Sutha vs. The State Tax Officer(Inspection-3)

Held

The Court held that while the revenue's contention regarding the discovery of a mismatch during inspection was noted, the fact that the petitioner did not participate in the proceedings under Section 74, coupled with the prior discharge of the entire tax demand, warranted an opportunity for the petitioner to contest the matter. The Court found that the interest of justice required that the petitioner be given a chance to contest the invocation of Section 74. Consequently, the impugned orders were set aside. The matters were remanded for reconsideration, with the reconsideration limited to the imposition of a 100% penalty under Section 74 and the computation of interest. The petitioner was to be provided a reasonable opportunity to present their case. A fresh order was to be issued within five months from the date of receipt of the Court's order. The Court did not decide on the merits of the tax demand itself, focusing on the procedural aspect and the breach of natural justice.

Facts

The petitioner filed five writ petitions challenging assessment orders passed by the State Tax Officer (Inspection-3) for the tax periods 2019-20, 2020-21, 2022-23, 2023-24, and 2024-25. The impugned orders were issued under Section 74 of the applicable GST statutes. The petitioner contended that the tax demand under each order was discharged prior to the issuance of the respective orders, and therefore, proceedings under Section 74 should not have been initiated. The respondents argued that the proceedings were preceded by an inspection that revealed a mismatch between the petitioner's GSTR-3B returns and GSTR-7 returns filed by deductors, justifying the Section 74 proceedings. It was an agreed position that the petitioner did not participate in the Section 74 proceedings.

Key Issues

1. Whether proceedings under Section 74 of the applicable GST statutes are justified when the entire tax demand has been discharged by the assessee prior to the issuance of the assessment order? Petitioner's contention: The petitioner argued that since the tax demand was discharged before the orders were passed, the initiation of proceedings under Section 74 was inappropriate. The petitioner relied on the principle that Section 74 is typically invoked for cases of fraud, wilful misstatement, or suppression of facts, and once the tax is paid, the need for such stringent proceedings might be questionable, especially if principles of natural justice were breached by not allowing participation after payment. Revenue's contention: The revenue contended that the proceedings under Section 74 were justified because an inspection revealed a mismatch between the petitioner's GSTR-3B returns and the GSTR-7 returns filed by deductors. This mismatch indicated a potential evasion or discrepancy that warranted investigation under Section 74, irrespective of the subsequent discharge of the tax demand. The revenue argued that the inspection and discovery of the mismatch preceded the orders, validating the invocation of Section 74.