GST - Powers u/s 74(3) of CGST Act, 2017 cannot be exercised for expanding or enlarging liability arising out of SCN issued u/s 74(1) for same period: HC
By TIOL News Service
AHMEDABAD , MAY 01, 2018: PETITIONER-company is engaged in supply of wheat flour, meslin flour, cereal flour etc.
Case of the petitioners is that they are supplying such goods in packets which are branded as well as unbranded. According to the petitioners, the packings of more than 25 kgs are branded goods, the rest are unbranded.
On 20.02.2018, the departmental authorities visited the petitioners' work premises and noticed that the petitioners were not paying any tax either on branded or unbranded goods.
According to the petitioners, under threat and coercion, the departmental authorities collected three cheques for a total amount of Rs. 19,74,886/-. The petitioners, however, instructed the bank not to clear the cheques and accordingly, when the departmental authorities produced such cheques for realization, they were returned by the bank.
This is the first grievance of the petitioners of the departmental authorities having forcibly collected cheques even before the petitioners' tax liability was ascertained.
On 27.02.2018 –
(i) A show-cause notice was issued calling upon the petitioners why CGST and SGST totalling to Rs. 36,88,706/- (on the branded goods) not be recovered for the period between July 2017 and 20.02.2018 ;
(ii) Simultaneously, on the same date, the department wrote to the petitioners' banks provisionally attaching the petitioners' said bank accounts and instructed the banks not to allow the petitioners to operate the accounts without the prior permission of the department.
The provisional attachment orders have also been challenged in this Petition.
On 19.03.2018 , the adjudicating authority issued fresh notice under the purported exercise of powers under section 74(3) of the Central Goods and Services Tax Act calling upon the petitioners to show cause why a sum of Rs. 1,29,13,928/- towards CGST and SGST not be recovered (on branded as well as unbranded goods) for the period between July 2017 and 20.02.2018 .
This second show-cause notice, the petitioners have challenged on the ground of lack of jurisdiction.
The High Court observed -
++ With respect to the collection of three cheques for a sum of Rs. 19,74,886/-, the action of the department cannot be countenanced. It has been held by this Court and other High Courts of the country that the practice of collecting post-dated cheques under coercion during raid is not permissible means of collection of revenue particularly, when no tax demand has been confirmed or crystallized.
The departmental authorities were directed to return such cheques.
As regards the SCNs dated 27.02.2018 and 19.03.2018 (issued u/s 74(3)), the High Court extracted section 74 of the CGST Act, 2017 and inter alia observed –
++ Powers under sub-section (3) of section 74 would be available where notice has already been issued against the person chargeable with tax under sub section (1) and the statement referred to in sub-section (3) of section 74 would be containing the details of tax unpaid, short paid etc. for purpose other than those covered under sub-section (1). In other words, powers under sub-section (3) of section 74 cannot be exercised for expanding or enlarging the liability arising out of show-cause notice under sub-section (1) from the same period. Essentially, sub-sections (1) and (3) of section 74 are envisaged to cover separate periods.
It was, therefore, concluded that if the authorities found that the liability of tax, interest or penalty, larger than one indicated in the statement referred to in sub-section (1) is likely to arise, the remedy does not lie in issuing second notice under sub-section (3) of section 74 of the Act.
The impugned notice dated 19.03.2018 was quashed.
In the matter of attachment of bank accounts, the High Court noted that the only notice for recovery of tax that survives is one seeking to recover GSTs of Rs. 30 lacs approximately with interest and penalty.
Adverting to section 83 of the Act, the High Court observed that nothing is demonstrated by the department either in the orders of attachment or in the affidavit filed,the reason why exercise of such drastic power of attachment of bank accounts was necessary. Hence the same were set aside.
Nonetheless, security was directed to be provided by the petitioner so that eventually, if the tax liability is confirmed, the department is not left with no means to recover the same.
Conclusion:
The Petition was disposed of thus -
+ The respondents shall return the petitioners three cheques collected on 20.02.2018.
+ Second show-cause notice dated 19.03.2018 is set aside.
+ The provisional attachment of the petitioner's two bank accounts is removed subject to the petitioners maintaining at all times a stock worth minimum sum of Rs. 50 lacs till the final disposal of the adjudication proceedings arising out of show-cause notice 27.02.2018. An undertaking to be filed in this regard by the petitioner.
(See 2018-TIOL-2771-HC-AHM-GST)
