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2025 (1) TMI 1518 - HC - GSTApplicability of penalties under Section 74 of the CGST Act 2017 - petitioner s failure to pay GST and file returns within the stipulated time - suppression of facts or not - contravention of the provisions of Section 37 of the CGST Act - HELD THAT - Non-payment of tax would attract penalties under Section 74 (1) in three circumstances. The first two circumstances are fraud and wilful mis-statement. Both these require an intention to evade tax by unfair or illegal means. The third circumstance is suppression of fact which is also defined in Explanation-2 as non-declaration of relevant information. In view of the collocation of the terms before this term and in view of the requirement under the two earlier terms of mens rea the term suppression of facts would have to be read as wilful or deliberate suppression of fact for evading tax. The term evade puts this issue beyond controversy as this term means that the suppression must be for the purpose of evasion which clearly requires intention and mens rea. There can be no quarrel with this view relating to Section 74 (1) of CGST Act. Every non-payment of tax cannot be treated as evasion of tax by way of fraud wilful misstatement or suppression of facts. Every case needs to be looked into for ascertaining whether necessary evidence of fraud wilful misstatement or suppression of fact for the purpose of evading tax is available in the record and whether such material has been demonstrated before the authority. The scheme under section 74 appears to be in the nature of a permanent amnesty/settlement/compunding scheme where the tax payer liable to pay penalty under Section 74 is given an opportunity to voluntarily accept wrong doing and reduce the penalty that would be payable - While the petitioner had paid the tax prior to the issuance of notice under Section 74 (1) of the CGST Act the interest payable under section 50 was paid after the notice had been issued. Further penalty of 15% was not paid - The contention of the learned Senior Counsel that a notice under Section 74 could not have been issued as the tax had been paid prior to the issuance of the notice would have to be rejected. Non-filing of tax returns and non-payment of tax - petitioner had time up to 07.02.2020 to file the annual returns under Section 44 - HELD THAT - In the present case there has been a failure on the part of the petitioner in filing the monthly returns and making payment of tax under the said monthly returns. This may not amount to fraud or misstatement. Explanation-2 to Section 74 states that suppression for the purpose of the Act would mean non-declaration of facts or information which is required to be declared in the returns statement or report or any other document which needs to be furnished under the Act. To that extent non-filing of the monthly return would amount to suppression of fact. However the requirement under Section 74 is not fulfilled on mere suppression of fact. The said suppression of fact would have to be wilful suppression of facts. The petitioner herein has neither filed the monthly returns nor made the necessary payments of tax. The defense of the petitioner is that his sole client viz. M/s. Vijay Nirman Company had not paid its dues due to which the petitioner could not remit the necessary taxes along with returns. The appellate authority held that the petitioner had been paid certain amounts by his main client M/s. Vijay Nirman Company and as such there was no impediment for the petitioner to remit the necessary taxes - the appellate authority held that there was wilful suppression and upheld the penalty. In such a situation it is difficult to accept the contention of the petitioner that there was no wilful intention to suppress facts or the turnover of the petitioner and the requirement to pay tax. The other penalties levied against the petitioner are natural corollaries of the above finding and do not require any further consideration. Conclusion - i) Section 74 can be invoked for non-payment of tax if there is evidence of fraud wilful misstatement or suppression of facts. ii) Non-filing of monthly returns and non-payment of GST can constitute suppression of facts if it is wilful and intended to evade tax. iii) The statutory requirement to file monthly returns and pay GST is independent of the annual return deadline and non-compliance can attract penalties. Petition dismissed.
The judgment revolves around the applicability of penalties under Section 74 of the CGST Act, 2017, concerning the petitioner's failure to pay GST and file returns within the stipulated time. The petitioner, a partnership firm involved in infrastructure-based contracts, raised invoices inclusive of GST but failed to pay the tax due to insufficient funds received from its client. Subsequently, the petitioner paid the outstanding GST and filed the necessary returns before the issuance of a show cause notice. However, penalties were still imposed, leading to the current legal challenge.
Issues Presented and Considered: The core legal issues considered by the Court were:
Issue-wise Detailed Analysis: 1. Invocation of Section 74: The petitioner argued that Section 74 could not be invoked as the GST and interest were paid before the issuance of the show cause notice. The Court examined the legal framework under Section 74, which allows for penalties in cases of fraud, wilful misstatement, or suppression of facts to evade tax. The Court referenced precedents, including judgments from the Supreme Court and High Courts, to interpret the scope of Section 74. The Court concluded that non-payment of tax due to insufficient funds does not automatically imply fraud or wilful suppression. However, since the petitioner did not pay the interest before the notice and failed to pay the 15% penalty as required under Section 74(5), the invocation of Section 74 was deemed appropriate. 2. Suppression of Facts: The Court analyzed whether the failure to file monthly returns and pay GST constituted "suppression of facts." Section 74 requires that suppression be wilful and aimed at evading tax. The Court noted that the petitioner had not filed monthly returns or paid GST, which could amount to suppression. However, the Court emphasized that suppression must be wilful, requiring intent. The appellate authority found that the petitioner had received some payments from its client, which could have been used to pay GST, indicating wilful suppression. The Court upheld this finding, concluding that the petitioner's actions met the criteria for wilful suppression under Section 74. 3. Timing of Annual Returns: The petitioner contended that the deadline for filing annual returns had not passed, implying that penalties were premature. The Court rejected this argument, highlighting the statutory requirement to file monthly returns and pay GST under Sections 37 to 39 of the CGST Act. The Court clarified that non-compliance with monthly obligations could lead to penalties under Section 74, irrespective of the annual return deadline. Significant Holdings: The Court upheld the penalties imposed under Section 74, emphasizing the following principles:
The Court dismissed the writ petition, affirming the penalties imposed by the appellate authority, and ruled that the petitioner's failure to meet the conditions under Section 74(5) justified the issuance of the show cause notice and subsequent penalties.
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