NARODA ENVIRO PROJECTS LTD. vs UNION OF INDIA
- Court
- Gujarat High Court
C/SCA/17756/2023 (GJHC240669982023) JUDGMENT DATED: 02/09/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 17756 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE A.S. SUPEHIA Sd/-
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI Sd/-
==========================================================
Approved for Reporting Yes No
✔
==========================================================
NARODA ENVIRO PROJECTS LTD. & ANR.
Versus
UNION OF INDIA & ORS.
==========================================================
Appearance:
UCHIT N SHETH(7336) for the Petitioner(s) No. 1,2
MS HETVI H SANCHETI(5618) for the Respondent(s) No. 1,3,4,5
RULE SERVED for the Respondent(s) No. 2
==========================================================
CORAM: HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
Date : 02/09/2026
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)
1. In the present writ petition, the petitioners
have prayed for quashing and setting aside the
show-cause notice dated 05.09.2023 issued under
section 74 of the Central Goods and Services Tax
Act, 2017 read with section 74 of the Gujarat
Goods and Services Tax Act, 2017 (for short “the
GST Acts”).
BRIEF FACTS :
2. The petitioners preferred an application for
registration under section 12AA of the Income Tax
Act, 1961 (for short “the Act”) on 22.02.2006,
which was rejected by the authorities.
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Ultimately, the said action was subject matter of
challenge before the Income Tax Appellate
Tribunal, which remanded the matter for fresh
consideration. Thereafter, the Director of Income
Tax (Exemption), Ahmedabad granted registration
to the petitioner No.1 under section 12AA of the
Act w.e.f. 21.12.2005. Registration under section
25 of the Companies Act, 1956 was also granted.
3. It appears that an issue arose with regard to
the status of the petitioner being questioned to
the extent as to whether it carries its
activities for charitable purposes defined under
section 2(15) of the Act, which ultimately
resulted into the proceedings before the
Commissioner of Income Tax (Appeals), allowing
the appeals in favor of the petitioner granting
exemptions to the petitioner No.1, which were
further subject matter of challenge before the
Income Tax Appellate Tribunal (for short “the
Tribunal”). The Tribunal rejected the appeals
filed by the Department, which ultimately
culminated into the tax appeals being Tax Appeal
No.627 of 2015 and allied matters before this
Court. By the judgment and order dated
29.07.2019, this Court held that the petitioner
No.1 is engaged in charitable activity by way of
preservation of environment. The issue thus, got
concluded so far as the activities of the
petitioners were concerned and no further
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challenge has been made. Civil Appeal No.8839 of
2022 filed by the Commissioner of Income Tax
(Exemptions) against the judgment and order of
this Court dated 29.07.2019 was disposed of on
30.01.2025 by the Apex Court in view of low tax
effect.
4. After the introduction of the Goods and
Services Tax (GST) regime w.e.f. 01.07.2017, the
petitioners were under an impression that since
the entity was duly registered under section 12AA
of the Act and was engaged in undertaking the
charitable activities, it claimed exemptions
under the Notification No.12/2017-Central Tax
(Rate) dated 28.06.2017 and did not pay the GST.
As the petitioners were claiming exemptions, they
were not entitled to claim Input Tax Credit under
the GST Acts, which resulted into incurring
losses. Thereafter, the petitioners obtained
registration under the GST Acts and started
paying Output Tax rather claiming exemptions, as
they would be entitled for Input Tax Credit. From
13.05.2022, after obtaining registration under
the GST, they stopped claiming exemption under
the entry relating to the charitable activities.
5. It appears that on 23.11.2022, a search was
conducted at the premises of the petitioner No.1,
and it was alleged that the petitioners had
erroneously not paid tax for the period prior to
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13.05.2022. The petitioners accordingly, started
paying tax w.e.f. 13.05.2022 since the claim for
exemption was leading to losses. However, the
respondent authority issued notice in Form GST
DRC-01A on 21.06.2023 proposing to demand tax
with interest and penalty under the GST Act for
the period from 01.07.2017 to 12.05.2022. The
petitioners responded and objected the proposed
demand by filing its objection on 27.06.2023. The
petitioners also pointed out the judgment of this
Court rendered in the aforesaid tax appeals and
requested to drop the demand. However, on
05.09.2023, the respondent No.3 proceeded to
issue the impugned show-cause notice-cum-demand
notice under section 74 of the GST Act. The
petitioners have assailed this notice before this
Court.
SUBMISSIONS ON BEHALF OF THE PETITIONERS :
6. Learned submissions of learned advocate
Mr.Sheth appearing for the petitioners at the
outset, has submitted that the impugned show-
cause notice is required to be quashed and set
aside in view of the judgment dated 29.07.2019
passed by this Court in Tax Appeal No.627 of 2015
and allied matters, wherein the Court, after
detailed examination, has held that the
activities of the petitioners fall within the
expression "preservation of environment" by
providing "pollution control treatment for
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disposal of liquid and solid industrial waste",
and it is also registered under the provision of
section 12AA of the Act. It is submitted that the
respondents have entirely ignored the judgment of
this Court, though it was pointed out by the
petitioners in their representation.
7. It is submitted by learned advocate Mr.Sheth
that the Notification No.12/2017 dated 28.06.2017
does not stipulate any rate of GST under Chapter
99 relating to the services by an entity
registered under section 12AA of the Act, which
undertake charitable activities as defined under
the provision of clause(iv) of Notification
No.12/2017 dated 28.06.2017. It is submitted that
petitioner No.2 has only given honorary service
to the petitioner No.1, which itself is not a
profit company, and the provision of section 74
of the GST Act does not get attracted in the case
of the petitioners, as petitioner No.2 did not
have any mala fide intention of deviation, and
hence the proposal for imposition of personal
penalty on him is therefore, wholly without
jurisdiction.
8. Learned advocate Mr.Sheth has further
Submitted that there was no question of intent of
fraud, wilful suppression, misstatement of facts
and hence, the ingredients of section 74 of the
GST Act would not get attracted in the case of
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the petitioners. He has submitted that the
petitioners have acted bona fidely as per the
notification dated 28.06.2017. Thus, it is urged
that the impugned show-cause notice may be
quashed and set aside.
SUBMISSIONS OF THE RESPONDENTS
9. Opposing the present writ petition and
foregoing submissions, learned Senior Standing
Counsel Ms.Sancheti has submitted that the
petitioners cannot be extended the benefit of the
judgment of this Court dated 29.07.2019 rendered
in the aforesaid tax appeals since the same deals
with the provisions of the Act, whereas the
provisions of GST Acts operate in different
realm. It is contended that the findings recorded
by this Court in the judgment dated 29.07.2019
will not apply to the GST exemption scheme. In
support of her submissions, she has referred to
the Notification No.11/2017-Central Tax (Rate)
dated 28.06.2017 and the Chapter heading 9994
mentioning "sewage and waste collection treatment
and disposal and other environmental protection
services" which specifies levy of 9% GST on such
services. It is submitted that the Entry No.1 of
Notification No.12/2017 dated 28.06.2017, on
which the reliance is placed, will not apply in
case of the petitioners since the provision of
clause 2(r)(4) of the Notification No.12/2017
though includes "preservation of environment" in
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head of charitable activity however, the same
cannot be read to cover a commercial fee-based
affluent treatment services rendered by any
industrial units of Naroda GIDC in discharging of
those units own statutory pollution control
obligations for a specified consideration
invoiced under a distinct taxable classification.
10. It is submitted by learned Senior Standing
Counsel that the petitioners did not file GST
return for nearly 5 years despite being
registered w.e.f. 01.07.2017 and cancelled the
registration suo moto and continued to render
admittedly taxable service worth
Rs.79,53,00,000/-, without discharging any GST.
It is submitted that the onus lies on the
petitioners to disclose tax liability, failing
which the invocation of provision of section 74
of the GST Act is legally sustainable. Thus, it
is urged that the present petition may not be
entertained.
ANALYSIS AND OBSERVATIONS
11. We have heard the learned advocates appearing
for the respective parties and also perused the
documents, as pointed out by them.
12. The facts which are established from the
records and pleadings are as under:
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(a) The petitioner No.1 is registered under the
provision of section 12AA of the Act.
(b) The issue with regard to its charitable
activities was deliberated upon by this Court in
the Tax Appeal No.627 of 2015 and allied matters
filed by the Commissioner of Income Tax. Issue
No.1, which is incorporated in paragraph No.18
therein dismissing the appeals filed by the
Revenue is as under:
“[1]Whether on the facts and in the circumstances,
the Income Tax Appellate Tribunal was justified in
affirming the view of the Commissioner (Appeals) that
the activities of the assessee fall within the ambit
of Preservation of Environment as envisaged under
section 2(15) of the Income Tax Act, 1961?”
(c) After threadbare examination of the order
passed by the Income Tax Appellate Tribunal,
Ahmedabad dated 29.01.2015 and the activities
undertaken by the petitioners, the Coordinate
Bench in the judgement and order dated 29.07.2019
passed in Tax Appeal No.627 of 2015 and allied
matters has held thus:
“50. The ratio discernible from the aforesaid
decision is that once the procedure is completed as
provided under sub-section (1) of Section 12AA of the
Act and a certificate is issued granting registration
to the trust or institution, it is apparent that the
same is a document evidencing satisfaction about (I)
the genuineness of the activities of the trust or
institution and (ii) about the objects of the trust
or institution. While framing the assessment order,
it is not open to the Assessing Officer to ignore the
certificate of registration granted under Section
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12AA of the Act by the Director of Income Tax
(Exemption). It is not permissible for the Assessing
Officer to go behind the registration obtained by the
assessee under Section 12AA of the Act.
51. The legislature has consciously used the word
“preservation”. Preserve means, to keep something in
its original form or keep it in good condition. To
put it in other words, to preserve is like keeping
things the way they are. The only question is whether
preservation would include protection?. To protect
means, to keep away from harm or danger. As noted
above, to preserve is like keeping things the way
they are, same as protect, but this one is more like
you are keeping it safe from a potential threat. One
simple example of preservation could be “the fossil
was perfectly preserve for hundreds of years”. If the
trade effluent or the liquid or solid, waste
generated by the polluting industries is treated in a
central treatment effluent plant, the same could be
said to be in the direction of protecting the
environment. Would this be synonymous to
“preservation of environment”. Section 2(15) for the
purpose of preservation of environment has included
watersheds, forests and wildlife, and at the same
time, it also talks about preservation of monuments
or places or objects of artistic and historic
interest. One thing is for sure that while preserving
anything, indirectly or directly, that thing is also
protected.
xxx xxx xxx
94. The CIT (A) and the Income Tax Appellate Tribunal
have concurrently held that taking an overall view,
the dominant objects of the assessee are charitable
as the dominant object is not only preservation of
environment, but one of general public utility and,
therefore, the assessee is entitled to seek exemption
under Section 11 of the Act. The Tribunal is the last
fact finding body. As a principle, this Court should
not disturb the findings of fact in an appeal under
Section 260A of the Act unless the findings of fact
are perverse.”
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(d) Thus, the issue with regard to the activities
undertaken by the petitioners relating to
charitable activities was answered by the this
Court in favor of the petitioners and it was held
that the petitioner entity is entitled to seek
exemption under section 11 of the Act.
(e) As recorded previously, the civil appeals
were disposed of in view of low tax effect by the
Apex Court vide order dated 30.01.2025.
13. Reading the observations of this Court in
juxtaposition to the Notification No.12/2017-
Central Tax (Rate) dated 28.06.2017 will clarify
that the activities of the petitioners would fall
within the clause 2(r)(iv), under chapter 99. The
relevant extract of the said Notification reads
as under:
“Notification No. 12/2017- Central Tax (Rate)
New Delhi, the 28th June, 2017
G.S.R......(E). In exercise of the powers conferred
by sub-section (1) of section 11 of the Central Goods
and Services Tax Act, 2017 (12 of 2017), the Central
Government, on being satisfied that it is necessary
in the public interest so to do, on the
recommendations of the Council, hereby exempts the
intra-State supply of services of description as
specified in column (3) of the Table below from so
much of the central tax leviable thereon under sub-
section (1) of section 9 of the said Act, as is in
excess of the said tax calculated at the rate as
specified in the corresponding entry in column (4) of
the said Table, unless specified otherwise, subject
to the relevant conditions as specified in the
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corresponding entry in column (5) of the said Table,
namely:-
Table
SI.
No
Chapter,
Section,
Heading,
Group or
Description of Services Rate
(per
cent.)
Condition
Service
Code
(Tariff)
(1) (2) (3) (4) (5)
1 Chapter 99 Services by an entity
registered under Nil section
12AA of the Income-tax Act,
1961 (43 of 1961) by way of
charitable activities.
Nil Nil
(r) “charitable activities” means activities relating
to- … … …
(iv) preservation of environment including watershed,
forests and wildlife;”
14. Thus, the rate prescribed under the
Notification No.12/2017 dated 28.06.2017 for the
entities registered on section 12AA of the Act,
which carry out charitable activities and are
found under chapter 99 and the activities which
mentioned in clause 2(r)(iv) relating to
preservation of environment including watershed,
forest, and wildlife is “Nil”.
15. The respondents have placed reliance on
Notification No.11/2017-Central Tax (Rate) dated
28.06.2017. This notification is issued though on
the same date, is numbered as Notification No.11,
which is prior to Notification No.12, as
mentioned in and above. The respondents have
placed reliance on the Entry No.32 specifying
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Heading 9994 under Chapter 99 and section 9 of
the Notification No.11/2017-Central Tax (Rate),
which reads as under:
Sr.
No
Chapter,
Section or
Description of Services Rate
(per
cent.)
Condition
Heading
(1) (2) (3) (4) (5)
32 Heading
9994
Sewage and waste collection,
treatment and disposal and
other environmental
protection services
9 Nil
16. By resorting to this Chapter Heading 9994,
the respondents have issued the show-cause notice
under the provision of section 74 of the GST Act
dated 05.09.2023 in Form GST DRC-01 alleging that
the petitioners though were aware of the facts of
their services for treatment and disposal of the
affluent as taxable under the GST Acts, did not
pay tax deliberately which is in contravention of
the provisions of the GST Acts by resorting to
mis-declaration and willful suppression of facts
with a deliberate intent to evade payment of GST,
which is a taxable services falling under SAC
9994, as mentioned hereinabove and such acts of
omission and commission constitute an offense of
the nature and type as defined under section
132(1)(e) and (i) of the CGST Act and hence, are
liable to be proceeded further under the
provisions of section 74 of the GST Acts.
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17. We may at the outset, now deal with the
invocation of the provision of section 74 of the
GST Act upon the petitioners. The provision of
section 74(1) of the GST Act are relevant for
declaring the validity of the impugned show-cause
notice. The same reads as under:
“Section 74. Determination of tax
(1)Where it appears to the proper officer that any
tax has not been paid or short paid or erroneously
refunded or where input tax credit has been wrongly
availed or utilised by reason of fraud, or any
wilful-misstatement or suppression of facts to evade
tax, he shall serve notice on the person chargeable
with tax which has not been so paid or which has been
so short paid or to whom the refund has erroneously
been made, or who has wrongly availed or utilised
input tax credit, requiring him to show cause as to
why he should not pay the amount specified in the
notice along with interest payable thereon under
section 50 and a penalty equivalent to the tax
specified in the notice.”
18. A reading of the aforenoted provisions
manifests that for invocation of section 74 of
the Act requires a strict showing of malafide
intent, such as fraud, wilful misstatement, or
suppression. It is the specific case of the
petitioners, that they were not liable to pay GST
in view of the decision in Tax appeals and its
registration under section 12AA of the Act. The
Supreme Court in the case of M/s.Uniworth
Textiles Limited vs. Commissioner Of Central
Excise, Raipur, 2013(9) SCC 753, while examining
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the similar expressions of “wilfull misstatement
or suppression of facts found in section 28 of
the Customs Act, 1962 has held thus:
“15 In Anand Nishikawa Co. Ltd. V/s. Commissioner of
Central Excise, Meerut, (2005) 7 SCC 749, while
again referring to the observations made in Pushpam
Pharmaceuticals Company (supra), this Court
clarified the requirements of the proviso to Section
11- A, as follows:-
"26...This Court in the case of Pushpam
Pharmaceuticals Company V/s. Collector of
Central Excise, Bombay (supra), while dealing
with the meaning of the expression "suppression
of facts" in proviso to Section 11A of the Act
held that the term must be construed strictly,
it does not mean any omission and the act must
be deliberate and willful to evade payment of
duty. The Court, further, held :-
'In taxation, it ("suppression of facts") can
have only one meaning that the correct
information was not disclosed deliberately to
escape payment of duty. Where facts are known
to both the parties the omission by one to do
what he might have done and not that he must
have done, does not render it suppression.'
27. Relying on the aforesaid observations of
this Court in the case of Pushpam
Pharmaceutical Co. V/s. Collector of Central
Excise, Bombay [1995 Suppl. (3) SCC 462], we
find that "suppression of facts" can have only
one meaning that the correct information was
not disclosed deliberately to evade payment of
duty. When facts were known to both the
parties, the omission by one to do what he
might have done and not that he must have done,
would not render it suppression. It is settled
law that mere failure to declare does not
amount to willful suppression. There must be
some positive act from the side of the assessee
to find willful suppression. Therefore, in view
of our findings made herein above that there
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was no deliberate intention on the part of the
appellant not to disclose the correct
information or to evade payment of duty, it was
not open to the Central Excise Officer to
proceed to recover duties in the manner
indicated in the proviso to Section 11A of the
Act”.
16 In Collector of Central Excise V/s. H.M.M. Ltd.,
1995 Supp(3)SCC 322, this Court held that mere non-
disclosure of certain items assessable to duty does
not tantamount to the mala fides elucidated in the
proviso to Section 11A(1) of the Central Excise Act,
1944. It enunciated the principle in the following
way: -
"2.The mere non-declaration of the waste/by-product
in their classification list cannot establish any
wilful withholding of vital information for the
purpose of evasion of excise duty due on the said
product. There could be, counsel contended, bonafide
belief on the part of the assessee that the said
waste or by-product did not attract excise duty and
hence it may not have been included in their
classification list. But that per se cannot go to
prove that there was the intention to evade payment
of duty or that the assessee was guilty of fraud,
collusion, misconduct or suppression to attract the
proviso to Section 11A(1) of the Act. There is
considerable force in this contention.
Therefore, if non- disclosure of certain items
assessable to duty does not invite the wrath of the
proviso, we fail to understand how the non-payment
of duty on disclosed items, after inquiry from the
concerned department meets, with that fate.”
19. Thus, it is held by the Apex Court that "When
facts were known to both the parties, the
omission by one to do what he might have done and
not that he must have done, would not render it
suppression," and it may come to the aid of the
petitioners. It further held that mere failure to
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declare does not amount to wilful suppression.
Albeit, Explanation 2 to section 74 defines
‘suppression’; its ingredients will only get
satisfied by some positive act of the assessee
which establishes wilful suppression by
withholding vital information for evading tax. We
do not find that there was any intention to evade
payment of tax or that the assessee was guilty of
fraud, collusion, misconduct or suppression of
facts.
20. From the facts of the present case, we do not
find any malice intent or any deliberate
intention of the petitioners to evade tax or
suppression of facts to evade tax or fraud or
willful misstatement made in order to evade tax
in light of the judgment and order passed by
judgment of this Court in Tax Appeal No.627 of
2015 and allied matters read with the provisions
of Notification No.12/2017 dated 28.06.2017. The
petitioners had stopped claiming exemption and
have started paying tax since the exemption was
resulting in low tax liability as a result of
dis-allowance of Input Tax Credit. The same does
not in any manner, can be construed that they
have willfully and deliberately, in order to
avoid the liability of tax, done so and such
action would not mean that the exemption is not
available to the petitioners for the past period
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in light of the decision of this Court rendered
in the aforesaid tax appeals. This Court, while
examining the activities of the petitioners, has
categorically held that they are engaged in the
charitable activity by way of preservation of
environment for the purposes of the provision of
section 12AA of the Act. The GST regime also
refers to the provision of the Act i.e. the one
which is referred in the Notification No.12/2017
and prescribed and granting exemption from
payment of GST to the entities which are
registered under section 12AA of the Act which
carry on the charitable activities. Thus, the
respondents cannot ignore the decision of this
Court, which is rendered in the context of their
activities and the petitioners are registered
under the provision of section 12AA of the Act.
21. The Notification No.12/2017 dated 28.06.2017,
which is issued after Notification No.11/2017
deals with Chapter 99 and the entities which are
registered under section 12AA of the Act, which
undertake the charitable activities. The
provisions of Notification No.11 of 2017 and the
Chapter Heading 9994 prescribing levy of the GST
at the rate of 9% cannot be imposed upon the
petitioners since the same would be applicable to
the private entities, which carry out the
services as mentioned in Chapter 99.
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22. Thus, in our considered opinion, the impugned
show-cause notice, which has been issued in
ignorance of the decision of this Court rendered
in the aforesaid tax appeals laying quietus to
the activities carried out by the petitioners,
which is registered under section 12AA of the Act
cannot be sustained.
23. In light of the foregoing observations, the
writ petition succeeds. The impugned show-cause
notice dated 05.09.2023 is hereby quashed and set
aside. Rule made absolute.
Sd/-
(A. S. SUPEHIA, J)
Sd/-
(VAIBHAVI D. NANAVATI,J)
NVMEWADA/S-53
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