GST Proceedings u/s 73 if finalized cannot be reopened u/s 74 except the case of fraud or wilful mis-statement or suppression of facts to evade tax.
In a recent judgment, the Hon’ble Allahabad High Court has held that if the proceedings under Section 73 of the CSGT Act 2017 had been finalized, they cannot be reopened u/s 74 except the case where the Input Tax Credit has wrongly been availed or utilized due to fraud or any wilful mis-statement or suppression of facts to evade tax.
ABCAUS Case Law Citation:
4264 (2024) (09) abcaus.in HC
Important Case Laws relied upon:
Union of India Vs. Hindalco Industries, (2003) 5 SCC 194
Raj Bahadur Narain Singh Sugar Mills Ltd. Vs. Union of India, 1996 (88) E.L.T. 24 (S.C.)
CCE Vs. H.M.M. Limited, 1995 (76) E.L.T. 497 (S.C.)
In the instant case, the Petitioner had filed a writ petition challenging the Show Cause Notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act).
The petitioner was a company and under the erstwhile regime it had centralised Service Tax registration in the State of U.P. and was procuring various input services and had availed CENVAT Credit of the Service Tax and Cess paid thereon in terms of the CENVAT Credit Rules, 2004. Thereafter the Goods and Services Tax (GST) was introduced w.e.f. 01.07.2017 and for the purposes of GST petitioner got itself registered under the new regime.
Since on the appointed date i.e. on 01.07.2017, the petitioner had unutilized CENVAT Credit of Service Tax, Education Cess Secondary & Higher Education Cess and Krishi Kalyan Cess, such said amount was transferred into the GST regime by filing Form GST TRAN-1 in terms of Section 140 of the CGST Act.
The petitioner out of the aforesaid carried forward transitional credit transferred a part of Input Tax Credit under Section 140(8) of the CGST Act to another States and only the net transitional credit remained with the petitioner in State of Uttar Pradesh. The petitioner in the month of March, 2018 also reversed ITC pertaining to carried forward credit of various cess in GSTR-3B return filed for the month of March, 2018.
The Department issued a notice under Section 61 of the UPGST Act in Form GST ASMT-1 alleging discrepancies in the returns filed for the FY 2017-18. Petitioner filed his reply categorically stating that there were no discrepancies and further clarified that the transitional credit had been claimed in accordance with provisions of Section 140(1) and Section 140(9) of the CGST Act and out of such total transitional credit, an amount pertaining to Cess was already reversed.
Thereafter a Show Cause Notice under Section 73 of the CGST Act was issued on the same subject. However, considering the reply submitted by the petitioner and carrying out the verification of the documents and amounts proceedings initiated against the petitioner under Section 73 of the CGST Act were dropped.
The case of the Petitioner was that regarding the same issue of claim of the petitioner for Input Tax Credit earlier proceedings were drawn by issuing a Show Cause Notice under Section 73 of the CGST Act and ultimately the GST authorities on being satisfied with the reply submitted by the petitioner and after verification of the documents and amounts, dropped the proceedings as such now again the same issue cannot be reopened by issuing a Show Cause Notice to the petitioner under Section 74 of the CGST Act.
It was argued that Section 73 and 74 of the CGST Act are independent from each other and they operate in different facts and circumstances. In the case of excessive claimed ITC, the proceedings are to be drawn under Section 73 of the CGST Act and once the said proceedings were concluded, same cannot be reopened. So far as Section 74 of the CGST Act is concerned, proceedings can be drawn under the said section where the adjudicating authority had some evidence and information to make out a reasonable belief that the excessive ITC had been availed by reason of fraud or any wilful misstatement or suppression of facts to evade Tax.
The Hon’ble High Court observed that Section 73 of the CGST Act gives power to the adjudicating authority to initiate proceedings for recovery of wrongly availed or utilized Input Tax Credit along with interest and penalty for any reason other than the reason of fraud or any wilful mis-statement or suppression of facts to evade tax. It is to be taken note of that Section 73 comes into play in all other circumstances except the cases where Input Tax Credit has been wrongly availed or utilized due to fraud or any wilful misstatement or suppression of facts to evade tax. From bare reading of Section 73 of the CGST Act, it becomes crystal clear that if the proceedings under Section 73 of the CSGT Act have been finalized, they cannot be reopened except the case where the Input Tax Credit has wrongly been availed or utilized due to fraud or any wilful mis-statement or suppression of facts to evade tax.
The Hon’ble High Court observed that proceedings initiated against the petitioner for availing or utilizing the excessive ITC had already been finalized and the proceedings were dropped therefore, the said proceedings could have been reopened under Section 74 of the CGST Act only if the adjudicating authority was prima facie satisfied that the petitioner has availed or utilized Input Tax Credit due to any fraud or any wilful mis-statement or suppression of facts to evade tax.
The Hon’ble High Court opined held the field of operation of Section 73 and 74 of the CGST Act is altogether different i.e. Section 73 operates in all other cases of wrongly availed or utilized Input Tax Credit for any reason other than fraud or wilful mis-statement or suppression of facts and Section 74 comes into play when the excessive Input Tax Credit has been availed due to some fraud or wilful mis-statement or suppression of facts. Thus, it is patently manifest that for deriving the jurisdiction to initiate proceedings under Section 74 of the CGST Act, the adjudicating authority must expressly mention in the Show Cause Notice that he is prima-facie satisfied that the person has wrongly availed or utilized Input Tax Credit due to some fraud or a wilful mis-statement or suppression of facts to evade tax and that must be specifically spelled out in the Show Cause Notice. Once the aforesaid basic ingredient of the Show Cause Notice under Section 74 of the CGST Act is missing, the proceedings becomes without jurisdiction as the adjudicating authority derives jurisdiction to proceed under Section 74 of the CGST Act only when the basic ingredients to proceed under Section 74 are present.
The Hon’ble High Court held that the impugned Show Cause Notice did not make even a whisper of the fact that petitioner has wrongly availed or utilized Input Tax Credit due to any fraud, or wilful mis-statement or suppression of facts to evade tax therefore, the proceedings initiated against the petitioner under Section 74 of the CGST Act were without jurisdiction for the lack of basic ingredients required under the said clause.
The Hon’ble High Court further held that the basic ingredients required for initiating proceedings under Section 74 of the CGST Act were not present in the impugned Show Cause Notice. Therefore the entire exercise including the Show Cause Notice was without jurisdiction and thus this writ petition under Article 226 of the Constitution of India was maintainable.
Accordingly, the writ petition was allowed. The Show Cause Notice was quashed leaving it open for GST authorities to initiate fresh proceedings under Section 74 of the CGST Act against the petitioner by issuing a fresh Show Cause Notice containing the basic ingredients regarding fraud or wilful mis-statement or suppression of facts to evade tax, if they so exist.
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