M/S. Deem Distributors Private LTD vs. Union Of INDIA
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Cause title — parties, addresses and appearances
The Court made the following: COMMON ORDER lA NO: 1 OF 2021 petitiorn,naer section 15'l cPc praying that in the circun stances stated in the affidavit filed in support of the petition, the High Court may be :leased to stay all further proceedings pursuant to ref no. HQAE No. 10/2019(part file) dated. 2510412019, Summons issued in the ref D|N.202012rt6YQ000000c616 Dt.22l12t2o2o, summons issued in the ref DlN. 20201256YQ0000444C87 Dl,22lo1l2o21, Form GST DRC.01A in Ref No.'HQAEno 10/2018(PF) Dt.22lO1l2o21, summons issued in the ref DlN. 20201256YQ000061186D at.o5lo2l2o21, issued by and on behalf of Respondents 3 and 4 in respect of lnput Tax Crediton the analogy of order passed in l.A. No. 2 of 2021 ir w.P. No. 5823 of 2021 dated 0910312021 . lA NO: 2 OF 2021 Between:
HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO AND I{ONOURABLE SRI JUSTICE T.VINOD KUMAR COMMON ORDER: (Pcr Hon'ble Sri Justice tu[,5. Ramachanclra Roo) l'hc Brcligrou n rl facts The petitioner is a partnership firm and is registered under the Telangana GST Act,2017, CGST Act,20l'l and IGST Act,20l7 and is involved in the business of dealing in goods and services relating to Ferous waste and scrap, re-melting scrap ingots of iron or steel, flat rolled products of iron or non-alloy steel of a width of 600 mm or hot rolled, not clad, plated or coated etc.
In the instant case, the 4'h respondent issued a letter dt.25.04.2019 to the petitioner saying that the petitioner had availed input tax credit on the basis of invoices issued by cefiain suppliers/firms. It is stated in the said letter that the investigations conducted by the departmental officials reveal that the said suppliersifirms are fictitious and are issuing fake invoices with an intent to pass on input tax credit, and it appears that the said credit was availed by the petitioner in a fraudulent manner without receiving any nraterial, and the petitioner was requested to reverse the input tax credit of Rs. 1,52,35,8201- availed on such invoices immediately. LA.No.2 of 2021 in/and WRIT PETITION No.7063 of 2021
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The 3'd respondent sent an intimation of lax ascertained as being payable on 22.01.2021 saying that petitioner ir; liable to pay Rs.l ,,17 ,35,822i - for the period February, 201 8 to March, 20 I 8 and he was being advised to pay it, failing which a show cause would be issued under sub-Section (l) ofSection 74 ofthe Act.
No doubt summons have been issued to the l)irector of the petitioner firm under Section 70 of the Act to give evidence / depose statement and to produce certain purchase orders anrl to appear on 24.12.2020 and 25.01 .2021 vide summons d1.21t.12.2020 and 22.01.2021 respectively but admittedly investigatic,n against the petitioner is not complete and no notice under Sub-section (1) of Sec.74 ofthe Act has been issued to it. Contentions of Couns el for ner
The petitioner is assailing the conduct of respondents in directing it to remit the amount availed as input tax crodit at the stage of summons itself without following due procedure utrder Section 74 of the CGST Act,2017 (for short 'the Act').
Petitioner contends that to buy peace with the rer;pondent and to avoid coercion, petitioner had paid Rs.10.00 lakhs on 30.04.2019 and Rs.25,00 lakhs on 13.09.2019 and the respondents ar(: not entitled to make such a demand. 7 . According to the Counsel for the petitioner, lia,tility cannot be determined by respondents before conducting enquiry when even the 3 investigation is incomplete; any advise or demand by the respondents 3 and 4 can at best be a provisional one; and when no enquiry has been initiated, petitioner cannot be compelled coercively to pay amounts to the respondents and this violates Art.14 and 300-A of the Constitution of India. I ..\.\ o.1 of 2021 in W.P.N o.7063 of 2021
On 23.03.2021, in I.A.No.1 of 2021 in W'P'No'7063 of 2021' this Court initially granted interim stay of all further proceedings pursuant to the demand dt.25.04'2019 issued by 4'h respondent and also the summons issued to the petitioner, and the said order was also extended on 06.04.2021 aod 19.07 .2021 ' I.A,No.2 of 2021 g. I.A.No.2 of 2021is filed to vacate the said order' he sta of th res o den l0'Inthecounter-affidavitfiledonbehalfofrespondents,itis admitted in para-7 that investigation proceedings are s'il/ going on against the petitioner and have not been concluded' I l. In para-8 of the counter-affidavit, reference is made to the intelligence information obtained from the Assistant Commissioner' Balasore Division, and it is contended that the intelligence passed on by them is very much actionable and on that basis, summons had been issued on 09.09.2019 and statement was recorded on 13'09'2019 from the Director of the petitioner firm.
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Though certain allegations are leveled againr,t petitioner ln para-10 to 13 of the counter affidavit, they require n be put to the petitioner by way of a notice under Section 74 of the Act for the petitioner to respond. 13. lt is adrritted in para-15 of the counter-af'fidavit that no notice for tax demand has been serued or raised under Secticn 74 of the Act as the investigation is still in progress and had not rear:hed finality. lt is contended that pending investigation, petitioner uas nrlr,rsed, before issue of show cause notice, based on the intetligenct: received from the other Commissionelates to pay the amount of tax along with applicable interest and penalty under Section 74(5) olthe Act
In para-18 ofthe counter-affidavit, it is specifi:ally stated that since investigation is under progress, no notice fbr a tax demand has been made or raised under Section 74 of the Act. The consideration lry the Court
Section 74 of the Act deals with determination of tax not paid availed or trtilized by reason of fraud or any wilful-misstatement or suppression of facts. It states:
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Determination of tax not paid or short paid or erroneously refunded or input ta-x credit wrongly availed or utilized by reaso,l oftraud or any wilful-misstatentent or suppressiott of facts:- (l) Wheru it appears to the proper fficer that any tax has not been paid or short pc:id or etoneously refunded or where input tar credit has been wrongly availed or utilized by reason of fraud, or any wilful-misstatement or supprcssion of facts to or short paid or erroneously refunded or input tax credit wrongly
evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so shorl pai(l or to vthom the refiutd has erroneottsly been matle, or who has wrongly at'ailed or utilized input toi credit, requiring him to show cat$e as to v'hv he shottld not pav the amotmt speci,fied in the notice along *-ith interest pavable thereon tmder Section 50 and a penalty equivalent to tax specified in the notice' (2) The proper offrcer shall issne lhe notice under sub'section (l) at least 6 months prior to the time limit specified in sub-Sectioh (10) for issuance of order. (3) Where a notice has been issued for any period under sub-Section (l)' tlte proper Officer may serve a statement' containing the details of tax not paid or shorr paid or etoneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under sub- Section (l ), on the person chargeable wilh tax' (4) The service o-f statemett under sub-Section (3) shall be deemed to be senice qf notice under sub'secrion (l) o.f Section 73' subject to the conclition rhar the grottntls relied upon in rhe said statemenl' excePt the grotmd or ji'aud, or any wilfitl-misstatement or slrppression of 'facts to evade tax,.[or pcriods olher llnn those cot'ered under sub'Section (]) or the same as are mentioned in earlier nolice' (5) Tlrc petsons chargeable tax mav' be'fore service of notice under sub' Section (l), pay the antount of tax along with inlerest payable under Section 50 and a penalty equh'alent to l5 per cenl of such tax on lhe basis of his o*-n ascertainnxent of such tax or the tax as ascertained by the proper office and inform the proper offcer in writing of such payment' (6) The proper oficer, on receipt of such information' shall not serve any notice under sub-section (l), in respecr of the tax so paid or any penalty payable under the provisions ol this Act or the Rules malde lhereunder' (7) Where the proper offcer is of rhe opinion that the amount paid under sub-Section (5) falls short of the amount actually payable' he shall proceed tu issue the notice as provided for in sub'section (l) in respect of suclt amotmt which.falls short of the amounl acnrally payable' (8) l4here any person chargeable tax under sub-section (l) pays the said far along with interest payable under Seclion 50 and a penalty equivalenl
6 to 25 per cent of such tax wilhin 30 days of issue oJ'the notice, all proceedings in respect of thc said notice shall be deemetl ro be concluded. (9) The proper oficer shall, a,fter considering the reprcsentation, { any, made by the person chargeable with tax, determine th z amount o.f tax, interest and penalty due from such person and issue an or:ler. (10) The proper offce shall issue the order under Section 9 within a period of./ive years from the due date for furnishing of'annual return ;fbr the .financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates ,o or within 5 years from the date of erroneous refund. (l l) Where any person served with an order issued und.zr sub-Section (9) pays the tax along with interest payable thereon under Section 50 and a penalty equtvalent to 50 per cent of such tax within 30 days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded. ...."
A reading of the above provision indicates thal a notice in sub- Section (1) of Section 74 of the Act may be issued by the proper officer if he is of the opinion that the input tax credit has been wrongly ayailed or utilized by reason of fraud, or any wilful- misstatement or suppression of facts, to the person rvho has wrongly availed or utilized input tax credit, requiring him to jhow cause as to why he should not pay the amount specified in the notice along with interest payable thereon under Section 50 and a penillty equivalent to the tax specified in the notice. Sub-Section (5) ofSection 74 ofthe Act, hou'ever, enables the person chargeable with tax to, before service of notice under sub- Section (1) of Section 14, pay the tax along witt interest payable under Section 50 and a penalty of lsoh ofsuch tax cn the basis ofhis
7 / own ascertainment of such tax or the tax ascertained by the proper officer and infbrm the proper officer in writing of such payment. Sub-Section (9) of Section 74 of the Act enables the proper officer to determine the amount of tax, interest and penalty due from such person and issue an order, if the contents of the notice are disputed. 17 . The tenor of the counter affidavit filed by respondents suggests that a conclusion appears to have been drawn on the basis of the incomplete investigation already done that petitioner had availed input tax credit and raised invoices by certain fictitious suppliers without actual receipt of goods.
We do not see how, without there being a determination of liability of the petitioner in any enquiry conducted under the Act, a demand for reversal of input tax credit or payment of tax with interest for penalty, can be raised by respondents.
In our opinion, sub-Section (5) ofSection 74 ofthe Act gives a choice to the tax payer to make any payment, dhe is so chooses,bul it does not confer any power on the respondents to make a demand as if there has been a determination of liability of the Assessee and demand tax along with interest and penalty.
Before ascertainment of liability, the 4th respondent could not have issued the letter dt.25.04.2019 to the petitioner asking him
8 immediately reverse the input tax credit of Rs.1,52,3j;,g20A allegedly availed 21 . Also no advisory j uri ict ion is conferred on th: respondents to issue any 'adt'ises' of the nature issued to the petitioner bv 3.d respondent on22.1.2021 asking him to pay Rs.l,l7 ,35,g221_ .
In our opinion, no tax demand can be issued or raised when investigation is still in progress. The respondents cannot be allowed to put the cart before the horse and collect any tax, interest or penalty before they determine, in an enquiry, afier. putting the petitioner/assessee of notice, and we are of the opinion that their action is wholly arbitrary and without juri iction.
Accordingly, the Writ petition is allowed; the respondents are restrained from coercing the petitioner to make any payment without issuing notice under Section 74(l) of the Act ano following the procedure therein; and they are directed to refund Rs.35,00,000/- already paid by petitioner with interest @7% p.a fiom the date of payment till date of refund within four (04) weeks fiom the date of receipt ofa copy ofthis order.
It is however made clear that respondents can proceed with the investigation as well as enquiry under the provisic,ns of the Act against the petitior.rer and act strictly in accordance with the Act. 25. l.A.No.2 of 2021 is dismissed. No costs.
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Consequently, miscellaneous petitions, pending if any, shall stand closed. NOTE: That the Name of the Advocate which is read as "B. Narasimha Sarma, SC for Central Excise" in the appearance and address portion of the Order dated 03.08.2021 in l.A.No. 2 of 2021 in/and WP.No. 7063 of 2021 is corrected and substituted as "Sri. B. Narayana Reddy, Senior Standing Counsel for Central Excise, Customs and Service Tax" as per the letter dated 25.08.2021 filed by the Advocate. This amended order shall substitute the earlier order which has already been dispatched on 21 .08.2021 //// To, N/P B.SATYAVATHI ASSISTANT REGISTRAR B.SATYAVATHI ASSISTANT REGISTRAR h-/t" SECTION OFFICER '1 . The Secretary to Government, Department of Revenue, Union of lndia, Ministry of Finance, New Delhi.
The Commissioner of Central Tax, Ranga Reddy, GST Commissionerate, Posnett Bhavan, Tilak Road, Ramkote, Hyderbad-500001 .
The Additional Commissioner and Proper Officer, O/o The Commissioner of Central Tax, Ranga Reddy GST Commissionerate Posnett Bhavan, Tilak Road, Ramkote, Hyderbad-500001 .
The Superintendent, (Anti-Evasion), O/o The Commissioner of Central Tax, Ranga Reddy GST Commissionerate Posnett Bhavan, Tilak Road, Ramkote, Hyderabad-500001
One CC to Sri A. Deepthi, Advocate [OPUC]
One CC to Sri Namavarapu Rajeshwar Rao, Assistant Solicitor General (OPUC)
One CC to Sri B. Narayana Reddy, Senior Standing Counsel for Central Excise, Customs and Service Tax (OPUC)
Two CD Copies.
One Spare Copy. t-" *_--
! HIGH COURT DATED:0310812021 DATED:2510812021 AMENDED COMMON ORDER I.A.NO.2 0F 2021 IN/AND W.P.No.7063 ot 2021 ALLOWING THE WRIT PETITION AND DISMISSING THE I.A.NO.2 OF 2021 /L )co 4.'.- '.o' r 0 Ji r 20t1 EP I ( t t.Jir \ 7 i> .<.\ -t W 6s\'1 z-r\ (9 o;
Reproduced from the public record of the Telangana High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.