fairness and rule of law embedded in Section 74 require that the assessee be put on notice of the specific ground relied upon to extend limitation so that the assessee has an opportunity to meet the case. The statutory language contemplates invoking Section 74 only when investigation indicates material evidence of fraud or wilful misstatement or suppression. Precedent treatment: Earlier decisions interpreting similarly worded reopening/penalty provisions under other fiscal statutes have required the department to specify which of the enumerated defaults is alleged and to enable the assessee to respond; failure to do so has led to quashing of extended-period actions. Interpretation and reasoning: A generic or mechanical invocation of Section 74 is impermissible. The show cause notice must identify the particular element(s) of fraud/wilful misstatement/suppression relied upon and make the supporting material part of the notice or proceedings so that the assessee can defend. Merely issuing a notice stating invocation of the extended period without articulating the jurisdictional basis deprives the assessee of meaningful opportunity to contest the substantive allegation and is contrary to law. Ratio vs. Obiter: Ratio - Specificity and disclosure of material in the show cause notice are necessary when relying on Section 74 to extend limitation; absence of such specificity invalidates the exercise. Obiter - Administrative advisories expressing the same principle reinforce the interpretation but are not the primary source. Conclusion: The extended period cannot be validly invoked by a rote reference to Section 74; the show cause notice must specify which subsection/ground is alleged and disclose the material evidence that indicates fraud/wilful misstatement or suppression of facts. Issue 3 - Consequence of absence of findings of fraud/wilful misstatement/suppression in assessment/order Legal framework: Where jurisdiction to act depends on existence of specified facts, those facts must be either pleaded and supported or established in the authority's order; otherwise the order lacks jurisdictional foundation. Precedent treatment: Judicial authorities have set aside orders and penalties where the authority imposed consequences based on extended provisions without any finding or material to support requisite culpability; reopening beyond normal period was held unsustainable in absence of failure to disclose material facts. Interpretation and reasoning: The Court examined the show cause notice and final order and found no mention, allegation, or recorded finding of fraud, wilful misstatement or suppression. The assessing authority therefore failed to establish the jurisdictional fact required for invoking Section 74. The lack of such foundational findings renders the extended-period assessment void ab initio to the extent premised on Section 74. Ratio vs. Obiter: Ratio - When an assessment/order relies on the extended period under Section 74, absence of any recorded finding or material demonstrating the jurisdictional facts invalidates the assessment; such proceedings are to be quashed. Obiter - The Court's reference to administrative circulars and policy pronouncements supporting caution against mechanical invocation. Conclusion: Where the adjudicating authority neither pleads nor records any finding of fraud, wilful misstatement or suppression of facts, the reassessment/order made under extended limitation is unsustainable and must be quashed. Cross-References and Administrative Guidance Administrative guidance (circular) emphasizes that Section 74 is invokable only where investigation indicates material evidence of fraud or wilful misstatement or suppression, and that such evidence should be made part of the show cause notice; this guidance corroborates the statutory and judicial requirement for specificity and material supporting invocation of the extended period.