2025 (3) TMI 1236 - HC - GST

Valid issuance of SCN or not - suppression of facts or not - refund for the tax period of October 2017 to March 2018 - HELD THAT - As is manifest from a reading of the impugned SCN it merely observes that the petitioner wrongfully claimed a refund by misrepresenting that the transactions in question would constitute an export of services. The Department asserts in the SCN that the services provided by the petitioner were intermediary services with the place of supply being in India and thus disentitling it from claiming a refund. The Court in Parity Infotech 2023 (3) TMI 489 - DELHI HIGH COURT had found that the SCN merely reproduced the statutory language of Section 74 without any tangible material or independent reasoning to support the allegation of fraud or misstatement. Consequently the SCN was held to have been issued mechanically and thus the invocation of Section 74 being wholly unwarranted. The Allahabad High Court has in HCL Infotech Ltd. v. CCT 2024 (9) TMI 1644 - ALLAHABAD HIGH COURT further clarified that in order to invoke the extended time period of five years under Section 74 of the Act the SCN must clearly set out the specific acts of commission or omission on the basis of which an opinion may be formed that benefits had been claimed by reason of fraud misstatement or suppression of facts. Conclusion - The SCN appears to have been issued solely to avoid the inevitable consequences which flow from our decision rendered inter partes in the earlier round of litigation. It is opined that a claim for refund cannot be legally or justifiably stalled by the adoption of circuitous means as the present. Petition disposed off.

1. Issues Presented and Considered

The core legal issues considered in this judgment include:

Whether the Show Cause Notice (SCN) issued under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) was validly issued, given the absence of specific allegations of fraud, wilful misstatement, or suppression of facts.
Whether the petitioner was entitled to a refund for the tax period of October 2017 to March 2018, as previously affirmed by the Order-in-Appeal dated 09 March 2021 and upheld by the Court in an earlier decision.
Whether the respondents could initiate proceedings for the same tax period that had already been assessed and affirmed by the Court.

2. Issue-Wise Detailed Analysis

Validity of the Show Cause Notice under Section 74 of the CGST Act

Relevant Legal Framework and Precedents: Section 74 of the CGST Act allows for the issuance of a SCN when tax has not been paid, short-paid, or erroneously refunded due to fraud, wilful misstatement, or suppression of facts. Precedents, such as Parity Infotech Solutions (P) Ltd. v. State (NCT of Delhi) and HCL Infotech Ltd. v. CCT, emphasize the necessity for specific allegations to invoke Section 74.
Court's Interpretation and Reasoning: The Court found the SCN lacking in specific allegations of fraud or misstatement. It emphasized that the invocation of Section 74 requires clear allegations and cannot be based on a mere incantation of statutory language.
Key Evidence and Findings: The SCN merely alleged that the petitioner wrongfully claimed a refund by misrepresenting transactions as exports of services. However, it did not provide specific reasons or evidence of fraud or misstatement.
Application of Law to Facts: The Court applied the legal standards established in previous cases, finding the SCN to be mechanically issued without the requisite specific allegations, thus rendering it invalid.
Treatment of Competing Arguments: The respondents argued that the refund was erroneously granted due to misrepresentation. However, the Court found no material evidence supporting this claim in the SCN.
Conclusions: The Court concluded that the SCN was issued without jurisdiction and was thus invalid.

Entitlement to Refund for the Tax Period of October 2017 to March 2018

Relevant Legal Framework and Precedents: The Order-in-Appeal dated 09 March 2021 had affirmed the petitioner's entitlement to a refund, which was upheld by the Court in a previous decision.
Court's Interpretation and Reasoning: The Court reiterated that the respondents were bound by the Order-in-Appeal and the Court's previous decision, which had affirmed the petitioner's entitlement to a refund.
Key Evidence and Findings: The Court noted that the respondents had not obtained a stay against the Order-in-Appeal, thus obligating them to disburse the refund.
Application of Law to Facts: The Court applied the principle that an appellate order must be respected unless stayed or overturned, finding the respondents' actions to be contrary to this principle.
Treatment of Competing Arguments: The respondents' intention to appeal the Order-in-Appeal did not justify withholding the refund, as no stay had been obtained.
Conclusions: The Court concluded that the petitioner was entitled to the refund, and the respondents' actions were unjustified.

3. Significant Holdings

Verbatim Quotes of Crucial Legal Reasoning: "We are of the firm view that absent the same, the jurisdiction assumed by the respondent under Section 74 is clearly erroneous and untenable."
Core Principles Established: A SCN under Section 74 must contain specific allegations of fraud, wilful misstatement, or suppression of facts. Appellate orders must be respected unless stayed or overturned.
Final Determinations on Each Issue: The SCN dated 03 August 2024 was quashed as it was issued without jurisdiction. The petitioner was entitled to the refund for the tax period of October 2017 to March 2018, and the respondents were directed to disburse the refund promptly.