2025 (11) TMI 847 - HC - GST

Show cause notices under Section 74 TNGST Act quashed for lacking fraud allegations and pre-determined language, must follow ss.74-75

Neeyamo Enterprise Solutions Private Limited Rep. by its Manager-Finance (Statutory & Compliance), Ms. Archana K Versus The Commercial Tax Officer, Office of the Joint Commissioner (State Tax) (Intelligence), Madurai

HC quashed the show cause notices and impugned orders issued under Section 74 of the TNGST Act, 2017 because the notices did not allege fraud, wilful ... Challenge to writ proceddings - initiation of writ proceedings u/s 74 of TNGST Act, 2017 - Allegation of fraud, any wilful misstatement or suppression of facts to evade tax or not - case of Revenue is that assessee ought to have filed appeals within time and having missed the bus cannot agitate the matter in writ proceedings - HELD THAT:- Admittedly, the impugned orders were passed only under Section 74 of the TNGST Act, 2017. Chapter XII of TNGST Act, 2017 deals with assessment. Chapter XIII deals with audit. Chapter XIV deals with inspection, search, seizure and arrest. Section 73 enables the proper officer to proceed against the assessee for recovery of any tax that has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised. Action under this provision has to be taken within three years from the due date for furnishing of annual return for the relevant financial year. Section 74 provides for an extended period of limitation. The non-payment or short payment of tax or erroneous refund or wrong availing or utilization of input tax credit must have been by reason of fraud, any wilful misstatement or suppression of facts to evade tax. Issuance of show cause notice is mandatory. The show cause notice must spell out the reason for non-payment or short payment or erroneous refund of tax or wrongful availing or utilization of input tax credit. The provision itself stipulates that such a situation must have been by reason of fraud or any wilful misstatement or suppression of facts to evade tax. In other words, the show cause notice itself must make it clear whether the assessee is being charged with fraud, or suppression or wilful misstatement. It is quite possible that one or all the three elements could be present. It is not enough to merely impute the offending the conduct to the assessee - Section 74(9) of the Act mandates that the proper officer shall issue an order after considering the representation if any made by the noticee. If the noticee makes a request in writing for an opportunity of hearing, the proper officer is obliged to grant the same (vide Section 75(4)). The same obligation will apply when the proper officer contemplates an adverse decision against the noticee. In such a case, request from the assessee is not even necessary. In the case on hand, the show cause notice does not allege that the assessee was guilty of fraud, wilful misstatement or suppression of facts. When that is not even the case of the proper officer, Section 74 could not have been invoked. Presence of one or all the three elements is a sine qua non for taking action under Section 74 of the Act. It is not necessary that the statutory language must be reproduced. If one can cull out their presence by a overall reading of the show cause notice and the impugned order, the requirement of the section can still be said to be satisfied. In other words, both the show cause notice as well as the impugned order must indicate the offending conduct of the assessee. Section 74(1) of the Act talks about specifying the sum payable by the assessee in the show cause notice. In the case on hand, the authority has used the word “determined”. There is a ocean of difference between specifying something and determining something. The word “determined” found in the show cause notice cannot be construed as “specified”. Public orders made by public authorities are meant to have public effect and are intended to affect the acts and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself. The show cause notices in this case by employing the expression “determination” betray the element of pre-determination on the part of the authority. Since the show cause notices as well as the impugned orders themselves do not charge the writ petitioner with fraud or wilful misstatement or suppression of facts to evade tax, they stand quashed. Section 74 of the Act could not have been invoked against the petitioner. If the authority can proceed against the petitioner under any other provision such as Section 73 of the Act, he or she is at liberty to do so. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings under Section 74 of the TNGST Act, 2017 can be validly initiated where the show cause notice and assessment order do not allege or disclose fraud, wilful misstatement or suppression of facts to evade tax. 2. Whether the extended period of limitation under Section 74(10) can be invoked absent recorded jurisdictional facts demonstrating fraud, wilful misstatement or suppression of facts. 3. What are the minimum contents and requirements of a show cause notice under Section 74(1), including the requirement to disclose material on which the proper officer relies and to afford opportunity of hearing. 4. Whether an assessment/order founded on an absence of jurisdictional facts should be quashed outright or remanded with conditions. 5. The weight to be given to departmental circulars and coordinate judicial decisions when construing the threshold for invoking extended limitation under Section 74. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of invoking Section 74 where show cause notice/order do not allege fraud, wilful misstatement or suppression of facts Legal framework: Section 74(1) extends time for re-assessment where tax non-payment/short payment/erroneous refund or wrong availing/utilisation of input tax credit is 'by reason of fraud, or any wilful misstatement or suppression of facts to evade tax'; Section 74(9)/(10) prescribes procedure and five year extended limitation. Precedent treatment: Principles developed under parallel provisions (e.g., Section 11A of Central Excise Act, provisions of Income Tax Act) require strict construction of extended limitation and that the show cause notice must put the assessee on notice of the specific allegation (fraud/suppression/wilful misstatement). Recent higher court authority confirms 'suppression of facts' requires intentional non-disclosure aimed at evasion. Interpretation and reasoning: The expression 'by reason of' requires a causal nexus between the offending conduct (fraud/wilful misstatement/suppression) and the tax shortfall. A mere allegation of non-payment or discovery of defects after inspection is insufficient. The show cause notice must disclose the material and the particular element relied upon so the noticee can meet the case; the inference at notice stage is tentative but must be discernible from the notice and the order. Ratio vs. Obiter: Ratio - jurisdiction to invoke Section 74 depends on existence (and disclosure) of jurisdictional facts (fraud/wilful misstatement/suppression). Obiter - observations on practical difficulties of proving intent at notice stage are explanatory. Conclusion: Invocation of Section 74 is unsustainable where neither the show cause notice nor the order alleges or discloses fraud, wilful misstatement or suppression of facts; such proceedings must be quashed. Issue 2 - Requirement of recorded jurisdictional facts for extended limitation under Section 74(10) Legal framework: Section 73 prescribes normal limitation; Section 74 provides extended five-year period but only where specified elements exist; statutory text must be strictly construed. Precedent treatment: Decisions construing equivalent provisions stress strictness in invoking extended period and the necessity to demonstrate the element (fraud/collusion/wilful misstatement/suppression) in the show cause notice and/or order; administrative circulars echo same strict standard. Interpretation and reasoning: The extended period is an exception to the general limitation and therefore requires strict compliance with its pre-conditions. The proper officer must demonstrate the jurisdictional fact; absence thereof vitiates the authority's power to proceed under Section 74. The show cause notice must either recite or disclose, by overall reading, the material basis for concluding the presence of such jurisdictional fact. Ratio vs. Obiter: Ratio - extended limitation cannot be invoked without establishing the statutory jurisdictional fact; Obiter - comparisons with other statutes reinforce strict approach. Conclusion: Extended period under Section 74(10) is available only upon satisfaction and disclosure of the statutory ingredients; absent such facts, Section 73 or other provisions may alone be resorted to. Issue 3 - Minimum contents and hearing requirement of a show cause notice under Section 74(1) Legal framework: Section 74(1) requires service of notice where the officer forms the opinion of tax shortfall by reason of fraud/wilful misstatement/suppression; Section 74(9) requires order after considering representation; Section 75(4) mandates hearing if requested. Precedent treatment: Authorities under analogous provisions require that show cause notices explicitly state which of the statutory misdeeds is alleged and disclose the particulars/material relied upon so natural justice is not violated. Interpretation and reasoning: A notice that merely imputes offending conduct without setting out the material basis prevents meaningful response and violates principles of natural justice. The officer's inference at the notice stage can be tentative, but the notice must make the allegation of fraud/wilful misstatement/suppression clear; if an adverse decision is contemplated, the duty to afford hearing arises even without a written request. Ratio vs. Obiter: Ratio - show cause notice under Section 74 must indicate the specific alleged misconduct and the material basis so the noticee can respond; Obiter - the degree of particularity required may vary with circumstances but the threshold set is mandatory. Conclusion: The show cause notice must spell out which of the ingredients (fraud/wilful misstatement/suppression) is alleged and the material basis; procedural obligations to consider representation and grant hearing must be respected. Issue 4 - Whether to quash or remand where jurisdictional facts are absent Legal framework: Writ jurisdiction entitles court to quash administrative orders lacking jurisdiction or violating natural justice; remand is appropriate where order suffers procedural defect but jurisdiction exists. Precedent treatment: Courts have remanded matters where procedural lapses can be cured; conversely, where the defect goes to jurisdictional root, orders must be quashed and not remanded. Interpretation and reasoning: Absence of jurisdictional fact (a condition precedent) destroys the authority's power to act under the extended provision; remand is inappropriate because the authority never had power to proceed under Section 74. Remand is reserved where authority retains jurisdiction but erred in procedure or reasoning. Ratio vs. Obiter: Ratio - where jurisdictional facts are absent, the appropriate remedy is quashal not remand; Obiter - discretion to impose terms or conditions when remanding is fact-sensitive. Conclusion: Orders issued under Section 74 without establishing requisite jurisdictional facts must be quashed rather than remanded; the authority may proceed afresh under other lawful provisions if available. Issue 5 - Role of departmental circulars and coordinate bench decisions Legal framework: Departmental circulars and Board instructions guide administration; coordinate bench decisions persuasive but subsequent conflicting decisions must engage earlier precedents and reasons for departure. Precedent treatment: Circulars emphasizing that Section 74(1) should be invoked only where material evidence of fraud/wilful misstatement/suppression exists are recognized as relevant; coordinate bench decisions inconsistent with earlier precedent or circulars require explicit justification to operate as binding. Interpretation and reasoning: A circular that interprets statutory threshold and prescribes that material should be included in show cause notice is accorded weight in assessing compliance. A later coordinate bench decision that departs without referring to and distinguishing prior rulings and administrative instructions is not binding for the purpose of overruling earlier principle. Ratio vs. Obiter: Ratio - departmental circulars form relevant guiding material; coordinate decisions must respect precedent and explain departures; Obiter - administrative policy considerations are informative but subordinate to statutory text and binding higher court authority. Conclusion: The circulars and binding precedents support strict application of Section 74's ingredients; inconsistent coordinate bench rulings without reasoned departure do not negate the requirement to disclose jurisdictional facts in notices and orders.