Summary: Under GST law, Sections 73 and 74 of the CGST Act govern proceedings for unpaid or short-paid taxes, erroneous refunds, or wrongful input tax credit (ITC) utilization. Section 73 applies when the issue arises without fraud or wilful misstatement, while Section 74 is invoked in cases involving fraud, wilful misstatement, or suppression of facts. The limitation period for initiating proceedings under Section 73 is three years, whereas for Section 74, it extends to five years from the due date of furnishing the annual return for the relevant financial year. Taxpayers must be vigilant in identifying whether a notice issued under Section 74 is legitimate, specifically requiring evidence of fraud or misstatement. Several court rulings have highlighted the need for explicit allegations in the show-cause notices issued under Section 74. In cases where a notice is issued without proper evidence or reason, it may be considered as lacking jurisdiction. Taxpayers should thoroughly assess the notice to ensure the required criteria under Section 74 are met, especially concerning fraud or misstatement claims.
Under the GST Law there is only two sections 73 and 74 of the CGST Act by which proceedings may be initiated to determine the Tax if the Tax Payer has not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized. The only difference between the two sections in regard to initiating the proceedings is that the proceedings under section 73 shall be initiated for any reason other than fraud or any wilful-misstatement or suppression of facts whereas the proceedings under section 74 shall be initiated by reason of fraud or any wilful-misstatement or suppression of facts. Therefore, the proceedings under section 74 shall not be initiated if there is not the case of fraud or wilful misstatement or suppression of facts.
LIMITATION PERIOD TO PASS THE ORDER UNDER SECTION 73 & 74
for Section 73 – Three years from the due date for furnishing of annual return for the financial year
for Section 74 – Five years from the due date for furnishing of annual return for the financial year
Limitation Period has been exhausted for the financial years 2017-18, 2018-19 and 2019-20 under the section 73 but proceedings for the years 2017-18, 2018-19 and 2019-20 may yet be initiated under section 74.
This Article shall try to discuss on how the notice issued under section 74 can be checked whether it (notice) has been issued within the provisions of section 74 or not.
Some times the matter has been settled and order has been issued under section 73 for the year 2017-18 but the Tax Payer receives the notice under section 74 on the same matter again under section 74 for the year 2017-18 or the Tax Payer receives the notice under section 74 first time.
The Taxpayer should check deeply that –
- There is categorically mentioned some information or evidence in the notice in regard to make out a prima-facie belief that the assessee has wrongly availed or utilized ITC by reason of fraud, or any wilful mis-statement or suppression of facts or
- The notice has been issued on merely belief and without any reason that the assessee has wrongly availed or utilized ITC by reason of fraud, or any wilful mis-statement or suppression of facts. It may be that after reading the notice it seems that the Adjudicating Authority wants to avail the extended period of limitation by issuing the notice under section 74.
In the case of “HCL INFOTECH LTD VERSUS COMMISSIONER, COMMERCIAL TAX AND ANOTHER” the Hon’ble Allahabad High Court observed that
“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 become 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 Supreme Court in the case of Raj Bahadur Narain Singh Sugar Mills Ltd. Vs. Union of India, reported in 1996 (88) E.L.T. 24 (S.C.) has held as follows:
“9. We have set out the relevant parts of the show cause notice. It speaks of an erroneously granted rebate. There is no mention in it of any collusion, wilful mis-statement or suppression of fact by the appellants for the purposes of availing of the larger period of five years for the issuance of a notice under Rule 10. The party to whom a show cause notice under Rule 10 is issued must be made aware that the allegation against him is of collusion or wilful misstatement or suppression of fact. This is a requirement of natural justice.”
The Hon’ble Supreme Court in the case of CCE Vs. H.M.M. Limited, reported in 1995 (76) E.L.T. 497 (S.C.) has held as follows:
“2. The assessee contended before the Additional Collector of Central Excise that the show cause notice was time barred under the main part of Section 11A since it was issued after the expiry of the period of six months stipulated therein but the Additional Collector sustained the notice on the ground that it was within five years impliedly holding that the purported action was under the proviso to Section 11A of the Act. There is no dispute that the show cause notice cannot be sustained under subsection (1) of Section 11A unless the proviso is attracted. Admittedly, it is beyond the period of limitation of six months prescribed under Section 11A (1) but it is within the extended period of 5 years under the proviso to that sub-section. Now in order to attract the proviso it must be shown that the excise duty escaped payment by reason of fraud, collusion or wilful misstatement or suppression of fact or contravention of any provision of the Act or of the Rules made thereunder with intent to evade payment of duty. In that case the period of six months would stand extended to 5 years are provided by the said proviso. Therefore, in order to attract the proviso to Section 11A (1) it must be alleged in the show cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or wilful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show cause notice. There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been noticed or that the assessee was a guilty or wilful misstatement or suppression of fact. In the absence of such averments in the show cause notice it is difficult to understand how the Revenue could sustain the notice under the proviso to Section 11A(1) of the Act. The Additional Collector while conceding that the notice had been issued after the period of six months prescribed in Section 11A(1) of the Act had proceeded to observe that there was wilful action of withholding of vital information apparently for evasion of excise duty due on this waste/by-product but counsel for the assessee contended that in the absence of any such allegation in the show cause notice the assessee was not put to notice regarding the specific allegation under the proviso to that subsection. The mere non-declaration of the waste/byproduct in their classification list cannot establish any wilful withholding of vital information for the purpose of evasion of excise duty due on the said product. There could be, counsel contended, bona fide belief on the part of the assessee that the said waste or by-product did not attract excise duty and hence it may not have been included in their classification list. But that per se cannot go to prove that there was the intention to evade payment of duty or that the assessee was guilty of fraud, collusion, misconduct or suppression to attract the proviso to Section 11A(1) of the Act. There is considerable force in this contention. If the Department proposes to invoke the proviso to Section 11A(1), the show cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The de- faults enumerated in the proviso to the said sub-section are more than one and if the excise department places reliance on the proviso it must be specifically stated in the show cause notice which is the allegation against the assessee falling within the four comers of the said proviso. In the instant case that having not been specifically stated the Additional Collector was not justified in inferring (merely because the assessee had failed to make a declaration in regard to waste or by- product) an intention to evade the payment of duty. The Additional Collector did not specifically deal with this contention of the assessee but merely drew the inference that since the classification list did not make any mention in regard to this waste product it could be inferred that the assessee had apparently tried to evade the payment of excise duty.”
Conclusion
If the Notice issued under section 74 is in a casual manner and without giving the specific reason of fraud or any wilful-misstatement or suppression of facts then this Notice should be treated as issued without jurisdiction. But the Taxpayer knows himself better than the contents of the notice whether he has done any mischief or not.
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