2025 (11) TMI 667 - HC - GST

Matter remitted for fresh exam whether Section 74 machinery applies or proceedings should be under Section 73 via Section 75(2)

R. Muruganandam (Works Contractor), Thiruvarur Versus The State Tax Officer (Inspection - II), The State Tax Officer (ST), Mannargudi.

HC remitted the matter to the respondent for fresh examination of whether the machinery under Section 74 applies or proceedings should have been under ... Failure to respond to notice issued u/s 74 - petitioner submits that the said amounts have already been paid, as there was a departmental dispute - invocation of extended period of limitation - HELD THAT:- This Court is of the view that the matter deserves to be remitted back to the respondent. This is particularly in light of the fact that the petitioner has already paid the tax amount and has undertaken not to dispute the same, confining the challenge only to the imposition of penalty and the invocation of the machinery provisions under Section 74 of the Act. The case is remitted back to the respondent for examining whether the petitioner has a valid case to contend that the machinery under Section 74 is not applicable, and that the proceedings ought to have been initiated under Section 73 of the respective GST Act, by exercising powers under Section 75(2). The said exercise shall be completed by the respondent within a period of three months from the date of receipt of a copy of this order, subject to the petitioner filing a detailed reply to the notice and treating the impugned order as a show cause notice within a period of thirty days. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the extended period/ machinery provisions under Section 74 (invocation of extended/ penal machinery provisions) of the GST enactment were appropriately applied, or whether the assessments ought to have proceeded under Section 73 (regular assessment) instead. 2. Whether a taxpayer who has discharged the tax demand and confines its challenge to interest and penalty can obtain relief by remission to the assessing authority to re-examine categorisation of proceedings (Section 74 v. Section 73), and whether the assessing authority may re-open or re-characterise the proceedings under Section 75(2). 3. Whether the petitioner's entitlement (if any) to relief under Section 128-A (provisions relating to interest/penalty mitigation or limitation) requires fresh consideration by the respondent in light of the petitioner's payment of tax and limited contest to penalty/interest. 4. Whether, in the factual matrix where part-payment or full payment of tax has been made, the Court should remit the matter to the revenue for reconsideration rather than entertain a writ challenge to imposition of interest/penalty. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Appropriateness of invoking Section 74 vs Section 73 Legal framework: Section 73 governs regular assessment where tax has not been paid or has shortfall arising from reasons other than fraud/suppression; Section 74 provides for assessment where suppression/fraud/intentional evasion is alleged and allows invocation of extended/penal machinery. Section 75(2) confers power on the assessing authority to exercise its powers to rectify or re-characterise assessments as permitted under the Act. Precedent Treatment: The judgment contains no citation or reliance on precedents. The Court did not distinguish, follow, or overrule any earlier authorities on the issue. Interpretation and reasoning: The Court observed that the impugned orders were passed under Section 74 after show-cause notices were issued and the petitioner did not respond. Given that the petitioner had subsequently discharged the tax liability and undertook not to contest tax, the Court recognised a narrow live controversy limited to the applicability of machinery provisions (Section 74) and the resulting interest/penalty. Balancing the parties' interests, the Court concluded that the matter should be re-examined by the respondent to determine whether the facts justify invoking Section 74 or whether the proceeding ought to have been under Section 73, utilising the authority under Section 75(2) to revisit the characterisation. Ratio vs. Obiter: The direction to remit for reconsideration as to whether Section 74 was properly invoked (and whether Section 73 should apply) is ratio decidendi for the present disputes; it is the operative legal conclusion on which relief was granted. Observations that the petitioner had paid tax and confined challenge to penalty/interest are factual predicates supporting the ratio. Conclusion: The Court held that remittal for re-examination under Section 75(2) was appropriate, requiring the respondent to assess whether the machinery under Section 74 was applicable or whether assessment under Section 73 should have been made. Issue 2 - Remittal to assessing authority where tax is paid and dispute confined to interest/penalty Legal framework: Writ jurisdiction permits remedial directions where statutory reconsideration is appropriate; revenue possesses statutory powers (Section 75(2)) to revisit and re-characterise proceedings within the Act. Section 128-A provides a statutory route for mitigation/relief relating to interest/penalty or extended period issues. Precedent Treatment: No judicial precedents were invoked; the Court's approach is based on principles of administrative fairness and statutory scheme permitting reconsideration. Interpretation and reasoning: The Court relied on the factual situation - taxpayer paid the tax and limited contest to interest/penalty - to exercise supervisory jurisdiction by remitting the matter instead of deciding the merits in writ. The Court considered fairness to both parties (tax discharged, revenue's statutory functions) and found it appropriate to direct respondent to reconsider and pass a reasoned decision pursuant to statutory powers, within a limited timeframe, provided the petitioner responded to the notice and treated the assessment order as a show cause notice. Ratio vs. Obiter: The remedial direction to remit is ratio in the present case; it embodies the Court's conclusion that administrative reconsideration is the proper and proportionate remedy where tax is paid and dispute is limited to penal consequences. Conclusion: The Court ordered remittal to the respondent to reconsider applicability of Section 74 vis-à-vis Section 73, subject to the petitioner filing a detailed reply within 30 days and treating the impugned order as a show-cause notice; the respondent was directed to complete exercise within three months. Issue 3 - Consideration under Section 128-A (interest/penalty/limitation mechanism) Legal framework: Section 128-A (as referenced) provides for consideration of extended period and related relief/mitigation in specified circumstances; the statutory scheme contemplates executive reconsideration for interest/penalty when conditions warrant. Precedent Treatment: No precedents cited or discussed; parties informed the Court that the revenue would consider the matter under Section 128-A. Interpretation and reasoning: The respondent's counsel conceded willingness to examine the petitioner's claim under Section 128-A, notwithstanding that proceedings were originally initiated under Section 74. The Court incorporated that concession into its directions, thereby leaving it open for the assessing authority to consider mitigation/relief under Section 128-A in the course of the remitted proceedings. Ratio vs. Obiter: The direction that respondent shall consider Section 128-A claims as part of the reconsideration is ratio insofar as it forms part of the Court's remedial order; any general observation on Section 128-A beyond the facts is obiter. Conclusion: The respondent is required to consider the petitioner's contention under Section 128-A while re-examining the matter under Section 75(2), with the remit to be completed within the prescribed three-month period. Issue 4 - Interim financial compliance and consequences where only partial tax deposited Legal framework: Statutory and equitable practice supports conditional interim relief subject to deposit of tax or part thereof when tax demand is challenged but not wholly stayed; courts may direct deposit of balance where only partial payment made. Precedent Treatment: No cases cited. The Court applied routine principles of conditional compliance to ensure parity between parties. Interpretation and reasoning: The Court noted that in one petition only 50% of the disputed tax had been paid; as a condition of remittal and continued proceedings, it directed deposit of the remaining 50% within the stipulated period so that respondent's reconsideration can proceed on an equitable footing. Ratio vs. Obiter: The deposit direction is ratio as an operative condition of the remedial order in that specific factual situation. Conclusion: The petitioner was ordered to deposit the outstanding 50% of tax in the affected petition within the three-month period prescribed for the respondent's reconsideration. Ancillary procedural directions and temporal limits Legal framework: The Court exercised supervisory jurisdiction to set timelines for administrative action and to require procedural cooperation (submission of detailed reply within specified time, treating impugned order as show cause notice). Interpretation and reasoning: To ensure finality and expedition, the Court required the petitioner to file a detailed reply within 30 days and directed the respondent to complete reconsideration within three months of receiving the order copy. Ratio vs. Obiter: These procedural directions are ratio insofar as they constitute binding terms of the remittal order in the present disputes. Conclusion: The respondent must conclude its reconsideration under Section 75(2), taking into account Section 128-A where applicable, within three months; the petitioner must file a detailed reply within 30 days and, where applicable, deposit the balance tax as directed. Final Legal Outcome The Court disposed of the writ petitions by remitting the matters to the respondent for re-examination of whether proceedings under Section 74 were justified or they ought to have been under Section 73 (via exercise of Section 75(2)), with the respondent to consider mitigation under Section 128-A; the rehearing is to be completed within three months, subject to the petitioner filing a detailed reply within 30 days and making any outstanding deposit of tax as directed. No costs were awarded.