The Principal Commissioner Of Central Tax vs. M/S Toyotetsu INDIA Auto Parts PVT Limited
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Heard together (6 matters)
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Cause title — parties, addresses and appearances
PRELIMINARY HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD AND HON'BLE MR. JUSTICE T.M.NADAF HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE B M SHYAM PRASAD)
The officers of the Central GST Office is aggrieved by similar orders of the Writ Court in writ petitions in W.P.No.11245/2025, W.P.No.24100/2023, W.P.No.9957/2024, W.P.No.24798/2023, and W.P.No.5598/2024. The writ Court has disposed of these petitions with direction interfering with the Show Cause Notice or the Original-in-Order or the Order-in-Appeal under the Central Goods and Services Tax Act, 2017 [for short, 'the CGST Act'], and the writ Court’s orders in each of these petitions are similar. The details of the Show Cause Notice/Order- in-Original/Order-in-Appeal called in question in the corresponding writ petitions are as follows.
Writ Appeals Writ Petitions Particulars W.A.No.1655/2025 W.P.No.11245/2025 Order-in- Appeal dated 23.01.2025 W.A.No.1198/2025 W.P.No.24100/2023 i) Show Cause Notice dated HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
2023 ii) Show Cause Notice dated 29.09.2023 W.A.No.1203/2025 W.P.No.9957/2024 Order-in- Original dated 30.12.2023 W.A.No.1208/2025 W.P.No.24798/2023 i) Show Cause Notice dated 26.09.2023 ii) Show Cause Notice dated 27.09.2023 W.A.No.1213/2025 i) Show Cause Notice dated 29.09.2023 ii) Show Cause Notices dated 07.08.2023 W.A.No.1222/2025 W.P.No.5598/2024 Order-in- Original dated 29.12.2023
The writ Court has reserved liberty to the common Respondent to file response/documents calling upon the Central GST Officers [the Authorities] to decide on the same in the light of the following decisions. The writ Court has referred to these decisions. HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
I. M/s. Toyota Kirloskar Motor Pvt. Ltd., Vs. Union Of India And others - in W.P.No.22952/2023 DD 21.08.2024]
II. Thales India Private Limited Vs. Additional Commissioner Of GCST, Audit- II, Delhi & another in 2025 (2) TMI 245].
The corresponding respondents have invoked the writ Court's juri iction under Article 226 of the Constitution of India essentially because they are aggrieved by the disallowance of Input Tax Credit [ITC] for the salaries paid to the employees of secondment from Foreign Parent Companies for different tax periods and the consequences of Section 74 of the Central Goods and Services Tax Act, 2017 [for short, 'the CGST Act']. The respondents' common grievance is with the Authorities invoking Section 74 of the CGST Act notwithstanding the decision of the Apex Court in HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
C.C.C.E. & S.T.-Bangalore (Adjudication) Etc., Vs. M/s. Northern Operating Systems Pvt Ltd.1. 4. Mr. Aravind V. Chavan, the learned counsel for the Authorities, submits that though the writ Court has called upon the Additional Commissioner of Central Tax to consider whether these proceedings under Section 74 of the CGST Act must be converted to proceedings under Section 73 of the CGST Act for availing Amnesty Scheme [under Section 128A of the CGST Act] with liberty to the concerned respondents to file documents, it has rendered no finding of fact on whether there are materials to justify the liberty to make a request for this conversion.
As against this assertion, Mr. Ravi Raghavan submits that with the Apex Court's decision C.C.,C.E. & S.T. - Bangalore
1 2022 (5) TMI 967 HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
(Adjudication) Etc. [supra] has exposited that the proceedings under Section 74 of the CGST Act must turn on whether there was any intendment to evade liability, and in the present cases where the ITC claim and the demand relate to secondment of employees, there could have even been no intent to evade. The learned Counsel argues that because the law is settled by the Apex Court only in May 2022 and because the tax period in these writ proceedings relate to the period just prior to this decision [six months prior] or immediately thereafter, the very initiation of the proceedings under Section 74 of the CGST Act could be unjustified, and as such, the respondents have availed their remedy under Article 226 of the Constitution of India.
Mr. Ravi Raghavan emphasizes that the writ Court has rendered no view but its decision is to facilitate consideration of the petitioners' claim in the light of the afore for the benefit under the Amnesty HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
Scheme which would undoubtedly be available to them in the proceedings under Section 73 of the CGST Act; and that the respondents are reserved with liberty to seek for conversion of the proceedings from Section 74 of the CGST Act to the proceedings under Section 73 thereof only if the circumstances justify the conversion as examined by the Authorities.
This Court must observe that the continuance of the proceedings under Section 74 of the CGST Act should be considered in the light of the Apex Court's decision and the subsequent Circular dated 13.12.2023. The Apex Court, after referring to its earlier decision on the significance of the intent to evade [an expression that is common with the Section 74 of the CGST Act] in the context of the demand and the disallowance of ITC on the salaries paid to the employee of secondment, has observed thus: HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
It is held, for the foregoing reasons, that the assessee was the service recipient (of manpower recruitment and supply services) by the overseas entity, regarding the employees it seconded to the assessee for the duration of their deputation or secondment. Furthermore,
in view of the above discussion, the invocation of the extended period of limitation in both cases by the revenue is not tenable.
In the light of the above, the revenue's appeals succeed in part; the assessee is liable to pay service tax for the periods spelt out in the SCNs. However, the invocation of the extended period of limitation, in this court's opinion, was unjustified and unreasonable. Resultantly, the assessee is held liable to discharge its service tax liability for the normal period or periods, covered by the four SCNs issued to it. The consequential demands, therefore, shall be recovered from the assessee."
The Central Board of Indirect Taxes and Customs, after the Apex Court’s judgment, has issued a Circular dated 13.12.2023 observing that the field formations are mechanically invoking the HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
extended period of limitation under Section 74(1) of the CGST Act. The Circular in its material part reads as under: "3.1 It has also been represented by the industry that in many cases involving secondment, the field formations are mechanically invoking the extended period of limitation under section 74(1) of the CGST Act.
2 In this regard, section 74 (1) of CGST Act reads as follows:
"(1) 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 utilized by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax."
3 From the perusal of wording of section 74(1) of CGST Act, it is evident that section 74(1) can be invoked only in cases where there is a fraud or willful mis- statement or suppression of facts to evade tax by the said taxpayer. Section 74(1) cannot be invoked merely on account of non- payment of GST without a specific element of HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
fraud or willful misstatement or suppression of facts to evade tax. Therefore, only in the cases where the investigation indicates that there is material evidence of fraud or willful misstatement or suppression of fact to evade tax on the part of the taxpayer, provisions of section 74(1) of CGST Act may be invoked for issuance of show cause notice, and such evidence should also be made a part of the show cause notice."
This Court is not persuaded to opine that an exception can be taken because the writ Court's directions are essentially because of the extended time that would be available if the ingredients necessary for commencement of the proceedings under Section 74 of the CGST Act are shown, and because the Writ Court [without expressing any opinion on the merits] has given liberty to the respondents to submit documents to satisfy the Authorities on whether [a] there must be a conversion of the proceedings from being under Section 74 of the CGST Act to the proceedings under Section 73 thereof, and [b] if it is permissible, to extend the HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
benefit under the Amnesty Scheme. The interference with the Show Cause Notice/Order-in- Original/Order-in-Appeal is only to facilitate the same.
Therefore, the respondents must be at liberty, as provided by the Writ Court to furnish the documents, and the Additional Commissioner of Central Tax (Anti-Evasion), Bengaluru must consider the same and pass just orders on examination of the factual matrix in the light of the decision of the Apex Court and the subsequent instructions. At this stage, this Court must also observe that if the Additional Commissioner of Central Tax (Anti-Evasion), Bengaluru is not persuaded by the request to convert the proceedings under Section 74 of the CGST Act to the proceedings under Section 73 thereof, the respondents must be at liberty to pursue their grievance in law against such decision, Show Cause HC-KAR NC: 2025:KHC:54190-DB AND 3 OTHERS
Notice/s, the Order/s-in-Original and the Order/s-in- Appeal.
Further, if the respondents are constrained to call in question the afore based on the outcome of the reconsideration, they must be entitled to seek exclusion of time spent in prosecuting the writ petitions and the time that is taken by the Additional Commissioner of Central Tax (Anti- Evasion), Bengaluru to decide on the request for conversion as also duration of pendency of these writ appeals, and the appellants must also be at similar liberty. It is needless to observe that all contentions, as observed by the writ Court, are kept open. (B M SHYAM PRASAD) JUDGE (T.M.NADAF) JUDGE
RB
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.