GST show-cause notice quashed as Gauhati High Court holds extended Section 74 limitation requires material showing wilful tax evasion

The petitioner, a Class I contractor, executed a National Highway project under an agreement dated 8 December 2010 with the Assam PWD, NH Works. The contract was completed on 30 October 2020.

Price-adjustment amounts relating to the contract were subsequently paid to the petitioner, including ₹36.47 crore under a bill dated 25 October 2022, after statutory deductions.

The petitioner disclosed the receipt in its audited balance sheet, income-tax filings and GST annual return, but treated the amount as exempt on the bona fide belief that GST was not payable on price adjustments relating to a pre-GST contract.

The GST authorities investigated the matter under Sections 67(1) and 70 of the CGST Act.

On 4 August 2024, the respondents issued a show-cause notice under Section 74(1) of the CGST Act demanding ₹4,37,73,372 for July 2017 to March 2023, along with interest and penalty, alleging suppression, wilful misstatement and intent to evade tax.

The petitioner challenged the notice under Article 226 of the Constitution, contending that the statutory preconditions for invoking Section 74(1) were absent and that the notice was time-barred.

The Court applied Section 74(1) of the CGST Act, which permits recovery of unpaid or short-paid tax only where such non-payment is by reason of fraud, wilful misstatement or suppression of facts with intent to evade tax.

Explanation 2 to Section 74, as applicable during the relevant period, defined suppression as non-declaration of facts or information required to be declared in returns or failure to furnish information sought in writing by the proper officer.

The Court relied on Pushpam Pharmaceutical Co. v. CCE, Anand Nishikawa Co. Ltd. v. CCE, Continental Foundation Joint Venture Holding v. CCE, CCE v. Ballarpur Industries Ltd., Uniworth Textiles Ltd. v. CCE, CCE v. H.M.M. Ltd., Associated Cement Companies Ltd. v. Commissioner of Customs, CCE v. Chemphar Drugs and Liniments and Cosmic Dye Chemical v. CCE for the principles that mere non-payment, omission or an incorrect declaration does not establish wilful suppression; suppression requires a deliberate withholding of information with intent to evade tax, and the burden lies on the Revenue to establish the jurisdictional ingredients for the extended limitation period.

The Court further applied the Article 226 exceptions to the alternative-remedy rule, particularly where proceedings are wholly without jurisdiction, arbitrary, or founded on failure to consider relevant material.

The Court found that the petitioner had disclosed the receipt of the price-adjustment amounts in its audited balance sheet, income-tax filings, GST annual return and declaration before the GST authorities.

Treating the receipts as exempt was, on the record, a legal and factual misunderstanding arising from the pre-GST nature of the contract and the manner in which the Assam PWD and the Ministry prepared and approved the bills; it was not a deliberate concealment of the receipts.

The show-cause notice merely asserted that the petitioner had failed to self-assess correctly and that such failure was deliberate, without identifying material demonstrating fraud, wilful misstatement or suppression with intent to evade tax.

The Court also noted that the authorities had not obtained crucial information regarding the dates of completion of the relevant works and had issued the notice hurriedly to prevent the limitation period from expiring.

Mere non-payment or incorrect self-assessment could potentially support an ordinary tax demand, but could not, without more, justify the exceptional invocation of Section 74(1) and the extended limitation period.

Since the jurisdictional conditions for Section 74(1) were absent, the notice was not merely legally erroneous but issued in excess of jurisdiction.

The petitioner’s disclosure of the relevant receipts and its bona fide claim of exemption did not constitute fraud, wilful misstatement or suppression of facts with intent to evade tax.

The show-cause notice dated 4 August 2024 was therefore held to be arbitrary, time-barred and without jurisdiction.

The writ petition was allowed; the impugned notice was quashed by issuance of a writ of certiorari, and the consequential levy of penalty, surcharge and interest was also set aside.

No order as to costs was made; pending interlocutory applications were dismissed and any interim order stood merged with the final judgment.