NON-FILING OF GST RETURNS AMOUNT TO SUPPRESSION OF FACTS

[DR.MARIAPPAN GOVINDARAJAN]

In M/S. SRIBA NIRMAN COMPANY VERSUS THE COMMISSIONER (APPEALS) , GUNTUR, CENTRAL TAX & CUSTOMS, VISAKHAPATNAM., THE JOINT COMMISSIONER OF CNTRAL TAX, VISAKHAPATNAM, THE JOINT CIRECTOR, DIRECTORATE GENERAL OF GST INTELLIGENCE, THE ASSISTANT COMMISSIONER (ST) , ARYAPURAM CIRCLE - 2025 (1) TMI 1518 - ANDHRA PRADESH HIGH COURT, the petitioner is a partnership firm carrying on the business of a works contractor, which is executing infrastructure-based Engineering Procurement Construction contracts. The business of the petitioner for the relevant period from July, 2017 to March 2018, was the execution of works, as a sub-contractor, for Vijay Nirman Company Limited. The petitioner raised 8 invoices during the month March, 2018 to the tune of Rs.20.92 crores, inclusive of GST of Rs.3.19 crores. The petitioner, though, received the payments from Vijay Nirman Company Limited, it did not pay the GST to the exchequer of the Government, since it used the same for the completion of the work. Therefore, the petitioner could not pay the tax and file GST returns in the GST portal within the schedule time.

The DGGI Officers, on the permission of Joint Director, DGGI, Visakhapatnam, visited the premises of the petitioner on 31.07.2018. During the search the officers of DGGI seized certain documents and also obtained depositions from the officers/officials of the petitioner. The petitioner realized his mistake and paid the entire tax along with interest in four instalments. The petitioner also filed the pending returns by 29.09.2018 for the financial year 2017 -18.

The third respondent issued a show cause notice on 20.08.2020. Again on 03.09.2020 the third respondent issued another show cause notice to show cause as to why-

• a tax amount of Rs. 3,19,12,233/- payable under the CGST, SGST and IGST Acts, should not be demanded;
• the payments made by the petitioner to the tune of Rs. 3,19,12,233/- earlier, should not be adjusted against such a demand;
•  interest at the applicable rates, under Section 50 of the CGST and corresponding Sections of CGST, SGST and IGST Acts, should not be demanded;
• penalty equivalent to the output tax mentioned above, should not be imposed under Section 122 (1) read with Section 74 (1) of the CGST Act, 2017 for contravention of CGST, SGST and IGST Acts.
• Penalty under Section 122 (2) and (b) of the CGST Act, 2017 and corresponding Sections of CGST, SGST and IGST Acts;
• penalty under Section 122 (3) (d) of the CGST Act and corresponding Sections of CGST, SGST and IGST Acts;
• penalty under Section 125 of the CGST Act, 2017 and corresponding Sections of CGST, SGST and IGST Acts; and
• late fee under Section 47 of the CGST Act, 2017 and corresponding Sections of CGST, SGST and IGST Acts.

The petitioner filed a detailed reply on 23.09.2021 to these show cause notices. The petitioner also attended the personal hearings on 23.09.2021 on which the petitioner filed reply. The Second respondent confirmed the demand and issued a show cause notice on 24.12.2021. The petitioner filed an appeal before the Appellate Authority against the said order. The First Appellate Authority, the first respondent in this case, after hearing the petitioner, confirmed the order of the lower authority on 19.08.2023. The appellate authority held that the petitioner had been paid certain amounts by his main client Vijay Nirman Company and as such, there was no impediment for the petitioner to remit the necessary taxes. Therefore, the appellate authority held that there was wilful suppression and upheld the penalty.

      Thereafter, the 4th respondent issued a notice dated 19.08.2023, demanding payment of Rs. 3,20,72,233/- failing which recovery action would be initiated under Section 79 of the CGST Act, 2017. The petitioner, being aggrieved against the said order filed a writ petition before the High Court. The petitioner submitted the following before the High Court-

• The provisions of Section 74 (5) of the GST Act, 2017 could not have been invoked merely on the ground that the petitioner had not paid pending GST taxes till the visit of the tax authorities on 31.07.2018. Such non-payment cannot be treated to have been done by way of fraud or that there was wilful misstatement or suppression of facts to evade tax.
• Section 74 of the GST Act can be invoked only where payment of tax had not been made before issuance of show cause notice under Section 74. In the present case, payments of all taxes had been completed by September 2018 itself whereas the show cause notice was issued on 03.09.2020, which is almost two years after the payment of the tax. As such, the necessary jurisdictional facts, to invoke Section 74 are not available.
• The last date for filing of annual returns and payment of any tax dues would actually be 07.02.2022, by virtue of Section 44 of the CGST Act, and the relevant circulars and proceedings. The question of non-payment of taxes would arise only after that date.
• Filing of return and payment of tax is sufficient compliance of the requirement of CGST Act and as such the question of invoking the penal provisions of either Section 73 or Section 74 or Section 122 of the CGST Act would not arise.
• Necessary interest of Rs. 25,49,481/- was paid, on 20.07.2022

The Department submitted the following before the High Court-

• Sections 37 to 39 of the CGST Act, read with necessary Rules, requires the registered dealers under the GST regime, to submit returns on a monthly basis, which is on or before the 20th day of the month succeeding the said tax period.
• Non-filing of monthly returns cannot be treated as suppression of facts, till the due date of the filing of the annual returns, is not acceptable, in as much as, the non-filing of monthly returns and non-payment of tax along with such monthly returns would amount to contravention of the provisions of Section 37 of the CGST Act and consequently, would also amount to suppression of fact and evasion of tax.

The High Court heard the submissions of the petitioner and the department. The High Court observed that every registered person, is required to furnish a return electronically of inward and outward supplies of goods and services or both, input tax credit available, tax payable, tax paid, and such other particulars, in the prescribed format, for every calendar month or part thereof, within 10 days of the expiry of the said month. The registered person shall also require to file an annual return, within such time and format as may be prescribed.  In this case the last date would be 07.02.2020.

The High Court was of the view that the primary dispute to be settled in this case is as to whether penalty under Section 74 (1) of the CGST Act can be levied, along with the other penalties, on the petitioner. The High Court analysed the provisions of Section 73 and 74 of the Act. The High Court observed that Section 74 is to be invoked where non-payment of tax occurs on account of fraud, wilful misstatement or suppression of facts for the purpose of evading tax. Where non-payment or short payment is for reasons other than the aforesaid reasons set out under Section 74, the provisions of Section 73 of the GST Act would be applicable.

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. The High Court found it 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 High Court, thus, dismissed the petition.