The Allahabad High Court in the case of HCL INFOTECH LTD VERSUS COMMISSIONER, COMMERCIAL TAX AND ANOTHER vide Writ Tax No. – 1396 of 2024 dated 27.09.2024, has held that 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 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.
Facts of the Case: The Petitioner 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.
Petitioner's Arguments: The petitioner contends that since the previous proceedings under Section 73 were dropped, reopening the matter under Section 74 is unjustified. Section 74 applies only in cases of fraud, wilful misstatement, or suppression of facts, none of which have been alleged in the new SCN.
Further, argued that both Sections 73 and 74 are distinct and serve different purposes. Once the matter has been settled under Section 73, it cannot be reopened unless there is specific evidence of fraud or suppression, which is absent in the current SCN.
Reliance placed upon several Supreme Court judgments to argue that proceedings cannot be reopened without sufficient cause, particularly where there is no evidence of fraud or suppression.
Respondent's Arguments: The Respondent argued that the matter has been reopened under Section 74 because the adjudicating authority believes the petitioner availed excessive ITC by suppressing material facts. Also, that the petitioner should not have approached the court at the stage of the SCN and should raise all issues before the adjudicating authority.
Held that: The Court analyzed the scope and application of Sections 73 and 74 of CGST Act, particularly regarding the issuance of a Show Cause Notice for the wrongful availing of Input Tax Credit. The court examined Section 73, which deals with the recovery of wrongly availed or utilized ITC for reasons other than fraud, wilful misstatement, or suppression of facts. In contrast, Section 74 applies when wrongful ITC availing is attributed to fraud, wilful misstatement, or suppression of facts.
The Court noted that the petitioner had initially availed of ITC following the transition from the Service Tax regime to the GST regime. A SCN was issued on September 30, 2023, under Section 73, but the proceedings were dropped after it was found that no excessive ITC was availed. Later, another SCN dated August 3, 2024, was issued under Section 74.
The court found that the SCN issued under Section 74 did not contain any allegation or indication of fraud, wilful misstatement, or suppression of facts, which are prerequisites for proceedings under that section. Cited decision in the case of Raj Bahadur Narain Singh Sugar Mills Ltd. v. Union of India and CCE v. H.M.M. Ltd., wherein the court emphasized that the absence of these specific allegations renders the SCN defective and without jurisdiction.
The court held that if an SCN is issued without proper jurisdiction or lacks the necessary allegations for invoking Section 74, a writ petition challenging it under Article 226 of the Constitution is maintainable. Impugned SCN quashed, due to the lack of essential ingredients to invoke Section 74, leaving it open for the respondent to issue a fresh SCN with proper grounds, if applicable.
To read the complete judgment 2024 Taxo.online 2248
