Initiation under Section 73 beyond jurisdiction; GST, interest and penalty cannot be levied retroactively for pre-GST work

HC held the initiation of proceedings under Section 73 was beyond jurisdiction and quashed the impugned orders, allowing the petition. The court found original records showed the petitioner had been awarded a work contract by a state utility for the relevant years and that GST authorities could not retroactively levy GST, interest or penalty on work performed prior to the GST regime merely because payments were recorded post-GST or because of a mismatch between GSTR-3B and Form 26AS. The matter should have been referred to the pre-GST assessing authority.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the assessing authority under the GST Act had jurisdiction to initiate proceedings under Section 73 of the Act in respect of amounts paid after implementation of GST for works performed during the VAT regime (pre-GST period).

2. Whether a mismatch between figures in GSTR-3B and amounts reflected in Form 26AS, without further inquiry or verification, justifies levy of tax, interest and penalty under Section 73 of the Act.

3. Whether the GST authorities were obliged to consult or inform the competent VAT-era assessing authority (the authority under the earlier indirect tax regime) before treating post-payment receipts for pre-GST supplies as taxable supplies under the GST Act.

4. Whether the petitioner discharged the evidentiary burden to show that the payments reflected in Form 26AS related to work performed and taxable under the VAT regime and therefore outside the jurisdiction of the GST regime.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Jurisdiction of GST authority to tax payments received after GST implementation for supplies rendered in the VAT period

Legal framework: Section 73 of the GST Act permits recovery of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed and utilized. Jurisdiction to assess tax presupposes that the supply falls within the taxable period and regime under which proceedings are initiated.

Precedent Treatment: The Court reviewed no prior binding authorities in the record that confer retrospective jurisdiction on GST authorities to tax supplies that were performed pre-GST but paid post-GST; no precedent was relied upon or distinguished in the judgement.

Interpretation and reasoning: The Court examined original records (work orders and contract documents) showing that the contractual work was awarded and performed during the VAT era (A.Y. 2015-16 and 2016-17). The Court reasoned that mere post-implementation receipt of payment does not convert a pre-GST supply into a GST-period taxable supply. The GST authority therefore exceeded jurisdiction by treating such receipts as taxable under Section 73 without establishing that the supply was made under the GST regime.

Ratio vs. Obiter: Ratio - The GST authority lacks jurisdiction to levy GST, interest and penalty under Section 73 in respect of work performed during the VAT regime merely because payment was made after GST implementation. Obiter - Observations on administrative practice of reference to VAT authorities are persuasive but ancillary to the core jurisdictional holding.

Conclusions: The Court concluded the GST proceedings were beyond jurisdiction insofar as they sought to tax payments attributable to supplies made during the VAT era; those proceedings were quashed.

Issue 2 - Sufficiency of mismatch between GSTR-3B and Form 26AS to sustain proceedings under Section 73

Legal framework: The GST Act requires establishment of taxable liability; mismatch between returns and third-party information can call for inquiry, but principles of natural justice and burden of proof require that the taxpayer be given opportunity to explain and that authorities make reasonable inquiries.

Precedent Treatment: No precedent was cited or applied by the Court from the decision text; the Court applied statutory and evidentiary principles to the facts.

Interpretation and reasoning: The Court found that the proceedings were initiated solely on the basis of an alleged mismatch between GSTR-3B and Form 26AS. The petitioner presented documentary evidence (work orders and a certificate from the paying authority) showing the contracts and period of performance. The Court observed that the authority did not make adequate inquiry (including into the paying authority's records) and did not consider the material before issuing an ex parte order. The Court emphasized the duty of the taxing authority to verify the nature and timing of supplies rather than mechanically acting on third-party information.

Ratio vs. Obiter: Ratio - A mere mismatch between GSTR-3B and Form 26AS, without proper verification and consideration of documentary evidence showing the payments relate to pre-GST supplies, is insufficient to sustain tax, interest and penalty under Section 73. Obiter - Remarks on administrative tabs or modes of service (e.g., upload to an 'additional notice and order' tab) are descriptive of the facts but not essential to the legal holding.

Conclusions: The Court held the mismatch alone did not justify the impugned levy when original records showed the amounts related to the VAT period and when the authority failed to undertake proper inquiry.

Issue 3 - Obligation to refer matters to the competent authority under the earlier regime (VAT) before initiating GST proceedings

Legal framework: Taxing authorities must act within their statutory competence; when a liability arguably arises under a prior tax regime, procedural fairness and institutional competence dictate that the competent authority of that regime be engaged.

Precedent Treatment: The decision did not cite or rely on prior cases; the Court applied principle of institutional competence and practical administration of indirect tax regimes.

Interpretation and reasoning: The Court reasoned that when evidence suggests the payments relate to the VAT period, the GST authority ought to have informed or sought inquiry from the assessing authority under the VAT regime rather than assume jurisdiction. The Court noted absence of any statutory provision under the GST Act or Rules authorizing the GST authority to assume jurisdiction to tax amounts received for supplies made prior to GST implementation.

Ratio vs. Obiter: Ratio - Where payments undoubtedly pertain to pre-GST supplies, the GST authority should not proceed to levy GST but should refer or permit the competent authority under the earlier regime to examine the matter; proceeding directly under GST in such circumstances is an excess of jurisdiction. Obiter - Specific procedural mechanisms for such referral were not ruled upon as mandatory steps in every case.

Conclusions: The Court concluded that the GST authority ought not to have initiated Section 73 proceedings without involving the appropriate VAT-era authority, and its failure to do so amounted to jurisdictional excess.

Issue 4 - Burden of proof and adequacy of taxpayer's evidence that payments related to the VAT period

Legal framework: The taxpayer bears the onus of proving entitlements and exclusions claimed; however, once prima facie documentary evidence is placed on record showing pre-GST performance, authorities must consider it and make reasonable inquiries before adverse action.

Precedent Treatment: No binding precedents were cited; the Court applied general evidentiary principles.

Interpretation and reasoning: The petitioner produced original records and a certificate from the paying authority indicating that the work and entitlement related to A.Y. 2015-16 and 2016-17. The Court accepted these documents as material evidence showing the payments related to the VAT period and found that the authorities failed to give due weight to such evidence or to inspect the paying authority's records before issuing adverse orders.

Ratio vs. Obiter: Ratio - Documentary proof that establishes performance and entitlement in the pre-GST period must be considered and, if credible, precludes a GST authority from treating post-implementation receipts as taxable under GST without further inquiry. Obiter - The Court's remarks on the sufficiency of particular certificates are fact-specific.

Conclusions: The Court concluded that the petitioner discharged the evidentiary burden sufficiently to defeat the GST authority's summary treatment based on mismatch alone, and therefore the impugned orders could not stand.

Remedial and ancillary conclusions

The Court held the impugned orders under Section 73 and the appellate dismissal were quashed as an excess of jurisdiction. Any amounts deposited by the petitioner are to be refunded with interest from date of deposit to actual payment, subject to production of a certified copy of the order, within a specified period. These remedies flow directly from the jurisdictional and evidentiary conclusions and form part of the operative relief (ratio).

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