Adjudication process

[Sudhir Kumar]

A Show Cause Notice has been issued Under Section 74 of the CGST Act. Can adjudicating authority change it into section 73 on merit of the case while adjudicating the same case?

[KALLESHAMURTHY MURTHY K.N.]

Sri Kasturi Sethi Ji

Thank you very much for concurrence with my views.

[Padmanathan KV]

Dear KALLESHAMURTHY MURTHY Sir,

The "jurisdictional facts" required for both section 73 and 74 are different. Proceedings under section 73 is for determination of tax, interest and penalty in case where no fraud/ suppression/ misstatement/ intention to evade tax is present. It is not an exercise to find incriminating evidence to issue another SCN u/s 74.

The power to find such incriminating evidence is vested under section 65, 67, 70 and so on. After such exercise, if the department issues notice under section 73 demanding tax, interest and penalty thereunder, then in the course of the proceedings they cannot change to section 74.

Further, under the GST regime SCN is closely linked to electronic service of DRC-01 in the portal. Once SCN is issued and DRC-01 is served electronically selecting a particular section 73/74, my understanding is it cannot be Altered/modified in the portal.

[KALLESHAMURTHY MURTHY K.N.]

Dear Padmanathan Ji,

Sir,

I welcome your response to my answer, and thanks for the same.

You are absolutely right that Sec. 73 is for the determination of tax, interest and penalty where there was no fraud, suppression, misstatement or intent of evasion of tax. However, in case at the time of verification, the adjudicating authority finds fraudulent activity, suppression of tax, misstatement or evasion of tax, he may not proceed to issue notice u/s 73, but AA is at liberty to take up the issue to the extent of findings liable to initiate u/s 74. This practice is in vogue in the department.

It is a trite principle of law that when a particular procedure is prescribed to perform a particular act then all other procedures/modes except the one prescribed are excluded. If the AA is of the opinion to pursue the case with the appropriate section, he can proceed to do so with the statutory provisions. I mean, obtaining an assignment from the competent authority to proceed further. Under such circumstances, the question of the exercise of finding the incriminating ingredient won't come in the way.

However, once a penalty is imposed on a particular issue u/s 73, it cannot be imposed under any other sections including Sec. 74.

With regards.

[Pratham Jain]

Are there any case laws where in  a scenario where an initial Show Cause Notice (SCN) was issued under Section 74 of the Goods and Services Tax (GST) law, but subsequently, the case was transferred to Section 73? Because here The Department is now appealing, arguing that the Proper Officer exceeded their authority in transferring the case to Section 73, contending that such a transfer should be done by the appellate authority or court as stipulated in Section 75(2), rather than by the Proper Officer themselves.

[KALLESHAMURTHY MURTHY K.N.]

Dear, all learned professionals, 

I wish to bring here that contrary to my opinion in Sl. No. 16 & 19, it was clarified by the CBIC in Circular No. 185/17/2022-GST dated  27th December 2022, in a different situation that "in sub-section (2) of section 75 of Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”) which provides that in cases where the appellate authority or appellate tribunal or court concludes that the notice issued by proper officer under sub-section (1) of section 74 is not sustainable for reason that the charges of fraud or any willful-misstatement or suppression of facts to evade tax have not been established against the person to whom such notice was issued (hereinafter called as “noticee”), then the proper officer shall determine the tax payable by the noticee, deeming as if the notice was issued under sub-section (1) of section 73".  It was also further clarified for the time limit provided on such occasions. Hope that this will give solvation the the query. 

[KASTURI SETHI]

Sh.Pratham Jain Ji,

It is a purely technical dispute nothing else.

Q. Are there any case laws where in a scenario where an initial Show Cause Notice (SCN) was issued under Section 74 of the Goods and Services Tax (GST) law, but subsequently, the case was transferred to Section 73 ?

Ans. Since GST laws are still in their infancy, clear-cut case law on this issue is not possible. However, you can resort to case laws pertaining to Central Excise laws which will be equally helpful and applicable to the issue in GST regime inasmuch as analogy is the same and rationale behind this is also the same.

If the charge of suppression etc. has been 'forcibly' or wrongly invoked in the SCN for the purpose of extended period, the whole SCN does not become invalid. In other words, the SCN for the normal period also remains valid under Section 74. The extended period is inclusive of normal period also.

In case the extended period in a SCN has been wrongly or forcibly invoked, the SCN issuing authority is the major 'culprit'. and NOT the Adjudicating Authority. Can the adjudicating Authority not provide natural justice/fair justice at the first stage ? Why the Noticee/assessee should suffer without his/her fault ? Why the Noticee/assessee should be forced to get justice from the Appellate Authority ?

You need those case laws wherein strictures have been passed by High Court or Supreme Court against the SCN issuing authority for invoking extended wrongly/illegally.

To be contd.

[KASTURI SETHI]

Sh.Jain Ji,

The Commissioner (Appeals) will give you an opportunity to defend the case by calling for comments on the grounds of appeal taken up by the department. Whenever you get a copy of department's appeal, post the grounds of appeal here, I shall let you know how to counteract them (grounds of appeal). 

AI Summary

Conversion of SCN from Section 74 to Section 73 affects payment option availability and limitation consequences in adjudication.
Conversion of an SCN issued under Section 74 into proceedings under Section 73 may occur via a corrigendum by the issuing officer, by direction to issue a corrigendum before adjudication, or by operation of Section 75(2) following appellate/tribunal/court conclusions; conversion raises contested issues about the admissible scope of an SCN, electronic DRC 01 constraints, the differing jurisdictional facts of Sections 73 and 74, and the impact on limitation periods and the taxpayer's statutory payment option windows.