Karnataka HC: Misreporting in GSTR-5A Filing Not Suppression Under GST Section 74

The Karnataka High Court has clarified that not accurately reporting the correct value in tax returns or applying the appropriate Goods and Services Tax (GST) rate does not constitute suppression under Section 74 of the Central Goods and Services Tax (CGST). This ruling emphasises the distinction between honest errors and deliberate suppression in tax reporting.

Justice S.R. Krishna Kumar cited that “…though the revenue alleged in the impugned SCN that the assessee failed to mention the value of services correctly in the GSTR-5A returns and apply the correct GST rate on the consideration received, the mere omission to mention the value of services correctly in the returns and/or apply the correct GST rate would not be tantamount to wilful suppression…”

The taxpayer has a division, “Pearson Vue,” which provides computer-based test administration solutions, and under its contract with GMAC, USA, the taxpayer performs GMAT on behalf of GMAC for candidates in India.

The taxpayer, through their vendor ACT Inc., has entered into a contract with human scorers to ensure that appropriate human competency and knowledge are brought to bear while performing the human scoring for GMAT tests.

The taxpayer, after the GST regime has applied to the Authority in Advance Rulings (AAR), is seeking a Ruling on whether the services engaged by it shall come within online Information Data Base Access and Retrieval Services (OIDAR services) under GST Laws.

AAR ruled in favour of the taxpayer that while Type–II tests of the taxpayer shall come within OIDAR services, Type–III tests are beyond the purview of OIDAR services, as they have more than the lowest human intervention.

The department/respondents dissatisfied with the above order passed via AAR have submitted a plea to the Karnataka Appellate Authority for Advance Ruling (AAAR). The appeal submitted via the department has been permitted via AAAR.

The taxpayer, dissatisfied with the above-mentioned order, has filed a writ petition to the Karnataka High Court, which passed an interim order asking the respondents not to take any precipitative action for recovery against the applicant.

The impugned show cause notice has been issued by the Directorate General of GST Intelligence/2nd respondent, asking for the payment from the applicant for July 2017 to June 2021 u/s 74 of the CGST Act for wilful suppression.

Taxpayer, the impugned SCN is wholly without jurisdiction as the foundational jurisdictional facts to trigger/invoke Section 74 of the CGST Act, i.e., presence of wilful suppression to evade/avoid payment of GST for Type–III tests, have not been fulfilled via the revenue, and the impugned SCN should be quashed.

The bench cited that the revenue has the knowledge of the gamut of transactions of supply of Type-III tests by the taxpayer, thereby directing to the only conclusion that an intent to evade the tax payment cannot be imputed or attributable to the taxpayer.

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As per the bench, Type III tests were conducted to be outside the purview of OIDAR via AAR, which was reversed in appeal via the AAR, and thus, the problem is not without doubt, and when conflicting views are present with the revenue itself entertaining two views, it is not allowed to allege that the applicant had suppressed any data with an intent to evade tax payment; the applicant approached the revenue for an advance ruling with all data available cannot be imposed with a demand alleging suppression of facts.

The bench in the aforesaid view has partly permitted the petition and set aside the SCN.