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IN THE HIGH COURT OF ALLAHABAD
PANKAJ BHATIA, J.
M/s Daimond Steel – Appellant
Versus
State Of U.P. And 3 Others – Respondents
Writ Tax No.4, 5 of 2022
Decided on : 06-04-2023
Section 67 GST Act - Section 67 - Partnership concern - Inspection - Paper seized - Petitioner is a partnership concern and is duly registered with the GST Department- Petitioner claims that all inwards and outwards supply was duly reflected on portal of the department and the petitioner uploaded supply made by him in GSTR-1 and after claiming Input Tax Credit as reflected in GSTR-2A, filed his return in form of GSTR-3B claiming the benefit of Input Tax Credit - It is argued that returns filed were accepted and were never questioned and no proceedings were initiated in case of petitioner - Counsel for the petitioner further argues that recourse to guidelines issued to the Income Tax Authorities cannot be invoked for completing assessment as has been done by the adjudicating authority. [Para 9]
Finding of the Court: It is essential that along with search and seizure report, certain specific averment is made with regard to the supply of goods and non-payment of tax coupled with the fact that same should be by reasons of fraud, willful misstatement or suppression of facts and an intent to evade the tax - Adjudicating authority clearly erred in assessing and quantifying demand and levying penalty by taking recourse to some guidelines issued by Income Tax Authorities which is impermissible while determining tax liability under Section 74 - On perusal of adjudicating authority’s order as well as appellate order, the manner in which the demand has been raised and quantified is not in consonance with mandate of Section 74 and thus on ground alone, impugned appellate orders as well as adjudicating authority’s orders are liable to be quashed.
Result: Both writ petition stand allowed.
Key Points: - (!) The judgment discusses that for taxpayers who filed returns, Section 61(3) governs action under Sections 73 or 74 when discrepancies exist. [25001119650013] - (!) It criticizes relying on guidelines from Income Tax Authorities to determine tax liability under Section 74, stating such practice is impermissible. [25001119650011][25001119650014] - (!) It emphasizes that for Section 74, there must be specific averments with regard to supply of goods and non-payment of tax due to fraud, willful misstatement, or suppression of facts and intent to evade tax, and that evidence like the SIB report must be supplied. [25001119650012][25001119650004] - (!) The Court held that the manner of quantifying tax and penalties under the impugned orders violated Section 74 and proceeded to quash the related orders. [25001119650015][25001119650016] - (!) The decision clarifies that in cases where returns have been filed, Section 61(3) provides the basis for invoking Sections 73 or 74 if discrepancies are not corrected. [25001119650013] - (!) The appellate authority’s lack of shown reasons for quantified liability and reliance on improper methods contributed to quashing the orders. [25001119650015] - (!) The outcome of the writ petitions was to quash the adjudicating and appellate orders and refund any deposits on proper application. [25001119650016][25001119650018]
JUDGMENT :
1. Both the said writ petitions arise out of the similar proceedings against the petitioner, although in respect of the different financial years.
2. For the sake of brevity, the facts of Writ Tax No.4 of 2022 are being recorded.
3. By means of the said writ petition, the petitioner challenges the order dated 03.06.2021 passed by the respondent no.3 as well as the order in appeal dated 13.07.2021 preferred against the order dated 03.06.2021.
4. The facts in brief are that the petitioner is a partnership concern and is duly registered with the GST Department. The petitioner claims that all the inwards and outwards supply was duly reflected on the portal of the department and the petitioner uploaded the supply made by him in GSTR-1 and after claiming the Input Tax Credit as reflected in GSTR-2A, filed his return in the form of GSTR-3B claiming the benefit of Input Tax Credit. It is argued that the returns filed were accepted and were never questioned and no proceedings were initiated in the case of the petitioner.
5. It is argued that an inspection was carried out on the business premises of the petitioner on 31.10.2019 and a Panchanama was drawn wherein the stock present in the business premises was recorded and certain papers were seized in exercise of powers under Section 67 of the GST Act.
6. The contention of the Counsel for the petitioner is that the search and seizure memo was not in accordance with law, however, the said issue is not agitated before this Court and no relief to that extent has been sought. It is stated that search and seizure was carried out by the SIB Authorities. The petitioner objecting to the manner in which the search and seizure was carried out, moved an application along with an affidavit on 18.12.2019 and thereafter nothing transpired. On 08.01.2021, the respondent no.3 issued a notice under Section 74 of the UPGST Act for the period July, 2017 to March, 2018 (Annexure-7 to the writ petition). It is argued that in the said notice, the date for filing the reply was mentioned as 22.01.2021 and, the date and the time for personal hearing was also mentioned as 22.01.2021 but the venue of personal hearing was not disclosed as is clear from the perusal of the notice (Annexure-7). Alongwith the said show cause notice, the petitioner was also supplied with the summary of show cause notice dated 08.01.2021 in the form of GST DRC-01 (Annexure-8).
7. It is argued that in the show cause notice, in the column indicating the brief fact of the case “Adverse material found in SIB” was mentioned and in the column of grounds for issuance of the show cause notice, it was again mentioned that “Adverse material found in SIB”. The petitioner further argues that yet another notice was issued calling upon the petitioner to submit reply by 24.12.2020. In the said notice also, the report of the SIB was mentioned. It is argued that in all the notices, there is a reference to the SIB report, which was the foundation for issuance of the notice under Section 74, however, the said report was never supplied to the petitioner. Despite that, the petitioner submitted his reply on 08.01.2021. It is specifically alleged that neither at the time of issuance of show cause notice nor on the date of hearing any evidence whatsoever was adduced against the petitioner, even the SIB reply was never produced, however, an order came to be passed on 03.06.2021 under Section 74 of the UPGST Act wherein the demand of tax and penalty was quantified against the petitioner at Rs.14,84,099.82/-. He draws my attention to the order passed under Section 74, wherein on the basis of the SIB report and the documents referred therein as well as some ex-parte submission by the department wherein it had claimed that 20% profit should be deemed to be appropriate, as against which, the Assessing Authority was of the view that even under the Income Tax Act, 1961, 8% profit would be an appropriate estimate and on the said basis quantified the demand and penal
SupremeToday
Section 74 confers power to assess non-payment of tax by reasons of fraud, wilful misstatement or suppression of facts coupled with an intent to evade tax.
Non-payment of GST does not imply fraud unless there is evidence of intent to evade tax; penalties under Section 74 can be upheld for wilful suppression of facts.
Show cause notices must explicitly allege fraud or wilful misstatements under Section 74 of the Act to proceed legally; absence of such allegations renders orders invalid.
Proceedings under Section 130 of the UPGST Act cannot be initiated for excess stock; Sections 73 and 74 must be followed for tax determination.
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