Use Of Word 'Determined' In SCN Shows Pre-Determination; S.74 Invocation Unsustainable: Madras High Court Quashes GST Demand
The Madras High Court has held that using the word 'Determined' in the show cause notice (SCN) betrays an element of pre-determination on the part of the authority. The bench highlighted that the show cause notice must clearly specify whether the assessee is being charged with fraud, suppression or wilful misstatement to invoke section 74 of the Tamil Nadu Goods and Services...
The Madras High Court has held that using the word 'Determined' in the show cause notice (SCN) betrays an element of pre-determination on the part of the authority. The bench highlighted that the show cause notice must clearly specify whether the assessee is being charged with fraud, suppression or wilful misstatement to invoke section 74 of the Tamil Nadu Goods and Services Tax Act, 2017.
The bench stated that the authority has used the word “determined”. There is an ocean of difference between specifying something and determining something. The word “determined” found in the show cause notice cannot be construed as “specified”.
Public orders made by public authorities are meant to have public effect and are intended to affect the acts and conduct of those to whom they are addressed, and must be construed objectively with reference to the language used in the order itself. The show cause notices in this case, by employing the expression “determination”, betray the element of pre-determination on the part of the authority, added the bench consisting of Justice G.R. Swaminathan.
In this case, a surprise inspection was conducted in the assessee's business premises on various dates under Section 67 of the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act). Further, the department/respondent issued a show cause notice to the assessee. As many as nine defects were noticed, and they were catalogued in the notices also.
The assessee failed to respond to the show-cause notices. Thereafter, the impugned orders were issued under Section 74, confirming the demand made in the show-cause notice.
The bench noted that an extended period is provided when the assessee can be charged with conduct such as fraud, suppression, etc. Section 74 is not an innovation. Corresponding provisions can be found in many a taxing statute.
The bench observed that the show cause notice does not allege that the assessee was guilty of fraud, wilful misstatement or suppression of facts. When that is not even the case of the proper officer, Section 74 could not have been invoked. Presence of one or all three elements is a sine qua non for taking action under Section 74 of the Act.
The bench stated that the issuance of show show-cause notice is mandatory. The show cause notice must spell out the reason for non-payment or short payment or erroneous refund of tax or wrongful availing or utilization of input tax credit. The provision itself stipulates that such a situation must have been by reason of fraud or any wilful misstatement or suppression of facts to evade tax.
The show cause notice itself must make it clear whether the assessee is being charged with fraud, suppression or wilful misstatement. It is quite possible that one or all the three elements could be present. It is not enough to merely impute the offending the conduct to the assessee. The show cause notice itself must disclose the entire material on which the proper officer has arrived at such a conclusion, added the bench.
Since the show cause notices as well as the impugned orders themselves do not charge the assessee with fraud or wilful misstatement or suppression of facts to evade tax, they stand quashed. Section 74 of the Act could not have been invoked against the assessee, added the bench.
In view of the above, the bench allowed the petition.
Case Title: Neeyamo Enterprise Solutions Pvt. Ltd. v. The Commercial Tax Officer
Citation: 2025 LiveLaw (Mad) 428
Case Number: WP(MD)Nos.30453
Counsel for Petitioner/Assessee: J. Dinesh
Counsel for Respondent/Department: R. Suresh Kumar