The Hon’ble Telangana High Court, in the matter of Deem Distributors Private Ltd. Vs Union of India [judgement dated 03.08.2021 in Writ Petition No. 7063 of 2021], restrained the GST Department to collect any Tax/Interest/Penalty without issuance of notice under section 74(1) of the Goods and Service Tax Act, 2017 (Act).
The Petitioner contended that liability cannot be determined by department before conducting enquiry when even the investigation is incomplete. The Department submitted that petitioner was advised, before issue of show cause notice, based on the intelligence received from the other Commissionerates to pay the amount of tax along with applicable interest and penalty under Section 74(5) of the Act.
The Hon’ble Telangana High Court took heed of and consider all the facts and evidences at their perusal and opined that section 74 of the Act deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful-misstatement or suppression of facts. It states:
“74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful-misstatement or suppression of facts:- (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under Section 50 and a penalty equivalent to tax specified in the notice.
(2) The proper officer shall issue the notice under sub-section (1) at least 6 months prior to the time limit specified in sub-Section (10) for issuance of order.
(3) Where a notice has been issued for any period under sub-Section (1), the proper Officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under sub- Section (1), on the person chargeable with tax.
(4) The service of statement under sub-Section (3) shall be deemed to be service of notice under sub-Section (1) of Section 73, subject to the condition that the grounds relied upon in the said statement, except the ground or fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under sub-Section (1) or the same as are mentioned in earlier notice.
(5) The persons chargeable tax may, before service of notice under sub- Section (1), pay the amount of tax along with interest payable under Section 50 and a penalty equivalent to 15 per cent of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper office and inform the proper officer in writing of such payment.
(6) The proper officer, on receipt of such information, shall not serve any notice under sub-Section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the Rules made thereunder.
(7) Where the proper officer is of the opinion that the amount paid under sub-Section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-Section (1) in respect of such amount which falls short of the amount actually payable.
(8) Where any person chargeable tax under sub-Section (1) pays the said tax along with interest payable under Section 50 and a penalty equivalent to 25 per cent of such tax within 30 days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.
(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.
(10) The proper office shall issue the order under Section 9 within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within 5 years from the date of erroneous refund.
(11) Where any person served with an order issued under sub-Section (9) pays the tax along with interest payable thereon under Section 50 and a penalty equivalent to 50 per cent of such tax within 30 days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded. ….”
A reading of the above provision indicates that a notice in sub- Section (1) of Section 74 of the Act may be issued by the proper officer if he is of the opinion that the input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful misstatement or suppression of facts, to the person who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under Section 50 and a penalty equivalent to the tax specified in the notice.
Sub-Section (5) of Section 74 of the Act, however, enables the person chargeable with tax to, before service of notice under sub-Section (1) of Section 74, pay the tax along with interest payable under Section 50 and a penalty of 15% of such tax on the basis of his own ascertainment of such tax or the tax ascertained by the proper officer and inform the proper officer in writing of such payment.
Sub-Section (9) of Section 74 of the Act enables the proper officer to determine the amount of tax, interest and penalty due from such person and issue an order, if the contents of the notice are disputed.
The Hon’ble Telangana High Court observed that sub-Section (5) of Section 74 of the Act gives a choice to the tax payer to make any payment, if he is so chooses, but it does not confer any power on the proper officer to make a demand as if there has been a determination of liability of the assessee and demand tax along with interest and penalty.
The Hon’ble Telangana High Court also observed that no tax demand can be issued or raised when investigation is still in progress. It is however made clear that department can proceed with the investigation as well as enquiry under the provisions of the Act against the petitioner and act strictly in accordance with the Act.
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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.
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