Introduction
The Hon’ble High Court of Allahabad, in HCL Infotech Ltd. v. Commissioner, Commercial Tax[i], examined the validity of a show cause notice (‘SCN’) issued under s. 74 of the Central Goods and Services Tax Act, 2017 (‘CGST’). The Court, while examining the validity of the SCN, addressed the question of jurisdiction and whether the SCN met the necessary requirements to initiate proceedings under s. 74 of the CGST, without specifying fraud, willful misstatement, or suppression of facts.
Facts
On 30.09.2023, the Department issued a SCN to HCL Infotech Ltd. (‘Petitioner’) under s. 73 of the CGST for excessive input tax credit (‘ITC’) claims during the financial year (FY) 2017-18, alleging a demand of Rs. 5,76,12,310/-. The Petitioner submitted a detailed reply, asserting compliance with ss. 140(1) and (9) of the CGST. After verification, the Deputy Commissioner dropped the proceedings on 30.12.2023.
Subsequently, on 03.08.2024, the department issued another SCN to the Petitioner under s. 74 of the CGST on similar grounds, alleging excess ITC availed of Rs. 1,31,56,983/-. The Petitioner challenged this SCN, arguing that it lacked jurisdiction as no fraud, willful misstatement or suppression of facts was alleged.
Held
The High Court quashed the SCN issued under s. 74 of the CGST, ruling that the absence of allegations of fraud, wilful misstatement, or suppression of facts rendered the proceedings under s. 74 of the CGST without jurisdiction.
The High Court observed that s. 73 of the CGST pertains to cases of incorrect ITC availed for reasons other than fraud, willful misstatement, or suppression of facts. Once proceedings under s. 73 of the CGST have been concluded and cannot be reopened except under s. 74 of the CGST, provided fraud, misstatement or suppression is alleged. Therefore, s. 74 of the CGST applies where ITC has been wrongly availed due to fraud, willful misstatement, or suppression of facts, giving the authority an extended limitation period.
The High Court emphasized that for s. 74 of the CGST to apply, there must be a prima facie belief of fraud, misstatement, or suppression, which must be explicitly stated in the SCN.
The High Court relied on Raj Bahadur Narain Singh Sugar Mills Ltd. v. Union of India[ii]* *and CCE v. H.M.M. Limited[iii], reiterating the principle that SCNs invoking extended limitation periods must explicitly mention the grounds justifying such extension.
On the point of maintainability of the writ petition, the High Court held that while ordinarily, writ petitions against SCNs are not maintainable, a challenge based on lack of jurisdiction is an exception. A. 226 of the Constitution permits judicial review in such cases.
Our Analysis
Under the CGST, ss. 73 and 74 delineate procedures for determining tax not paid, short-paid, or ITC wrongly availed or utilized. While these provisions share similarities, they are fundamentally distinguished by the presence or absence of fraudulent intent or willful suppression of facts*.* Practically, while s. 73 of the CGST fosters voluntary disclosure and self-correction by allowing taxpayers to resolve disputes without stringent penalties if errors are unintentional, s. 74 serves as a robust check against willful evasion by imposing stringent penalties on fraudulent behaviour.
Similarly, in the present case, the High Court has differentiated very categorically between the scope of ss. 73 and 74 of the CGST and made clear that s. 73 of the CGST refers to non-fraudulent claims, and s. 74 of the CGST refers to cases where allegations of fraud, misstatement, or suppression are substantiated by prima facie evidence.
The High Court, by quashing the SCN, reiterated that tax authorities cannot bypass procedural safeguards to reopen settled matters and insisted upon compliance with statutory prerequisites and adherence to the principle of natural justice, i.e., the taxpayers must be informed of the specific allegations against them, especially when proceedings carry significant financial and legal implications.
By emphasizing these principles, the High Court has safeguarded taxpayer rights while holding tax authorities accountable to procedural rigour, thus reinforcing the delicate balance between compliance and enforcement in the GST regime.
End Notes
[i] 2024 SCC OnLine All 5769 dated 27.09.2024.
[ii] 1996 (88) E.L.T. 24 (S.C.).
[iii] 1995 (76) E.L.T. 497 (S.C.).
Authored by Maarij Ahmad, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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