The Allahabad High Court has held that proceedings u/s 74 of CGST Act cannot be initiated when show cause notice lacks tax evasion allegation.
The bench of Justice Shekhar B. Saraf and Justice Manjive Shukla has observed that the Show Cause Notice does not make even a whisper of the fact that petitioner has wrongly availed or utilized Input Tax Credit due to any fraud, or wilful mis-statement or suppression of facts to evade tax therefore, the proceedings initiated against the petitioner under Section 74 of the CGST Act are without jurisdiction.
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Background
The petitioner/assessee is a public limited company and under the erstwhile regime it had centralised Service Tax registration in the State of U.P. and was procuring various input services to supply the IT services and had availed CENVAT Credit of the Service Tax and Cess paid thereon in terms of the CENVAT Credit Rules, 2004.
The Goods and Services Tax (GST) was introduced w.e.f. 01.07.2017 and for the purposes of GST petitioner got itself registered under the new regime. Since on the appointed date, the petitioner had unutilized CENVAT Credit of Service Tax, Education Cess Secondary & Higher Education Cess and Krishi Kalyan Cess as the amount was transferred into the GST regime by filing Form GST TRAN-1 in terms of Section 140 of the CGST Act.
The petitioner carried forward transitional credit transferred the Input Tax Credit under Section 140(8) of the CGST Act to the persons having same PAN and registered in the States of Gujarat, Himachal Pradesh, Karnataka and Rajasthan therefore, the net transitional credit remained with the petitioner in State of Uttar Pradesh.
The petitioner in the month of March, 2018 reversed Rs. 25,31,801/- pertaining to carried forward credit of Education Cess, Secondary & Higher Education Cess and Krishi Kalyan Cess in GSTR-3B return filed for the month of March, 2018.
The Department issued a notice under Section 61 of the UPGST Act in Form GST ASMT-1 by which the alleged discrepancies in the returns filed for the FY 2017-18 based on alleged scrutiny of such returns were intimated to the petitioner.
Petitioner filed his reply in which it was categorically stated that there are no discrepancies and further clarified that the transitional credit has been claimed in accordance with provisions of Section 140(1) and Section 140(9) of the CGST Act and out of such total transitional credit, an amount pertaining to Cess was already reversed.
The department once again on the same facts has issued Show Cause Notice to the petitioner under Section 74 of the CGST Act wherein it has been stated that the CENVAT closing balance of the petitioner in June 2017 was Rs. 4,16,00,772/- whereas petitioner had availed ITC amounting Rs. 5,47,57,755/- as such petitioner had availed excessive ITC amounting Rs. 1,31,56,983/-.
Arguments – Proceedings U/s 74 Of CGST Act
The petitioner contended that regarding the same issue of claim of the petitioner for Input Tax Credit earlier proceedings were drawn by issuing a Show Cause Notice under Section 73 of the CGST Act and ultimately department, on being satisfied with the reply submitted by the petitioner and after verification of the documents and amounts, dropped the proceedings as such now again the same issue cannot be reopened by issuing a Show Cause Notice to the petitioner under Section 74 of the CGST Act.
The petitioner contended that Section 73 and 74 of the CGST Act are independent from each other and they operate in different facts and circumstances. In the case of excessive claimed ITC, the proceedings are to be drawn under Section 73 of the CGST Act and once the said proceedings are concluded, same cannot be reopened.
The petitioner argued that so far as Section 74 of the CGST Act is concerned, proceedings can be drawn under the said section where the adjudicating authority has some evidence and information to make out a reasonable belief that the excessive ITC has been availed by reason of fraud or any wilful mis- statement or suppression of facts to evade Tax.
The department contended that initially proceedings against the petitioner carried out under Section 73 of the CGST Act were dropped and later on, since the adjudicating authority is of the view that petitioner has availed or utilised excessive ITC by suppression of material facts, as such proceedings under Section 74 of the CGST Act have been initiated against the petitioner by issuing Show Cause Notice.
Conclusion – Proceedings U/s 74 Of CGST Act
The court held that the basic ingredients required for initiating proceedings under Section 74 of the CGST Act are present in the impugned Show Cause Notice dated 30.12.2023. Therefore, the entire exercise including the Show Cause Notice is without jurisdiction and thus this writ petition under Article 226 of the Constitution of India is maintainable.
Case Details
Case Title: Hcl Infotech Ltd v/s Commissioner, Commercial Tax And Another
Case No.: WRIT TAX No. – 1396 of 2024
Date: 2024:AHC:158274-DB
Counsel For Petitioner: Atul Gupta
Counsel For Respondent: C.S.C
