GST show cause notice fails where TCS, input tax credit reversal, and extended demand conditions are not properly established.

Section 52 TCS could not be invoked where the e-commerce operator did not collect consideration for the underlying supplies, so the notice lacked jurisdiction on that basis. Section 17(2) could not sustain a reversal demand because the notice did not establish exempt supplies or any factual mixed use of inputs for taxable and exempt supplies, so that demand was unsustainable. Section 74(1) also could not be triggered without foundational averments of fraud, wilful misstatement, or suppression of facts with intent to evade tax, and a bona fide interpretative dispute was insufficient. The impugned show cause notice and consequential proceedings were therefore set aside.

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Issues: (i) Whether the show cause notice invoking Section 52 of the Central Goods and Services Tax Act, 2017 on the premise that the petitioner, as an e-commerce operator, was bound to collect tax at source despite not collecting consideration for the underlying supplies, was liable to be quashed; (ii) Whether the show cause notice invoking Section 17(2) of the Central Goods and Services Tax Act, 2017 on the premise that the petitioner was effecting exempt or free supplies and was therefore required to reverse input tax credit was liable to be quashed; (iii) Whether Section 74(1) of the Central Goods and Services Tax Act, 2017 could validly be invoked in the absence of the statutory ingredients of fraud, wilful misstatement or suppression of facts with intent to evade tax.

Issue (i): Whether the show cause notice invoking Section 52 of the Central Goods and Services Tax Act, 2017 on the premise that the petitioner, as an e-commerce operator, was bound to collect tax at source despite not collecting consideration for the underlying supplies, was liable to be quashed?

Analysis: Section 52 applies only where the e-commerce operator collects the consideration for the taxable supplies made through it. The notice proceeded on the assumption that the petitioner was required to collect tax at source although the petitioner did not receive or collect the relevant consideration and the supplies were made by independent registered suppliers. The material also showed that the logistics and payment-related services were undertaken by a separate juristic entity and could not be treated as the petitioner's own supplies. The circular relied on also supported the view that TCS compliance under Section 52 arises where the operator collects the consideration.

Conclusion: The invocation of Section 52 was held to be without jurisdiction and the notice was quashed on this ground in favour of the petitioner.

Issue (ii): Whether the show cause notice invoking Section 17(2) of the Central Goods and Services Tax Act, 2017 on the premise that the petitioner was effecting exempt or free supplies and was therefore required to reverse input tax credit was liable to be quashed?

Analysis: Section 17(2) applies only when a registered person uses goods or services partly for taxable supplies and partly for exempt supplies, with exempt supply understood as a supply attracting nil rate or full exemption and including non-taxable supply. The notice did not establish the existence of exempt supplies or any factual basis showing that the petitioner was engaged in such mixed use. The promotional activities of the petitioner were directed to its own business platform and were not shown to be free supplies in the statutory sense. In the absence of allegations and material satisfying the statutory conditions, the credit-reversal demand could not be sustained.

Conclusion: The invocation of Section 17(2) was held to be unsustainable and the notice was quashed in favour of the petitioner.

Issue (iii): Whether Section 74(1) of the Central Goods and Services Tax Act, 2017 could validly be invoked in the absence of the statutory ingredients of fraud, wilful misstatement or suppression of facts with intent to evade tax?

Analysis: Section 74 is attracted only when non-payment or short payment of tax is by reason of fraud, wilful misstatement or suppression of facts with intent to evade tax. The notice did not contain the necessary foundational averments establishing those jurisdictional facts, and the alleged non-compliance was at best a dispute on legal interpretation and taxability. Where the relevant facts were already within the department's knowledge and the issue involved a bona fide interpretative dispute, the extended machinery under Section 74 could not be triggered. The notice therefore suffered from absence of jurisdictional facts and violated the statutory threshold for action under Section 74.

Conclusion: The invocation of Section 74(1) was held to be illegal and the notice was quashed in favour of the petitioner.

Final Conclusion: The impugned show cause notice and consequential proceedings were set aside because the statutory prerequisites for the proposed demands were not satisfied.

Ratio Decidendi: A show cause notice under the GST law is liable to be struck down when the jurisdictional facts necessary for invoking the charging or extended-demand provisions are absent on the face of the notice, particularly where the alleged liability depends on a demonstrably inapplicable statutory condition or on a mere interpretative dispute without the ingredients of fraud or wilful suppression.

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