2025 (11) TMI 351 - HC - GST

Impugned notice and order quashed; tax shortfall accepted via GSTR-3B; matter remanded for reassessment under Section 73

HC quashed the impugned notice and order and set aside the subsequent communication, finding that the tax shortfall for March-April 2020 was discharged in ... Non-deposit of tax due to ministerial mistake - levy of interest and penalty when the mistake committed by petitioner was rectified immediately by depositing the shortfall in the tax in the next quarter - HELD THAT:- On going through the instructions dated 15.10.2025 received from Assistant Commissioner, State Taxes & Excise (GST), it is apparent that according to respondent, as claimed by the petitioner, tax liability pertaining to the month of March, 2020 and April, 2020 has been discharged in the return filed in form GSTR-3B on 13.06.2020 and it has been duly verified by respondent-authority. In view of facts and circumstances, now matter is required to be reconsidered by the concerned authority in terms of provisions of CGST/SGST Acts, 2017, especially Section 73. Therefore, impugned notice dated 10.07.2024 (Annexure P-4), impugned order dated 22.08.2024 (Annexure P-5) and notice/communication dated 13.08.2025 (Annexure P-6) are quashed and set aside and, matter is remanded back for reconsideration by the concerned authority by taking into consideration the factual matrix as communicated in the instructions referred supra placed on record by learned Additional Advocate General. Petition allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings and demand under the provisions applicable to suppression of turnover and tax evasion (Section 74 of the CGST/SGST Acts) were appropriately invoked where the taxpayer alleges a ministerial/clerical omission and subsequently deposited the shortfall in the next quarter - i.e., whether the matter ought to have been dealt with under the adjudication provisions for non-payment/short payment (Section 73) instead of Section 74. 2. Whether interest and penalty, and consequent recovery/attachment directions (including notice to the bank under Section 79), can stand where the shortfall in tax for the relevant months was subsequently discharged and verified on the tax portal prior to or during recovery proceedings. ISSUE 1 - Proper statutory provision to be invoked: Section 74 (suppression/evasion) v. Section 73 (others) Legal framework: Section 73 provides for determination of tax not paid or short paid or erroneously refunded except where suppression or fraud is alleged; Section 74 addresses cases of suppression of turnover or fraud and prescribes more onerous consequences. The statutory scheme requires classification of the nature of default to determine the correct charging provision. Precedent treatment: No specific precedent was cited or applied by the Court in the judgment. The Court proceeded on the statutory test and factual matrix before it rather than distinguishing or following prior case law. Interpretation and reasoning: The Court examined the factual matrix as communicated by the department, which showed that the tax liabilities for March and April 2020 were discharged by filing GSTR-3B on 13.06.2020 and the filing was verified on the GST portal. Given that the shortfall arose from a ministerial/clerical mistake subsequently rectified by depositing the tax in the next quarter, the Court concluded that the circumstances required reconsideration under Section 73 rather than automatic invocation of Section 74. The Court treated the rectification by subsequent deposit and verification as material to classification of the default and to the exercise of adjudicatory discretion under the statutory scheme. Ratio vs. Obiter: Ratio - Where a tax shortfall is demonstrated to have arisen from a clerical or ministerial mistake that was rectified by subsequent deposit and portal verification, the matter should ordinarily be reconsidered under Section 73 rather than proceedings under Section 74 for suppression/fraud, unless the authority has independent material to show deliberate suppression or fraud. Obiter - Observations on the need for departmental verification and reconsideration do not lay down exhaustive tests for every factual permutation. Conclusion: The impugned notice and order issued under the provision for suppression/fraud were set aside and the matter was remanded to the competent authority to reconsider classification and determination under Section 73, taking into account the subsequent deposit and verification of returns. The Court directed reconsideration within a fixed time frame. ISSUE 2 - Validity of interest, penalty and recovery/attachment (including bank notice under Section 79) where tax was later paid and verified Legal framework: Interest and penalty provisions attach to defaults in tax payment; recovery mechanisms under Section 79 permit attachment or directing a bank to make payment where the taxpayer is liable and dues remain unpaid. The statutory scheme permits levy of interest/penalty subject to the nature and duration of default and the applicable procedural safeguards. Precedent treatment: The Court did not rely on or distinguish prior judicial authorities concerning calculation/waiver of interest or levy of penalty where taxes are subsequently paid; the Court proceeded from statutory principles and the departmental instructions on verification. Interpretation and reasoning: The Court observed that departmental instructions on record acknowledged that the tax liability for the months in question had been discharged on 13.06.2020 and verified on the GST portal. That factual acknowledgment undermines the basis for a full demand that aggregates tax, interest and penalty to a significantly larger sum without first re-examining the quantum of interest/penalty that properly flows from a delay limited to one quarter. In light of the rectification, the Court found it necessary that the authority recalculate interest/penalty (if any) in accordance with law and the actual period of delay and to reassess the need for recovery steps against third parties (bank) before issuing or maintaining attachment notices. Ratio vs. Obiter: Ratio - Where the tax shortfall has been discharged and verified, recovery measures including bank notices under Section 79 should not remain operative without fresh adjudication of interest and penalty in accordance with the correct statutory provision and factual matrix; such recovery directions may be quashed pending reconsideration. Obiter - The Court's indication that only interest/penalty proportionate to the actual period of delay may be payable is instructive but not an exhaustive ruling on exemptions/waivers or specific calculations. Conclusion: The Court quashed the recovery/attachment communication to the bank and the impugned demand insofar as it aggregated tax, interest and penalty, and remanded the matter for fresh consideration of the amount (if any) payable, including appropriate assessment of interest/penalty consonant with the actual delay and statutory provisions. Any sum found payable shall be paid by the taxpayer after reconsideration. REMEDIAL DIRECTIONS AND PROCEDURAL OUTCOME Legal framework: Courts may quash administrative orders and remit matters for fresh consideration where the authority has not appreciated available material or where misclassification of statutory provisions has occurred; directions may include timelines for reconsideration. Interpretation and reasoning: Given the department's contemporaneous verification note acknowledging deposit on 13.06.2020, the Court found that the authority must reassess liability afresh under Section 73 and calculate interest/penalty in accordance with law rather than sustain the impugned orders issued under Section 74 and the consequent bank notice under Section 79. Ratio vs. Obiter: Ratio - Administrative action that proceeds to recovery under a more severe provision without taking into account subsequent deposit and verification may be set aside and remanded for reconsideration; bank attachment directions consequent to such action may be quashed pending fresh adjudication. Obiter - The Court's guidance on parties using a downloaded copy of the order for administrative compliance is procedural and ancillary. Conclusion: The impugned show-cause notice, adjudication order and bank notice were quashed and the matter remitted to the concerned authority for reconsideration under Section 73 within the specified timeline; directions to the bank were vacated and any payable amount shall be determined and paid following reconsideration.