Show Cause Notice u/s 74 of GST Act: An In-Depth Analysis

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Section 74 of the Central Goods and Service Tax Act ( GST ), 2017 defines the adjudication notice under the Goods and Service Tax Act. Provisions in respect of raising show cause notice ( SCN ) demanding tax, interest and penalty have been made in section 74 of the act.

Under any of the following situations, the appropriate official may issue an adjudication notice under GST to the registered person.

  • In the event that taxes are unpaid,
  • Some taxes are not paid in full; some refunds are issued incorrectly;
  • It is improper to claim or use input tax credit.

Time limit for issue of the determination order

As per Section 74(10), the Proper Officer is required to pass the order within five years from the due date of filing of Annual Return under Section 44 for the year to which the short payment or non-payment or input tax credit wrongly availed or utilised relates or date of erroneous refund.

Time limit for issue of SCN: The Proper Officer is required to issue notice at least six months prior to the time limit specified under Section 74(10) for issuance of an order. [Sub-section 2 of Section 74].

Right of Taxable person during the adjudication

The right to provide all necessary evidence: The taxable person has the fundamental right to present all pertinent information in support of their claim when they file their defense reply.

The right to have a voice: Before issuing an adjudication order, the taxable person must be given the chance to be heard. Should the same chance not be given, the natural justice principle will be violated.

Entitlement to a speaking order: There should be a speaking order as soon as the adjudicating authority passes the order.

Ability to file an appeal: An appeal may be filed if the taxed person feels that the adjudicating authority’s decision has wronged them.

S. 65 of GST Act Does Not Require Audit Report to Indicate ‘Fraud or Misstatement or Suppression of Facts’ for Demand u/s 74: Madras HC – ABT Limited vs The Additional Commissioner of GST & Central Excise CITATION:   2024 TAXSCAN (HC) 1068

The Madras High Court clarified that the Section 65 of the Central Goods and Services Tax ( CGST Act ), 2017 does not require the audit report to indicate the ‘Fraud or Misstatement or Suppression of Facts’ for Demand under Section 74 under GST Act.

The court noted that interference with a show cause notice is warranted only if issued without jurisdiction or if no case is made out for the threatened action. Further added that the audit report indicated unpaid or short-paid tax, satisfying statutory requirements. The court clarified that Section 65 does not necessitate findings of fraud or misstatement in the audit report. The proper officer’s allegations of fraud were contained within the show cause notice, meeting the necessary legal standards.

Consequently, the court dismissed the writ petition, allowing the petitioner to respond to the show cause notice. No order as to costs was made, and the connected miscellaneous petition was also closed.

Proceedings u/s 74 of GST Act not to be initiated against Purchaser for Non-Deposit by Supplier: Uttarakhand HC- Subhash Singh vs Deputy Commissioner CITATION:   2024 TAXSCAN (HC) 1050

In a historic decision, a Division Bench of the Uttarakhand High Court has held that no proceedings shall be initiated against purchaser of goods under Section 74 of Goods and Services Tax Act for non-deposit of Goods and Services Tax ( GST ) by supplier.

The High Court bench of Chief Justice Ritu Bahri and Justice Rakesh Thapilyal held that the petitioner had fulfilled all the requirements to claim ITC. He had proper invoices, made payments through banking channels with applicable GST, and maintained proper records.

Section 74 GST Proceedings not sustainable when Tax and Interest deposited as per Audit before Issuance of SCN: Telangana HC- Rays Power Infra Private Limited vs Superintendent of Central Tax CITATION:   2024 TAXSCAN (HC) 513

The Telangana High Court set aside the proceedings initiated under Section 73 of the Goods and Services Tax Act, for not being sustainable as tax and interest were remitted by the petitioner as per audit before the issuance of the Show Cause Notice.

The bench held that, “the action on the part of the respondents in initiating the show cause proceedings under Section 74 and passing of the impugned order dated 15.11.2023 both would be in excess of their jurisdiction and the same therefore deserves to be and are accordingly set-aside/quashed.”

Madras High Court Emphasises Applicability of Section 74 of Finance Act; Directs GST Department to Promptly Consider Rectification Application M/s.Cherry Retail vs The Assistant Commissioner of CGST and Central Excise CITATION:   2023 TAXSCAN (HC) 1359

The Madurai Bench of Madras High Court has issued a Writ of Mandamus, directing the Goods and Services Tax (GST) department to promptly consider the petitioner’s Rectification Application, highlighting the relevance of Section 74 of the Finance Act 1994.

The single bench of Justice S. Srimathy directed the GST department to evaluate the petitioner’s Rectification Application in accordance with the provisions of the law. Further, the bench imposed a strict timeline, mandating that the process be completed within a period of six weeks from the date of receipt of a copy of the court’s order. The judgment emphasised the importance of Section 74 of the Finance Act 1994 and the requirement of promptly considering the rectification application to rectify the mistake apparent from the record.

Issuance of SCN u/s 74 of JGST Act is mandatory along with Form GST DRC-01: Jharkhand HC directs Re-adjudication- M/s. Sidhi Vinayak Enterprises vs The State of Jharkhand CITATION:   2023 TAXSCAN (HC) 921

The Jharkhand High Court held that the Show Cause Notice under Section 74 of Jharkhand Goods and Services Tax Act, 2017 (JGST Act) is mandatory along with the Form GST DRC-01.

The Division bench observed that the foundation of the proceeding in both the cases suffers from material irregularity and hence not sustainable being contrary to Section 74(1) of the Jharkhand Goods and Services Tax Act; thus, the subsequent proceedings/impugned Orders cannot sanctify the same.

Order Passed u/s 74 of GST without Considering Reply of Assessee is not Valid: Madras HC- M/s.Engineering Aids vs State Tax Officer (Circle) CITATION:   2023 TAXSCAN (HC) 417

In a recent case, the High Court ( HC ) of Madras has held that the order passed under section 74 of GST, 2017 without considering the reply of the assessee is not valid.

A single-member bench comprising Justice Abdul Quddhose observed that the respondent failed to consider the reply of the petitioner. The Court quashed the impugned order, dated 05.04.2022 passed by the respondents and the matter was remanded back to the respondents for fresh consideration on merits and by law.

Summary of Show Cause Notice without Issue of Show Cause notice u/s 74(1); Jharkhand HC quashes Order in Violation of Rule 142(1)(a) of GST RulesJuhi Industries Pvt. Ltd vs The State of Jharkhand CITATION:   2022 TAXSCAN (HC) 527

The division bench of the Jharkhand High Court has held that summary of show cause notice without issue of show cause notice u/s 74(1) and quashes order in violation of Rule 142(1)(a) of Goods and Services Tax Rules.

The Coram of Mr. Justice Aparesh Kumar Singh and Mr. Justice Deepak Roshan quashed the impugned show cause notice and final order and held that “we are of the considered view that the impugned show cause notice in both the cases does not fulfill the ingredients of a proper show-cause notice and thus amounts to a violation of principles of natural justice, the challenge is maintainable in the exercise of writ jurisdiction of this Court”

Tax Proposal Confirmed u/s 74 of GST Act without Satisfaction of Ingredients: Madras HC directs to Condone 21 days’ Delay- M/s.Sri Shanmuga Motors vs The State Tax Officer CITATION:   2024 TAXSCAN (HC) 948

The Madras High Court overturned an appellate order and directed the Deputy Commissioner ( ST ) ( GST ) (Appeals) to adjudicate the appeal, despite a delay of 21 days in its filing.

A single bench of Justice Senthilkumar Ramamoorthy court set aside the appellate order dated 30.03.2024. Instead, it directed the 2nd respondent – Deputy Commissioner (ST)(GST)(Appeals) to receive and adjudicate the appeal filed by the petitioner on its merits, without delving into the question of limitation.

Madras HC quashes Assessment Order passed without giving Proper Opportunity of Personal Hearing u/s 74(1) of GST Act- M/s.Anantham Silks vs State Tax Officer CITATION:   2022 TAXSCAN (HC) 630

The Madurai Bench of Madras High Court presided by Mr. Justice M. Nirmal Kumar has quashed the assessment order passed without giving a proper opportunity for a personal hearing under section 74(1) of the Goods and Service Tax Act.

The single bench observed that the respondent failed to follow the procedure since the petitioner has got any objection and not paid tax as ascertained, a show cause notice has to be issued under Section 74(1) of the TNGST Act and after receiving objections, giving personal hearing, the assessment order ought to have been finalized.

Relief to The Chennai Silks, Tax Liability Determined u/s 74 of TNGST Act without considering the Reply: Madras HC sets aside Assessment Order- M/s.The Chennai Silks vs The Assistant Commissioner CITATION:   2023 TAXSCAN (HC) 1649

In the matter of the Chennai Silks, the Madras High Court set aside the assessment order which determined the tax liability under section 74 of the Tamil Nadu Goods and Service Tax Act, 2017(TNGST Act) without considering the reply filed.

The Court comprising Justice Krishnan Ramasamy observed that the petitioner is entitled to have a considered opinion of the Assessing Officer after taking into consideration the reply filed by the petitioner. The Court set aside the impugned order and remitted the matter back for reconsideration.

SCN uploaded in a Different portal which was  not known to Assesee: Calcutta HC set aside order u/s 74 of GST Act- PRABHU DAYAL JAJOO vs THE DEPUTY COMMISSIONER CITATION:   2023 TAXSCAN (HC) 1022

The Calcutta High Court(HC) set aside the order under section 74 of the West Bengal Goods and Service Tax (WBGST Act), 2017 since the Show Cause Notice (SCN) on which the order passed was uploaded by the department in a different portal which was not known to the assessee.

A two-judge bench comprising Chief Justice, T S Sivagnanam and Justice Hiranmay Bhattacharyya viewed that liberty can be granted to the appellant to file a statutory appeal, more so when certain sums of money have already been recovered by the department from the electronic cash ledger.

The Court disposed of the appeal by directing the appellant to file a statutory appeal before the first appellate authority and if the same is filed within a period of 15 days from the date of receipt of the server copy of the order, the appeals shall be entertained without rejecting the same on the ground of limitation.

Violation of 30 Day period u/s S.74(A): Patna HC sets aside GST Demand Order M/s. Motiprabha Infrated Pvt. Ltd vs The Union of India Through the Secretary Department of Revenue CITATION:   2022 TAXSCAN (HC) 1014

The Division Bench of the Patna High Court comprising Chief Justice Sanjay Karol and Justice Partha Sarthy has recently set aside a GST demand order and the Show Cause Notice issued in violation of Section 74(A) of the Central Goods and Services Tax (CGST) Act, 2017. It was further observed that, “Undisputedly, minimum statutory period of 30 days mandated under the provisions of Section 74(A) of CGST/BGST Act, 2017 was not afforded to the petitioner for making payment due and prior to the expiry of 30 days, the assessing officer proceeded to pass the order, ex parte in nature.”

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