The Hon’ble Madras High Court has held that a Show Cause Notice under Section 74 of the TNGST Act, 2017 (‘the Act‘) cannot be initiated merely on non-payment or short payment of tax or evasion of tax. The elements of fraud, or suppression or wilful misstatement, specified for invoking the extended period of limitation, are a pre-requisite for the proceedings under Section 74 of the Act
Facts:
- The Petitioner filed multiple writ petitions challenging orders passed by the Commercial Tax Officer (“the Respondent”), under Section 74 of the Act, for the financial years 2018-2019 to 2022-2023, and for the period from April 2023 to August 2023
- The proceedings were initiated following an inspection of the Petitioner’s business premises under Section 67 of the Act in September 2023. The inspection led to issuance of show cause notices (“the SCNs”) under Section 74 of the Act
- The Petitioner failed to reply to the SCNs, pursuant to which, the Impugned Orders were issued. Thereafter, the Petitioner filed writ petitions before the Madras High Court against the SCNs and the orders
Issues:
- Whether Section 74 can be invoked without clearly alleging and proving fraud, wilful misstatement or suppression?
- Whether remand is permissible in the absence of jurisdictional facts in the proceedings under Section 74?
Discussion and Ruling:
The Hon’ble Madras High Court quashed the SCNs as well as the impugned orders being invalid in terms of Section 74 of the Act, based on the following:
- A show cause notice under Section 74 must clearly state whether the assessee is being charged with fraud, wilful misstatement, or suppression of facts. Merely alleging such conduct is not enough and the notice must disclose the material on which the officer’s conclusion is based
- The presence of one or all three elements, namely fraud, wilful misstatement or suppression of facts, is a sine qua non for initiating proceedings under Section 74 of the Act, and they must be identifiable from a reading of the show cause notice and the impugned order
- Mere allegation of non-payment or short-payment or evasion of tax are not sufficient to invoke Section 74, the show cause notice must include the reasoning of jurisdictional elements set out in Section 74
- The SCNs does not refer the circular dated 13 December 2023 issued by the Central Board of Indirect Taxes and Customs, which states that non payment or short payment of tax is not sufficient for invoking Section 74. It is well settled that a circular issued by the board is binding on the authority concerned
- The Respondent used the term “determined” in the SCNs which cannot be construed as “specified”, as provided in Section 74 of the Act. Using the term “determination” in the SCN’s indicates an element of pre-determination on the part of the authority
- The absence of jurisdictional facts/ elements would undermine the very foundation of the proceedings and in such cases, the question of remanding the matter do not arise
In view of the above, the High Court held that the SCNs and the impugned orders does not charge the Petitioner with fraud or wilful misstatement or suppression of facts and hence, cannot be sustained under Section 74 of the Act. Further, the High Court granted liberty to the Respondent to initiate proceedings under Section 73 of the Act.