Safiya Malik

The High Court of Madras at Madurai, Single Bench of Justice G.R. Swaminathan held that the assessment orders issued under Section 74 of the TNGST Act could not stand, as the show cause notices failed to indicate that the assessee was accused of fraud, suppression, or wilful misstatement. The Court observed that the authority’s use of the term “determined” in the notices conveyed a pre-decided conclusion rather than a mere specification of proposed liability. The dispute arose from demands issued after an inspection that reported several deficiencies, culminating in orders for tax, interest, and penalty. The Court set aside the orders while permitting the department to proceed under other applicable provisions, such as Section 73, if required.

The dispute concerns assessment orders issued for multiple financial periods covering 2018–2019 to August 2023. The respondent conducted a surprise inspection at the petitioner’s business premises in September 2023 under Section 67 of the TNGST Act. Following the inspection, nine defects were recorded, and show cause notices dated 10 May 2024 were issued. These notices required the petitioner to explain why tax, interest, and penalty should not be levied for the relevant assessment years.

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The petitioner did not respond to the notices, after which the respondent passed orders dated 11 June 2024 and 18 June 2024 determining tax, interest, and penalty under Section 74 of the TNGST Act. The petitioner challenged these orders by filing writ petitions, asserting that the statutory preconditions for invoking Section 74 were absent, particularly the requirement that non-payment or short payment must be “by reason of fraud, wilful misstatement or suppression of facts.”

The respondent filed a counter-affidavit arguing that the petitioner ought to have filed statutory appeals and that writ jurisdiction should not be invoked after the lapse of appeal periods. It was also contended that the petitioner attempted to evade tax.

The Court examined the statutory framework. Section 73 governs cases involving non-fraudulent non-payment, while Section 74 permits an extended limitation period only when specific culpable mental elements such as fraud or wilful misstatement exist. The judgment records that neither the show cause notices nor the impugned orders alleged any of these elements. The notices also used the term “determined” rather than “specified,” which the Court considered indicative of pre-determination.

Judicial precedents from the Supreme Court and High Courts were cited to state the requirement of clearly recording allegations of fraud or suppression when invoking extended limitation. The petitioner relied on a circular dated 13 December 2023, which clarified that Section 74 cannot be invoked merely on non-payment of GST without evidence of fraud or suppression.

The Court observed that the impugned orders were issued solely under Section 74 of the TNGST Act and examined the statutory context. It recorded that “the non-payment or short payment of tax or erroneous refund or wrong availing or utilization of input tax credit must have been by reason of fraud, any wilful misstatement or suppression of facts to evade tax.” The Court stated that issuance of show cause notice is mandatory and “the show cause notice must spell out the reason for non-payment or short payment… and such a situation must have been by reason of fraud or any wilful misstatement or suppression of facts.”

It further stated that the notice must make clear whether the assessee is charged with fraud, suppression, or wilful misstatement, noting: “It is not enough to merely impute the offending conduct… the show cause notice itself must disclose the entire material on which the proper officer has arrived at such a conclusion.”

The Court referred to Supreme Court precedent holding that provisions allowing extended limitation must be strictly construed. It quoted that a notice must inform the assessee of allegations such as collusion, wilful misstatement, or suppression, since “unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department.”

The Court recorded that the show cause notices in this case carried no allegation of fraud, wilful misstatement, or suppression, stating: “When that is not even the case of the proper officer, Section 74 could not have been invoked.”

It also addressed the requirement of recording jurisdictional facts, quoting that fraud, wilful misstatement, or suppression “would constitute the ‘jurisdictional fact’ for invoking extended period… and failure to record the existence of the above jurisdictional fact… would vitiate the entire proceedings.”

The Court took note of a circular from the Principal Commissioner (GST) stating that Section 74(1) may be invoked only where investigation indicates material evidence of fraud or suppression, observing that “Section 74(1) cannot be invoked merely on account of non-payment of GST.”

Regarding another coordinate bench decision, the Court stated: “With utmost respect, I am unable to follow the above decision… non-payment or short payment of tax or even evasion of tax by itself is not sufficient. They must be by reason of the elements specifically set out in Section 74.”

The Court also noted the usage of the word “determined” in the notices, recording: “There is a ocean of difference between specifying something and determining something… the expression ‘determination’ betray the element of pre-determination.”

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The Court stated: “Since the show cause notices as well as the impugned orders themselves do not charge the writ petitioner with fraud or wilful misstatement or suppression of facts to evade tax, they stand quashed.” The Court directed that “Section 74 of the Act could not have been invoked against the petitioner. If the authority can proceed against the petitioner under any other provision such as Section 73 of the Act, he or she is at liberty to do so.” The writ petitions were allowed, and all connected miscellaneous petitions were closed.

Advocates Representing The Parties

For the Petitioner: Mr. J. Dinesh
For the Respondents: Mr. R. Suresh Kumar, Additional Government Pleader

Case Title: Neeyamo Enterprise Solutions Private Limited v. The Commercial Tax Officer
Case Number: W.P.(MD) Nos. 30453 to 30458 of 2024
Bench: Justice G.R. Swaminathan