If a taxpayer based on audit findings, promptly pays the assessed tax amount along with the corresponding interest before receiving a show cause notice, the subsequent initiation of proceedings under Section 74 of the GST Act is not legally valid or sustainable.

Background and Proceedings

The petitioner, a company engaged in the generation of electricity through solar plants, faced a demand of ?.92,160/- (CGST ?.46,080/- + SGST ?.46,080/-) for irregularly availed Input Tax Credit (I.T.C.) on ineligible supplies. Additionally, there was a demand for irregularly availed I.T.C. on common services used for providing taxable services and exempted supplies of ?.2,34,700/-. The period of dispute was from July 2017 to March 2019.

The petitioner, upon the findings of a GST audit, promptly paid the entire additional tax along with interest. Despite this, the 1st respondent issued a show-cause notice under Section 74(1) of the Central Goods and Services Tax Act, 2017 (C.G.S.T. Act), leading to the filing of the Writ Petition.

Legal Arguments

The key contention from the petitioner's side was that the initiation of proceedings under Section 74(1) was legally flawed. The counsel argued that the case falls under the purview of Section 73(5) of the C.G.S.T Act, where the taxpayer had cleared the entire tax liability along with interest upon the audit findings being communicated.

On the other hand, the respondents argued that the petitioner's actions were deliberate and willful, constituting a fraudulent act, justifying the application of Section 74(1). They emphasized the intentional misstatement and suppression of facts on the part of the petitioner.

Court's Analysis

The court meticulously examined the relevant statutory provisions, particularly Section 73 of the C.G.S.T Act. Notably, Section 73(5) provides a window for taxpayers to rectify tax liabilities promptly upon self-assessment or ascertained by the proper officer. If this is done before the show-cause notice, no further penalty or interest is levied.

The court asserted that Section 74 is applicable only if the taxpayer fails to meet the conditions stipulated in Section 73(5). It emphasized that the element of fraud, misstatement, or suppression of facts arises only when the taxpayer does not comply with the provisions of Section 73(5).

Court's Decision

In light of the statutory provisions and the petitioner's compliance with Section 73(5), the court concluded that the initiation of proceedings under Section 74 and the impugned order were beyond the jurisdiction of the respondents. The court set aside and quashed the impugned order dated 15.11.2023.

Additionally, the court addressed the contention regarding the availability of a statutory alternative remedy of appeal. It held that since the show-cause notice itself was legally flawed and a case of excess jurisdiction, the petitioner has the right to seek a Writ remedy without going through the entire process of appeal.

Conclusion

The judgment provides clarity on the interplay between Sections 73 and 74 of the C.G.S.T Act, emphasizing the importance of prompt compliance by taxpayers to avoid additional penalties and interest. It serves as a legal precedent, guiding future cases involving the initiation of proceedings under the GST laws.

Topic-Rays Power Infra Private Limited Versus Superintendent of Central Tax

Citation-2024 TAXONATION 475 (TELANGANA)

Date-28/02/2024