2025 (12) TMI 1442 - HC - GST

Voluntary payment of short-paid GST and ITC claim challenge; Section 74 fraud allegation rejected, notice quashed

Section 74 of the CGST Act can be invoked only where non-payment/short payment or wrongful ITC is attributable to fraud, wilful misstatement, or ... Issuance of show cause notice u/s 74 of the GST Act, 2017 - fraud, wilful misstatement or suppression of materials facts or not. Whether the issuance of the impugned show cause notice dated 07.04.2022, have fulfilled the ingredients of Section 74 of the Act? - HELD THAT:- Section 74 would apply only in the event of payment of tax, which is not paid or short paid or erroneously refunded or ITC wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts. When such being the case, the Authorities are supposed to have traced out as to whether there is any evasion of tax in the course of payment of tax dues, the intention of fraud or provision of wilful misstatement or suppression of facts. If the aspects of fraud, misstatement or suppression of facts were not established while issuing the show cause notice, the same would be considered as issued without fulfilling the ingredients of Section 74 of the Act and such notice is liable to be set aside as the same was issued without jurisdiction. Whether there is any fraud, wilful misstatement or suppression of materials facts involved in the petitioner's case, so as to attract the provisions of Section 74 of the Act? - HELD THAT:- A perusal of Section 39 would makes it clear that an assessee can be permitted to rectify the returns in the events other than scrutiny, audit, inspection or enforcement activity by the tax authorities and avail ITC. According to the respondents, the petitioner made payment of tax dues on 21.02.2019, which is subsequent to the enforcement activity, i.e., DGGI investigation dated 21.01.2019 and thus, it would clearly attract the provisions of Section 74 of the Act and disentitle the petitioner to avail ITC. However, upon perusal of records, it is clear that the petitioner's inclination to make the payment of tax dues was communicated to the respondents as early as on 07.01.2019, which is much prior to the date of DGGI investigation. When such being the case, no criminal motive, viz., fraud, wilful misstatement or suppression of material facts, can be attributed against the petitioner, since the petitioner had voluntarily disclosed the short payment vide the aforesaid communication. No ingredients of Section 74 of the Act was satisfied while issuing the impugned show cause notice, and hence, the question of application of Section 39(9), so as to deprive the petitioner from availing ITC, would not at all arise. The said provision would attract only in the event, if the enforcement action was initiated, much prior to the intimation of the petitioner to pay the short payment of tax. As far as the contention made by the respondents on the aspect of filing reply to the show cause notice is concerned, the challenge before this Court is only with regard to the failure on the part of the respondents in fulfilling the minimum requirement of the ingredients of Section 74 of the Act. As discussed above, no criminal motive can be attributed against the petitioner. However, without considering the said aspect, and without fulfilling the ingredients of Section 74 of the Act, the respondents had blind foldedly issued the impugned show cause notice under Section 74 of the Act. The impugned SCN issued by the 1st respondent is hereby quashed - Petition allowed. Issues: Whether the impugned show cause notice dated 07.04.2022 issued under Section 74 of the Goods and Services Tax Act, 2017 satisfied the statutory ingredients of Section 74 (i.e., that tax shortfall or wrongly availed input tax credit arose by reason of fraud, wilful misstatement or suppression of facts) and whether Section 39(9) barred rectification or payment in the circumstances of this case.Analysis: The record shows that the petitioner communicated its intention to treat the supply as a composite supply and to pay the additional tax and interest by communication dated 07.01.2019 and remitted the tax arrears with interest on 21.02.2019. The DGGI investigation occurred on 21.01.2019. The material does not establish that the short payment resulted from fraud, wilful misstatement or suppression of facts; rather, it arose from an industry-wide confusion about taxability and rates, and the petitioner made a voluntary disclosure and subsequent payment. Section 74 applies only where tax shortfall or wrongly availed ITC is by reason of fraud, wilful misstatement or suppression of facts. Section 39(9) permits rectification of returns except where omission arises from scrutiny, audit, inspection or enforcement activity; however, where a taxpayer had communicated intention to pay prior to enforcement activity, invocation of Section 39(9) to deny rectification and ITC is not warranted. At the time of issuance of the show cause notice there was no outstanding tax liability because the arrears and interest had been paid.Conclusion: The impugned show cause notice dated 07.04.2022 under Section 74 of the Goods and Services Tax Act, 2017 was issued without fulfilling the statutory ingredients of Section 74 and is quashed; the decision is in favour of the assessee.