A mere bland statement is not sufficient, charge of Fraud must be proven for invocation of Extended period of Limitation- Supreme court of India.
Summary: The Supreme Court, in M/s Tata Steel Limited vs Union of India through the Secretary, Ministry of Finance and Ors., considered a Show Cause Notice issued under Section 74 of the CGST Act, 2017 for FYs 2018-2019 to 2020-2021 following audit objections concerning mismatch of input tax credit and short payment of tax. The supplied material states that the matter was initially placed in the ‘call book’ and subsequently revived through a protective demand as the limitation period was approaching. The Court observed that proceedings under Section 73 or Section 74 can be initiated only upon the satisfaction of the Assessing Officer and that, for Section 74, satisfaction must extend beyond the alleged mismatch or short payment to fraud, wilful misrepresentation or suppression having led to the default. The Court held that a bland statement of suppression, without foundational facts validating the allegation, was insufficient to sustain the notice under Section 74 and concluded that the Show Cause Notice and consequential Order-in-Original could not be sustained and were set aside.
Background
On the basis of objection raised on an audit by the office of the Comptroller and Auditor General of India, Show Cause Notice (SCN) issued for three financial years, viz: 2018-2019 to 2020-2021 was issued to the petitioner, under Section 74 of the Central Goods and Services Tax Act, 2017 (the CGST Act). Further As there is no allegation of fraud, willful misstatement or suppression of facts, bereft of which there can be no invocation of Section 74. A notice was issued because the limitation period was coming to a close, purportedly as a protective measure.
Court observation
The proceedings which led to the SCN issued with respect to audit observations regarding mismatch of input tax credit (ITC) for the three financial years and for the short payment of tax for the financial year 2019-2020, For which Replies were submitted. the Additional Commissioner intimated to court that the SCN has been transferred to ‘call book’ meaning thereby ‘kept in abeyance’. Later, a fresh notice was issued reviving the earlier notice and proposing a protective demand since the proceedings are time bound under the GST law, there being no such measure of protective assessment statutorily permitted under the GST Act.
Requirement of Satisfaction for Invoking Section 73/74
Court highlighted that, the proceedings under Section 73/74 can be initiated only on the satisfaction of the Assessing Officer. Even if observations/objections are made on audit, the Assessing Officer should enter his satisfaction before a notice is issued. Insofar as a notice under Section 74, the satisfaction should be not only of mismatch of ITC and short payment of tax having occurred, as is alleged in this case, the Officer should be satisfied that either fraud/willful misrepresentation/suppression had led to such mismatch or short payment of tax.
Suppression Allegation Must Have Foundational Facts
A bland statement of availing of ITC for the three years ‘without documentary evidence and suppress the facts’ (sic), the SCN did not contain any foundational facts to validate such allegation of suppression.
Court conclusion.
The bland statement made at some places of suppression of facts, merely to avail the extended period of limitation would barely suffice and puts to peril the notice under Section 74. The SCN on the above reasoning, cannot be sustained and the consequential Order-in-Original too is put in peril and both are set aside.
