[S.74 GST Act] Adjudicating Authority Must Record Prima Facie Satisfaction Regarding Assessee Wrongfully Obtaining Input Tax Credit: Allahabad HC
The Allahabad High Court has held that for initiating proceedings under Section 74 of the Goods and Service Tax Act, 2017, it is necessary for the adjudicating authority to record prima facie satisfaction regarding the assessee having wrongfully availed input tax credit (ITC) by fraud, willful misstatement or suppression of facts.
The Court held that once the proceedings under Section 73 have been closed regarding wrongful availment of ITC, proceedings for the same cannot be initiated under Section 74 without recording prima facie satisfaction regarding wrongful availment of ITC by either fraud or willful misstatement or suppression of facts.
The bench of Justice Shekhar B. Saraf and Justice Manjive Shukla held that
“it is patently manifest that for deriving the jurisdiction to initiate proceedings under Section 74 of the CGST Act, the adjudicating authority must expressly mention in the Show Cause Notice that he is prima-facie satisfied that the person has wrongly availed or utilized Input Tax Credit due to some fraud or a wilful mis-statement or suppression of facts to evade tax and that must be specifically spelled out in the Show Cause Notice.”
Factual Background
Petitioner- HCL Infotech was registered in the erstwhile Service Tax regime in Uttar Pradesh. Petitioner procured 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. Thereafter, the petitioner obtained registration under the GST regime. As on 01.07.2017, when the GST regime came into effect, petitioner had unutilized CENVAT Credit of Service Tax, Education Cess Secondary & Higher Education Cess and Krishi Kalyan Cess amounting Rs. 5,47,57,755 which was transferred to the GST regime.
Petitioner reversed certain amount of carried forward credit of Education Cess, Secondary & Higher Education Cess and Krishi Kalyan Cess in GSTR-3B return. Petitioner was issued a notice under Section 61 of the UPGST Act alleging discrepancies in the return for FY 2017-18. Petitioner filed a reply explaining the transaction and stating that there were no discrepancies in the return filed.
Another show cause notice was issued to the petitioner under Section 73 of UPGST Act where a demand of Rs. 5,76,12,310/- along with interest and penalty was proposed. Petitioner submitted a reply and upon due consideration of the reply, the proceedings were dropped. Subsequently, a fresh show cause notice was issued to the petitioner on the same facts under Section 74 of the Act. This notice was challenged by the petitioner under Article 226 of the Constitution.
High Court Verdict
The Court once the proceedings under Section 73 of the GST Act have become final regarding wrongful availment of ITC, they cannot be reopened except in cases where the wrongful availment is based on fraud or willful misstatement or suppression of facts. It was held that once the proceedings under Section 73 had been dropped, prima facie satisfaction ought to have been recorded by the adjudication authority.
“The field of operation of Section 73 and 74 of the CGST Act is altogether different i.e. Section 73 operates in all other cases of wrongly availed or utilized Input Tax Credit for any reason other than fraud or wilful mis-statement or suppression of facts and Section 74 comes into play when the excessive Input Tax Credit has been availed due to some fraud or wilful mis-statement or suppression of facts.”
The Court held that without the satisfaction on record, the proceedings under Section 74 are without jurisdiction. It was held that the notice issued by the respondent did not record any such satisfaction and thus was without jurisdiction.
Rejecting the argument of the respondent, the Court held that writ petition under Article 226 of the Constitution against a show cause notice is maintainable if the same if without jurisdiction, as in the case before the Court.
Accordingly, the writ petition was allowed. The Court quashed the show cause notice with liberty to the respondents to initiate fresh proceedings adhering to the requirements of Section 74 of the Act.
Case Title: Hcl Infotech Ltd v. Commissioner, Commercial Tax And Another [WRIT TAX No. - 1396 of 2024]