Non-filing of GSTR-3B despite taxable supplies constitutes willful suppression; Section 74(5) benefit denied.

Non-filing of GSTR-3B despite taxable supplies constitutes willful suppression; Section 74(5) benefit denied.

Issue

1. Willful Suppression: Whether the failure to file monthly GSTR-3B returns and pay tax, despite raising taxable invoices and receiving partial payments, constitutes “willful suppression of facts” invoking the extended period and penalty under Section 74 of the CGST Act.

2. Escape Clause (Section 74(5)): Whether the assessee is entitled to the benefit of concluded proceedings (escape clause) under Section 74(5) by merely depositing the tax and interest after an inspection, without paying the mandatory 15% penalty.

Facts

• Default: The assessee, a works contractor, raised invoices aggregating to Rs. 20.92 crores (inclusive of GST of Rs. 3.19 crores) during the Financial Year 2017-18 (specifically March 2018).

• Non-Compliance: Despite raising these invoices, the assessee failed to file the monthly GSTR-3B returns and did not remit the tax to the exchequer.

• Inspection & Payment: The default was detected during an inspection by the Directorate General of GST Intelligence (DGGI). Following the inspection, the assessee deposited the entire tax liability along with interest in installments and filed the pending returns.

• Show Cause Notice: The Department subsequently issued a Show Cause Notice (SCN) demanding the tax (already paid) and imposing a 100% penalty under Section 74, alleging willful suppression.

• Assessee’s Defense: The assessee argued that the non-payment was due to financial hardship (non-receipt of full payments from their client) and not fraud. They claimed the benefit of Section 74(5), arguing proceedings should be deemed concluded upon payment of tax and interest.

• High Court Ruling: The Andhra Pradesh High Court held that knowing the liability and yet failing to file the mandatory returns constituted “willful suppression.” It ruled that Section 74(5) requires payment of Tax + Interest + 15% Penalty. Since the assessee failed to pay the 15% penalty before the notice, the benefit was unavailable.

Decision

• Supreme Court Review: The Supreme Court reviewed the petition seeking reconsideration of its earlier order (which had dismissed the SLP against the High Court’s judgment).

• Review Dismissed: The Apex Court found no error apparent on the record in its earlier decision refusing to interfere with the High Court’s findings.

• Suppression Confirmed: The Court upheld the view that deliberately withholding GSTR-3B filings while engaging in taxable transactions amounts to suppression of facts to evade tax.

• Penalty Sustained: The imposition of the full penalty was sustained as the conditions for the “escape clause” under Section 74(5) (i.e., voluntary payment of tax, interest, and 15% penalty) were not met by the assessee.

Key Takeaways

Non-Filing is Suppression: Deliberately failing to file GSTR-3B returns to hide tax liability, especially after raising invoices, is treated as “willful suppression of facts,” justifying the invocation of Section 74 (fraud cases) rather than Section 73.

Section 74(5) Pre-requisites: To close proceedings before a Show Cause Notice under Section 74(5), a taxpayer must pay Tax + Interest + 15% Penalty. Paying only the tax and interest is insufficient to avoid the formal adjudication and higher penalties (50% or 100%).

Financial Hardship Irrelevant: Cash flow issues or non-payment by clients are not valid legal defenses for failing to file statutory returns or pay collected tax to the Government.