Reassessment of ITC Already Adjudicated Under Section 74 Impermissible, Fresh Demand Under Section 73 Quashed by Calcutta High Court
Introduction:
In a significant ruling, the Calcutta High Court, in the case of SAYAN BISWAS v. DEPUTY COMMISSIONER OF REVENUE & ORS. Vide WPA 4237 of 2025 dated 21.07.2025, has held that once a proceeding under Section 74 of the CGST/WBGST Act has been concluded, the department cannot initiate another proceeding for the same cause of action under Section 73. The court emphasized that Section 73 and Section 74 are mutually exclusive, and a penalty element once invoked under Section 74 cannot be re-assessed under Section 73. This judgment, delivered on July 21, 2025, addresses the issue of duplicity of proceedings for the same period after an adjudication has already taken place.
Background of the Case:
The petitioner, a business engaged in the retail of ferrous waste and scrap, was initially issued a show cause notice under Section 74 for the tax period of April 2019 to March 2020. This notice, dated April 29, 2022, alleged fraud, willful misstatement, or suppression of facts. Following voluntary payments by the petitioner, an order was passed under Section 74 on October 20, 2022, which determined the differential tax, interest, and penalty. An appeal against this order was filed under Section 107 and was subsequently dismissed on December 27, 2023. The petitioner did not challenge this order further, citing the non-constitution of the Appellate Tribunal.
Subsequently, a second show cause notice was issued on May 13, 2024, this time under Section 73, for the very same tax period. This second notice raised three key issues: ITC availed on inward B2B supply, short payment of output tax, and a demand under the reverse charge mechanism (RCM).
Issues Before the High Court:
The petitioner challenged the second notice and the subsequent order under Section 73, arguing that:
- The proceedings were a duplication, as a prior adjudication for the same period had already been concluded under Section 74.
- The new proceedings improperly included an ITC claim that had already been adjudicated under Section 74.
- The RCM-related demand was vague.
The Court’s Findings:
The Calcutta High Court made several key observations in its judgment:
- On the Mutual Exclusivity of Section 73 and 74: The court clarified that while Sections 73 and 74 are distinct and operate on different grounds—Section 73 for cases without fraud or suppression and Section 74 for cases with it—they are mutually exclusive for the same cause of action. Therefore, a fresh notice under Section 73 for the same cause of action that was already adjudicated under Section 74 is impermissible.
- On the Vagueness of the Notice: The court rejected the petitioner’s argument of vagueness regarding the RCM demand. It noted that the show cause notice referred to relevant tables in GSTR-1, including details of RCM and HSN codes. The court also highlighted that the petitioner had not challenged the notice earlier or appeared for a hearing, and had only filed a mechanical reply. Consequently, no procedural infirmity or vagueness was found in this part of the notice.
- On the Re-adjudication of ITC: The court held that the inclusion of the ITC on B2B supplies, which had already been adjudicated in the Section 74 proceedings, in the new Section 73 notice was impermissible. It stated that even if the petitioner had not provided sufficient documentation during the first proceeding, the tax authority could not reopen an issue that had already been decided and not appealed further.
Conclusion and Direction:
Based on these findings, the Calcutta High Court allowed the writ petition. The court quashed the demand related to the ITC claims that were already adjudicated under the Section 74 proceedings. The corresponding DRC-07 demand was also set aside. The court directed the respondent authorities to issue a fresh DRC-07 that excludes the quashed demand. The judgment specifies that the matter is now considered finally adjudicated, and no further statutory remedy is available concerning the new demand issued in compliance with this order.
Key Takeaways from the Judgement:
- Duplicity of Proceedings is Impermissible: Once an issue has been adjudicated under Section 74, the tax authorities cannot initiate a new proceeding for the same cause of action under Section 73.
- Sections 73 and 74 are Mutually Exclusive: These sections operate on distinct grounds. The department must choose the correct section based on the presence or absence of fraud, willful misstatement, or suppression of facts.
- Finality of Adjudication: An issue that has been decided in a concluded proceeding, and not challenged further, cannot be reopened by the tax authorities in a subsequent proceeding.
- Importance of a Proper Reply to SCN: The court’s rejection of the “vagueness” argument highlights the importance of a detailed and timely response to a show cause notice. A “mechanical reply” can weaken the petitioner’s case.
This judgment provides clarity and protection against repetitive and harassing legal proceedings for taxpayers, reinforcing the principle of finality in legal matters under GST.
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