Kerala HC: If an Assessee Fails to Submit a Sales Report for Tax Evasion, Section 74 Must Be Applied

It was mentioned by the Kerala High Court that the provision of section 74 of the CGST Act can be invoked if the taxpayer fails to report actual sales to evade tax.

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 provisions and directions furnished before the GST officers to deal with intentional misstatement or dishonest 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, empowers a Proper Officer to correct these errors. These errors contain clerical mistakes, arithmetical errors, omissions, or other inadvertent mistakes that do not need comprehensive interpretation or investigation.

The taxpayer/applicant was provided with the SCN u/s 74 of the CGST Act asking the taxpayer to show cause as to why specific proposals must not get finalized against the taxpayer. Post acknowledging the response furnished via the taxpayer and post providing the taxpayer a chance to be heard, an order was furnished via the Deputy Commissioner (2nd respondent) confirming the proposals in the show cause notice and finalizing a demand against the taxpayer. Under Section 161 of the CGST Act, the taxpayer filed an application for rectification which was rejected by an order.

The order was contested by the taxpayer passed via the Deputy Commissioner (2nd respondent) confirming the demand in show cause notice and rejection order against rectification application, before the Kerala High Court.

The taxpayer furnished that the principal foundation to contest is that no cause or reason is there to invoke the provisions of section 74 of the CGST / SGST Acts in the case of the taxpayer. It was recommended by section 74 that it is not every suppression or misstatement that must be directed to proceedings u/s 74 and unless such suppression or misstatement was willful and with the purpose of evading tax, a proceeding u/s 74 cannot be justified in law. The reasoning in the SCN for invoking Section 74 of the CGST / SGST Acts in the case of the taxpayer is a cut copy-paste from some other notice allocated u/s 74 and has no connection with the facts of the matter to the extent that it is related to the taxpayer.

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It was furnished by the department that specific documents which were cited to be estimates were recovered which shall show that the sales or part of it was not being recorded via the taxpayer directing to the loss of revenue. It was furnished that the use of the word registered show cause notice directed merely to the failure to enrol the actual sales and suppression and not to the fact that the taxpayer is an unregistered individual.

It was noted by the bench that there are distinct instances of suppression that have been mentioned in the show cause notice as a justification for invoking section 74 of the CGST / SGST Acts. The taxpayer might raise distinct contentions to show that the allegation is not true to attain a conclusion the adjudication of disputed questions of fact would be required.

The bench mentioned “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 regarding 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.”

The Bench, the department is correct in arguing that the officer does not invoke the extended duration of limitation on the foundation that the taxpayer was an unregistered individual however on the foundation of suppression of sales willfully for the objective of tax evasion. It is been specified by Section 74 that in these cases the provisions of Section 74 cannot be invoked.

The bench concerning the above-said dismissed the petition.