Plea In Gujarat HC Challenges Validity Of S.75(2) Of CGST Act, Says It Gives Show Cause Notice 'Another Life' Even If Fraud Is Not Proved U/S 74(1)

The Gujarat High Court recently issued notice on a plea challenging the validity of Section 75(2) CGST Act wherein if the concerned court or authority concludes that show cause notice issued under Section 74(1) to a person for tax evasion is unsustainable as the charges of fraud, wilful misstatement or suppression of facts aren't established, then the department shall determine the tax payable as if the notice was issued under Section 73(1). For context, Section 73(1) states that where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for "any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax", he shall serve notice on the person chargeable with such a tax, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder. Notably, Section 74(1) of the Act pertains to the issuance of notice to a person after the office finds that he has not paid, short paid or wrongly availed input tax credit or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax, asking him to explain why he shouldn't pay this amount along with interest and a penalty.A division bench of Justice Bhargav D Karia and Justice DN Ray in its order while granting the interim relief said that the "adjudication proceedings may continue and the petitioners shall cooperate in such adjudication proceedings by filing appropriate reply etc., however, no final order shall be passed without the permission of this Court during the pendency of this petition". The petitioner–Shreenathji Extrusions a partnership firm engaged in the manufacturing and sale of Aluminium Section–have argued that the show cause notices were based upon the data received from the Income Tax Department, and if clandestine removal of goods has been alleged against the firm, an independent investigation should have been carried out which has not happened.The plea claims that the Directorate General of Goods and Service Tax Intelligence, Ahmedabad (DGGI) issued show cause notice under section 74 of the Act, "knowing that even if it does not succeed under section 74 it will be treated as issued under section 73 of the Act". This, the petitioners claim, is because of Section 75(2) where when Appellate Authority/Court concludes that the Show Cause Notice issued under Section 74 is not sustainable because suppression of facts etc., has not been established then the proper officer shall determine the tax deeming the said Show Cause Notice was issued under Section 73.The petitioners claim that thus such a show cause notice under Section 74 is not sustainable and must be set aside adding that the notice could have only been issued under Section 73, but it was issued under Section 74 knowing that under Section 73 the show cause notice and adjudication proceedings had already become barred by limitation. In view of the above, the petition states that Section 75(2) is arbitrary and unconstitutional. The plea submits that once the Respondents have been empowered under the law to issue notice, "then tenor of said show cause notice cannot be deemed to be changed"."When the Respondents/ Department put up its case under section 74 of the Act, and once the Respondents/ Department does not succeed the case before the higher forum, then treating the same show cause notice under section 73 of the Act is like giving another life to the same show cause notice, and another change to the department, for the case, which is never put up by the Department in the show cause notice and making the judgments of the Tribunal or the Court as otiose, which is not permissible in law," the plea states.The plea submits that both section 73 and section 74 prescribe a period of limitation for issuance of show cause notice and passing of order. Once the Respondent Department cannot establish its case under section 74 in the Tribunal or the Court, then treating the same show cause notice under section 73 of the Act, virtually means, acting against the provisions of section 73 itself as limitation of section 73 of passing order has already expired. Hence Section 75(2) is ultra vires to the provisions of section 73 of the Act.The plea states that show cause notice is the foundation of any case to levy tax and penalties and revenue cannot be allowed to argue a case not made out in its show-cause notice; so if the department cannot establish the alleged charges claimed in show cause notice the matter comes to an end. It also claims that the department cannot be allowed to improve the show cause notice. During the hearing, the petitioner's counsel argued that in the period covered by the investigation in para no. 5 of the impugned show cause...

Plea In Gujarat HC Challenges Validity Of S.75(2) Of CGST Act, Says It Gives Show Cause Notice 'Another Life' Even If Fraud Is Not Proved U/S 74(1)

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