GST dept fails to comply with Mandatory Process of Return scrutiny before Initiating Demand: Gauhati HC Quashes ₹19.5 Crore Notice against PepsiCo [Read Order]

The Gauhati High Court quashed the Goods and Service Tax (GST) notice Rs 19.5 Crore Pepsico India Holdings Pvt. Ltd holding that the GST department failed to comply with the mandatory process of return scrutiny before initiating the tax demand.

The petitioner before this Court is a company registered under the erstwhile Companies Act, 1956 having its registered office at Brahmaputra Industrial Park, Gouripur, Village- Sila, Mouza, Silasinduri Kamrup, Assam-781101. The petitioner company is represented in the present proceedings by the authorized signatory.

The petitioner is registered under the provisions of the Central Goods and Service Tax Act, 2017 as well as under the Assam Goods and Service Tax Act, 2017. The Board of the petitioner‘s company has resolved by Resolution No.49/2022 dated 10.01.2022 to authorize one Mr. Chitwan Prabhakar as the person authorized to file the writ petition and represent the company in the present proceedings.

The petitioner is, inter alia, engaged in the marketing of soft drinks and fruit juices, as well as the manufacturing and supply of food products from its various locations across the country. The petitioner in the present proceedings has assailed the vires of the show cause notice issued by the respondent No.2 under the provisions of section 73(1) of the Central Goods and Service Tax Act, 2017 by alleging a purported mismatch between the details furnished by the petitioner in its annual return filed in the form GSTR-9C and the reconciliation statement filed in FORM of GSTR-9C.

As per the show cause notice, the Input Tax Credit (ITC) reported in FORM GSTR-9C and the expenses reported in the financial statements, which are required to be disclosed in Table 14 of FORM GSTR-9C, appear to be unreconciled. Consequently, the petitioner is alleged to have wrongly availed and utilized Input Tax Credit amounting to Rs. 19,51,41,111/- (Rupees Two Crore Fifty Nine Lakh Fifty Eight Thousand Nine Hundred Seven only) for the period 1st of July, 2017 to 31st March 2018.

The Senior Counsel appearing for the petitioner submitted that the impugned show cause notice has been assailed on the ground that the precondition necessary for the invocation of the jurisdiction of the proper officer under Section 61 is absent, and therefore, the impugned show cause notice could not have been issued on the grounds mentioned therein. The Senior Counsel submitted that the proper officer, while scrutinizing the correctness of the returns filed by the petitioner company, apparently discovered a 'discrepancy', which is stated to be the cause of action for initiating further proceedings.

The alleged discrepancy purportedly found by the proper officer is that the petitioner did not furnish the required details in Table 14 of FORM GSTR-9, and as a result, there was a mismatch with the information provided in FORM GSTR-9C. It is submitted that from the notifications issued by the competent authority and which was available at the relevant point in time, the submission of information in Table 14 of FORM GSTR-9C was made optional.

Since the furnishing of information under Table 14 of FORM GSTR-9C was made optional, the petitioner did not submit the said details. Consequently, the non- furnishing of information under Table 14 of FORM GSTR-9C cannot be construed as a discrepancy or an error, as there was no mandatory requirement to furnish such details. Accordingly, the petitioner cannot be faulted for not submitting information that was expressly made optional.

It is submitted by the Senior Counsel for the petitioner that as per Section 61 of the CGST Act, 2017 read with Rule 99 of the Rules the steps and the actions prescribed thereunder must be mandatorily be undertaken before a show cause notice can be issued under section 73(1) of the CGST Act, 2017. Referring to the relevant statutory provisions, the Senior Counsel submitted that one of the mandatory steps prescribed under the law is the issuance of a notice in Form GST ASMT-10 for initiating scrutiny proceedings.

The Senior Counsel submitted that it is not disputed by the respondents that the notice in Form GST ASMT-10 was not issued. Consequently, the issuance of the impugned show cause notice under Section 73(1) of the CGST Act, 2017, without adhering to the prescribed statutory mandate under Section 61 of the CGST Act, 2017 read with Rule 99 of the CGST Rules, completely vitiates the jurisdiction of the proper officer to issue the said show cause notice. It is therefore submitted that this impugned show cause notice has been issued without any authority of law and in excess of jurisdiction.

The jurisdictional fact and the necessary precondition for the invocation of Section 61 of the CGST Act, 2017 were not satisfied in the present case. Consequently, the steps taken by the respondent authority in issuing the impugned show cause notice are without any authority of law and amount to an improper and incomplete exercise of its jurisdiction.

The bench observed that entire cause of action in the Impugned SCN is directly contrary to and in the teeth of various Instructions/ Notifications issued by the Central Board of Indirect taxes and Customs ("CBIC"), a body formed under the aegis of Respondent No. 1, which were squarely binding on the Respondents. It is therefore apparent that the jurisdictional conditions to invoke Section 61 of the CGST Act are not satisfied in the present case. The Impugned SCN is issued ultra vires the provision of Section 61 of the CGST Act.

Under such circumstances, any proceedings pertaining to the financial years 2017-18, including those under Section 73 of the CGST Act, 2017, are infructuous as they are barred by limitation prescribed under the CGST Act itself. Consequently, all the time limits prescribed under the statute, as well as relevant notifications, circulars, and instructions, have been exhausted.

The single bench of Justice Soumitra Saikia observed that viewed that the invocation of jurisdiction under Section 73, without mandatorily following the procedure prescribed under Section 61 read with Rule 61 of the Act, 2017, read with Rule 99 of the Rules, 2017, is contrary to the prescribed procedure and opposed to the very scheme of the Act.

The Court holds that the revenue, through the proper officer, invoked its jurisdiction under Section 73 without due compliance with the procedure prescribed under Section 61; therefore, such invocation of jurisdiction is completely unauthorized, and consequently, all further actions taken thereunder must be held to be contrary to the provisions of law.

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