Section 74 Of CGST Act Can Be Invoked If Assessee Fails To Report Actual Sales To Evade Tax: Kerala High Court

The Bench of Justice Gopinath P. observed that “It is for the assessee to get his claim adjudicated by the statutory authorities under the CGST / SGST Acts. The procedure under Article 226 of the Constitution of India cannot be invoked to determine disputed questions of fact especially on account of the procedure adopted in this Court in respect of writ petitions under Article 226 of the Constitution of India.”

Section 74 of the Central Goods and Services Tax Act, 2017, is the legal provision and guidelines provided to GST officers to deal with willful misstatement or fraudulent practices by GSTIN holders in filing GST data and related short payment, non-payment, erroneous refund or input tax credit availed.

Section 161 of the Central Goods and Services Tax Act, 2017, authorises a Proper Officer to rectify such errors. These errors typically include clerical mistakes, arithmetical errors, omissions, or other inadvertent mistakes that do not require extensive interpretation or investigation.

The assessee/petitioner was served with show cause notice under Section 74 of the CGST Act calling upon the assessee to show cause as to why certain proposals should not be finalized against the assessee. After considering the reply submitted by the assessee and after affording to the assessee an opportunity of being heard, an order was issued by the Deputy Commissioner (2^nd respondent) confirming the proposals in the show cause notice and finalizing a demand against the assessee. The assessee filed an application for rectification under Section 161 of the CGST Act, which was rejected by an order.

The assessee has challenged the order, passed by the Deputy Commissioner (2^nd respondent) confirming the demand in show cause notice and rejection order against rectification application, before the Kerala High Court.

The assessee submitted that the principal ground of challenge is that there was no just cause or reason to invoke the provisions of Section 74 of the CGST / SGST Acts in the case of the assessee. The wordings of Section 74 will suggest that it is not every suppression or misstatement that should lead to proceedings under Section 74 and unless such suppression or misstatement was willful and with the intention of evading tax, a proceeding under Section 74 cannot be justified in law. It was submitted that the reasoning in the show cause notice for invoking Section 74 of the CGST / SGST Acts in the case of the assessee is obviously a cut copy paste from some other notice issued under Section 74 and has no relationship with the facts of the case in so far as it pertains to the assessee.

The department submitted that certain documents which were stated to be 'estimates' were recovered which would show that the sales or part of it was not being accurately recorded by the assessee leading to loss of revenue. It was submitted that the use of the word 'registered' in the show cause notice refers only to the failure to register the actual sales and suppression and not to the fact that the assessee is an unregistered person.

The bench observed that there are several instances of suppression which have been pointed out in the show cause notice as a justification for invoking Section 74 of the CGST / SGST Acts. While the assessee may have raised several contentions to show that the allegations are not correct to reach a conclusion the adjudication of disputed questions of fact will be necessary.

“It is for the assessee to get his claim adjudicated by the statutory authorities under the CGST / SGST Acts. The procedure under Article 226 of the Constitution of India cannot be invoked to determine disputed questions of fact especially on account of the procedure adopted in this Court in respect of writ petitions under Article 226 of the Constitution of India. The assessee has no case that the alternate remedy available to the assessee is not effective including for adjudicating the question as to whether there was just cause or reason for invoking the extended period of limitation (under Section 74) in the facts and circumstances of this case,” added the bench.

The bench opined that the department is also right in contending that the Officer did not invoke the extended period of limitation on the ground that the assessee was an unregistered person but on the ground of suppression of sales willfully for the purpose of evasion of tax. The wordings of Section 74 clearly indicates that in such circumstances, the provisions of Section 74 could be invoked.

In view of the above, the bench dismissed the petition.

Counsel for Petitioner/ Assessee: Bobby John, S. Ajayghosh Kumar and Sangeetha S. Kamath

Counsel for Respondent/ Department: Jasmine M M

Case Title: Ayyappan Pillai v. The State Tax Officer, Mobile Squad No.5, Kollam, O/O. Deputy Commissioner (Intelligence), Sgst Department, Tax Complex, Asramam, Kollam

Case Number: WP(C) NO. 29409 OF 2024

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