WFB Baird and Company India Private Limited Vs State Tax Officer (Madras High Court)
The Madras High Court considered writ petitions challenging an assessment order dated 08.12.2023 passed under Section 74 of the applicable GST enactments and an order dated 06.01.2026 rejecting the petitioner’s application under Section 128A.
The petitioner contended that the show cause notice dated 29.09.2023 had been issued under Section 73 and did not contain, either expressly or in substance, the ingredients required for proceedings under Section 74. It was further submitted that while the summary order described the order as one under Section 73, the detailed order referred to Section 74 and imposed a penalty of 100%. According to the petitioner, the rejection of the application under Section 128A followed from the treatment of the assessment as one under Section 74.
The Government Counsel submitted that an application under Section 128A is not maintainable in relation to an order issued under Section 74.
Upon examining the show cause notice, the Court found that it had been issued under Section 73 and dealt with three defects. Defect No. 3 had been dropped entirely, defect No. 2 had been confirmed only to a limited extent, and the principal tax demand related to defect No. 1 concerning reversal of excess input tax credit (ITC). The Court observed that the show cause notice merely compared the ITC claimed in GSTR-3B with the ITC available in GSTR-2A and contained nothing indicating fraud, wilful misstatement, or suppression of facts with intent to evade tax.
The Court also noted that the summary order was expressly described as an order under Section 73. The detailed order referred to the taxpayer’s response regarding defect No. 1 and stated that the burden of proving entitlement to ITC rested on the taxpayer, confirming the tax proposal because the taxpayer had failed to establish the ITC claim. The Court held that the ingredients of Section 74 were neither expressly stated nor implied in the order.
Accordingly, the Court concluded that, in terms of Section 75(2) of the applicable GST enactments, the proceedings ought to have been initiated and concluded under Section 73 rather than Section 74. The assessment order was therefore set aside, and the matter was remanded for issuance of a fresh order under Section 73. As a consequence, the order rejecting the application under Section 128A was also set aside. The Court held that, after issuance of a fresh order under Section 73, it would be open to the petitioner to file a fresh application under Section 128A within the prescribed time limit.
The writ petitions were disposed of on these terms. The connected miscellaneous petitions were closed. No order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
Both order dated 08.12.2023 under Section 74 of applicable GST enactments and order dated 06.01.2026 rejecting the petitioner’s application under Section 128A of applicable GST enactments are challenged in these writ petitions.
2. Adverting to show cause notice dated 29.09.2023, learned counsel for the petitioner submits that said show cause notice was issued under Section 73. He also contends that the ingredients of Section 74 are not contained either expressly or in substance in said show cause notice. Turning to order dated 08.12.2023, learned counsel points out that the summary order records that it is an order under Section 73, whereas the detailed order makes a reference to Section 74 and a penalty of 100% was imposed. As a consequence, he submits that the petitioner’s application under Section 128A was rejected.
3. In response, Mr. R. Sethu Prabakaran, learned Government Counsel submits that an application under Section 128A is not maintainable in relation to an order issued under Section 74.
4. On perusal of the show cause notice dated 29.09.2023, it is evident that said show cause notice was issued under Section 73. The show cause notice deals with three defects. Out of said three defects, defect No. 3 was dropped in entirety and defect No.2 was confirmed with regard to a small demand. The confirmed tax proposal relates largely to defect No.1. In the show cause notice, the tax payer was called upon to show cause as to why the excess ITC should not be reversed. Said show cause notice records the ITC claimed under GSTR 3B by comparing the same with available ITC as per GSTR 2A. Beyond such comparison, there is nothing in the show cause notice that indicates that it appears that there was fraud or a wilful misstatement or even suppression of facts with an intent to evade tax.
5. The summary order is superscribed “order under Section 73”. The detailed order refers to the tax payer’s response to defect No.1. Thereafter, the order records that the burden of proof to establish a claim for ITC lies on the tax payer and that the tax proposal is being confirmed in view of the failure of the taxable person to prove the ITC claim. The ingredients of Section 74 are neither expressly nor impliedly contained in the said order.
6. Therefore, in terms of subsection (2) of Section 75 of applicable GST enactments, I conclude that the proceedings should appropriately have been initiated and concluded under Section 73 and not under Section 74. Consequently, the impugned assessment order is set aside and the matter is remanded for issuance of a fresh order under Section 73 of applicable GST enactments. As a corollary, the order rejecting the application under Section 128A is also set aside. Pursuant to the issuance of a fresh order under Section 73, it will be open to the petitioner to lodge a fresh application under Section 128A within the time limit prescribed in that regard.
7. These writ petitions are disposed of on these terms. Consequently, connected miscellaneous petitions are closed. No costs.
