The Hon’ble Telangana High Court in the case of Rays Power Infra Pvt. Ltd. v. Superintendent of Central Tax [Writ Petition 298 of 2024 on February 28, 2024], ruled that if the assessee clears all the tax obligations including ah interest at any day, before the issuance of show cause notice, they shall not be obligated for any additional taxes through the method of penalty or interest and the proceedings will be deemed concluded.
Key Points
In the generation of electricity through solar plants, Rays Power Infra Pvt. Ltd. (“the Petitioner”) was involved. The GST Audit was performed for FY 2017-18 (from July 2017) and FY 2018-19. The audit findings summary was communicated to the applicant date October 14, 2021. The applicant accepted the amount and paid the whole additional tax that was demanded to be paid including with interest.
The demand was made dated October 28, 2021, followed by the final audit report on November 10, 2021. According to the final audit report, the auditors had accepted the payment incurred by the applicant. Even when the payment of the whole amount was accepted, an SCN on April 20, 2022 (“the Impugned Notice”) was issued under Section 74(1) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).
The response to the Impugned Notice was furnished dated September 04, 2023, and expressed that the demand was paid already with interest dated October 28, 2021. The whole irregular claimed Input Tax Credit (“ITC”) stood reversed for declining the Impugned Notice.
The applicant was furnished with the personal hearing and post-hearing the applicant, the council’s opinion on the order dated November 15, 2023 (“the Impugned Order”) had passed establishing the demand asked in FORM DRC-07 on December 11, 2023, which directed the filing of the present writ.
The applicant furnished the Writ of Mandamus to declare the Impugned Order and the demand raised in FORM DRC-07 to be void, illegal, and arbitrary, without jurisdiction and authority of law and to set aside it.
Problem
Whether the GST Authorities start proceedings under Section 74 of the CGST Act if a whole tax obligation including interest has been paid before the issuance of show cause notice?
The Ruling Determined as Follows
The Hon’ble Telangana High Court in Writ Petition No. 298 of 2024 ruled under:
- Witnessed that the audit report emphasized that the applicant had since cleared off all the tax obligations and had also filed the pertinent interest up to date. Admittedly, on April 20, 2022, the Impugned Notice was issued subsequently.
- Observed that Section 73(5) of the CGST Act furnished the clear sign that the framers of the law were very precise in mind that in case if the taxpayer clears all the tax obligations including with interest any day, before the issuance of SCN then they would be mandated for any further additional taxes through the way of penalty or interest. For this objective, the provisions of Section 73(1) of the CGST Act and Section 73(5) of the CGST Act, are required to be read together which furnishes a clear indication that Sub-Section (5) of Section 73 of the CGST Act directs to even those payments which have been cleared by the assessee which were otherwise defined as ITC claimed incorrectly.
- Mentioned that sub-section 5 to 8 of Section 73 of the CGST Act, specifically specifies that the assessee should clear the unpaid tax or revered of the availed input tax credit incorrectly at the earliest to furnish the strict coercive recovery efforts along with the levy of penalty. The Sub-Section (1) of Section 73 of the CGST Act furnishes an inference of the liability of a taxpayer being concerning (i) any tax that has not been paid or (ii) any tax which is short paid (iii) any erroneously refunded tax (iv) where ITC has been wrongly availed (v) the ITC have been used for any reason excluding fraud or willful misstatement or suppression of facts to evade tax payment. The said by itself mentions how exhaustive was Sub-Section (1) of Section 73 of the CGST Act and the intentions of the lawmakers comprising all those unpaid or incorrectly claimed availed tax benefits. On the receipt of such information the proper officer shall not initiate any additional proceedings under Sub-Section (1) and all the proceedings shall have to be considered to be concluded.
- Under Sub-Section (1) of Section 74 the Impugned Notice was issued and not under Sub-Section (1) of Section 73 of the CGST Act, the Court was held with the opinion that Section 74 of the CGST Act shall get attracted only in the case of their being strong materials available on record to indicate that the applicant had played fraud or there was any misstatement incurred via him and there being any suppression of fact. The applicability of Section 74 of the CGST Act shall take place merely when the conditions specified in Section 73 of the CGST Act have not been met via the assessee for the tax obligation being carried to his knowledge. In the articulated cases, Section 74 of the CGST Act would automatically get drawn. Considering the provisions of Sub-Sections (5) and (6), it will go to build that once having released their tax obligation via paying interest on the said tax liable to get paid then no additional proceedings can be drawn for the identical tax any further. The same view of the Bench, if tax is prescribed under Sub-Sections (1) and (3) is filed including with interest even after issuance of show cause notice, even then the penalty could not be imposed and the notice proceedings will be considered to have been concluded.
- Under section 73 of the CGST act the applicant does not count that subject within the purview of fraud, misstatement, and suppression of fact. They shall not be sustainable and just for the reason that Sub-Section (1) of Section 73 of the CGST Act allows a assessee to even clear erroneously claimed ITC along with incorrectly used ITC and it is this what is alleged against the applicant that has wrongfully and irregularly claimed ITC.
- It ruled that the passing of an impugned order along with the impugned notice both are more than their jurisdiction, deserve to be set aside, and are not sustainable under the law in terms of Sub-Sections (5) and (6) of Section 73 of the CGST Act. The applicant could not be pushed to undergo the whole litigation process under the law once the issuance of the show cause notice itself was per se bad. The writ petition accordingly stands authorized subsequently.
| Case Title | M/S. Rays Power Infra Pvt. Ltd. Vs. Superintendent of Central Tax |
| Citation | Writ Petition No. 298 of 2024 |
| Date | 28.02.2024 |
| Assessee by | Shri Mayank Agarwal, Adv. |
| Revenue by | Shri Anuj Garg, Sr. DR |
| Telangana High Court | Read Order |
