rcm for fy 2020-21

[giri gattupalli]

respected sir,

notice under sec-74 is issued for a taxable person for FY 2019-20 based on audited P&I submitted along with FORM 9C, for payment of RCM in respect of expenditure incurred for transport charges, found in profit & loss account .it seems that , as the limitation period lapsed for issuing notice under sec-73, authorities opted for alternative route of issuing notice under sec-74.

whether notice under sec 74 is valid for non-payment of RCM? .please discuss sir

[VENU K]

To issue a notice under Sec 74 the department has to establish Tax evasion through Fraud, willful misstatement or suppression of facts. Tax evasion should necessarily establish some gain to the tax payer. Not collecting taxes  or not paying taxes under a genuine belief of non applicability of taxes is not evasion

Here there is no gain accruing to tax payer as RCM is any way available as input

No suppression or misrepresentation can be alleged as the fact is properly recorded in books of accounts and is part of the audited statement filed with annual return.

So in my opinion this is a dues which can be recovered only under Sec 73. If the department takes its own sweet time to investigate and due to such delay if the revenue losses its right to recover taxes it is not the fault of the taxable person.

You can very well object to the notice by questioning the jurisdiction in my opinion.

[KASTURI SETHI]

(i) Balance sheet and Profit and Loss statement are statutory documents ---held by CESTAT Hyderabad reported as 2020 (1) TMI 187 - CESTAT HYDERABAD) and upheld by Hon'ble Supreme Court reported as 2023 (1) TMI 995 - SUPREME COURT

So in such a situation, if the transactions are genuine, Section 74 cannot be invoked.

(ii) There is a plethora of judgements wherein it has been held that the burden of proof is cast upon the department for invocation of Section 74. The department has to establish that the noticee has suppressed the facts etc. with an intent to evade payment of tax. By mere mention of "the suppression of facts etc. with an intent to evade tax are present" will not suffice.

(iii) Section 74can be invoked even for non-payment of tax under RCM. Non-payment of tax under RCM has so many repercussions. There are case laws to this effect. One case law is reported In the High Court of Gujarat at Ahemdabad in the case of Anjani Cotton Industries Vs. Principal Commissioner of CGST - 2024 (6) TMI 479 - GUJARAT HIGH COURT in R/Special Civil Application No. 17915 of 2023, decided on 3-5-2024 in favour of the department

Thus the applicability or non-applicability of Section 74 for non-payment of tax under RCM depends upon the facts and circumstances of each case.

[Sadanand Bulbule]

Dear querist

Section 74 is a back door entry to initiate adjudication of time barred cases despite conspicuous absence of essential ingredients mandated under Section 74[1]. Some authorities are not at all aware of the existence of Section 73. It is sheer abuse of power and higher authorities foster such ill-legal actions.

Under such situations, it is like witnessing the climax in the first scene itself. Then how can such proceedings under Section 74 stand the test of law/facts in the court of law? Courts would decide it on merits and till then taxpayers have to tolerate the torture of litigation furnace.

[Sadanand Bulbule]

Dear all

I wish to add here that, the GST Act per se provides for "engineering" of adjudication under Section 73 and 74. Both these sections order explicit designs strengthened to withstand the highest winds of of legal tests. So the authorities are to be wise and prudent in view of the great settled judicial rulings orbiting credible adjudications. Otherwise it is like building the Eiffel Tower on sand!

[Sadanand Bulbule]

Dear all

Time and again I am coming across such baseless adjudications under Section 74 for fragile information. Be lt may like that.

Mere revenue is never the goal of the GST Act. The whole point of adjudication is to enhance the credibility of determination of tax demand by not destroying the value what would be the most valuable original feature of true adjudication. Contrast to this, the catastrophic result would be as apparent as like appointing a genius space scientist to be the manager of an ordinary circus company! Or it is like an ambulance with iron wheels placed on roads. In reality simple solution is, it is thousand times better to have no such adjudications at all.

May I request the POs to think twice and act diligently without regretting later? Choice is yours.

[Shilpi Jain]

In case you are eligible for the RCM ITC then its a good case to fight on limitation.

[KASTURI SETHI]

Sh.Sadanand Bulbule  Ji,

Sir, Similes used by you make the message crystal clear. Your all replies echo my thoughts here.   

[Sadanand Bulbule]

Dear Sir

Thanks for your inspirational and organic expressions.

AI Summary

Section 74 invocation for reverse charge non-payment requires proof of fraud or suppression, not mere non-payment. Invocation of Section 74 for non-payment under the reverse charge mechanism requires proof of tax evasion by fraud, wilful misstatement or suppression and a gain to the taxpayer; where the transactions are recorded in audited accounts and filed returns, such facts undermine Section 74 and ordinarily point to recovery under Section 73. Applicability of Section 74 for RCM non-payment remains fact-sensitive and depends on the department meeting its burden to establish intent to evade.