Remand to Reclassify Section 74 Orders as Section 73 Notices for Amnesty Eligibility; 50% Deposit Ordered.

Remand to Reclassify Section 74 Orders as Section 73 Notices for Amnesty Eligibility; 50% Deposit Ordered.

Issue

Whether a taxpayer, against whom adjudication orders have been passed under Section 74 (alleging fraud/suppression) for multiple assessment years, can seek a remand to the Adjudicating Authority to re-examine the applicability of Section 74 versus Section 73, specifically to enable them to avail the benefit of waiver of interest and penalty under the Section 128A Amnesty Scheme, provided they undertake to pay the admitted tax liability.

Facts

• Assessment Years: 2017-2018, 2019-2020, 2020-2021, and 2022-2023.

• The Orders: The GST department issued Show Cause Notices (SCNs) and passed adjudication orders invoking Section 74 of the CGST Act, which alleges fraud, willful misstatement, or suppression of facts.

• Assessee’s Non-Participation: The assessee did not respond to the SCNs, leading to ex-parte orders.

• Payment Status:

  • For 2017-18 and 2019-20, the tax liability was paid in full.

  • For 2022-23, only 50% of the disputed tax was paid.

• Assessee’s Plea: The assessee approached the High Court with an undertaking not to dispute the tax liability. Their challenge was confined to the invocation of Section 74 (fraud), interest, and penalty.

  • Objective: To get the proceedings reclassified under Section 73 (non-fraud) so they could be eligible for the Section 128A Amnesty Scheme, which waives interest and penalty for Section 73 demands (for years up to 2019-20) if the tax is paid.

Decision

• The Madras High Court disposed of the writ petition by remanding the matter back to the Adjudicating Authority.

• Invocation of Section 75(2): The Court directed the authority to examine whether the proceedings, initially launched under Section 74, ought to have been under Section 73. The Court relied on the powers under Section 75(2), which allows a charge of fraud (Section 74) to be re-determined as a normal demand (Section 73) if the fraud element is not established.

• Fresh Adjudication: The impugned orders were set aside and directed to be treated as Show Cause Notices (SCNs). The assessee was granted an opportunity to file a fresh reply and contest the fraud allegation.

• Conditions:

  • The remand was subject to the assessee depositing the balance 50% of the disputed tax for the assessment year 2022-2023.

  • The Court noted the tax for the other years (covered by the Amnesty Scheme period) was already paid.

Key Takeaways

• Gateway to Amnesty (Section 128A): The Section 128A waiver of interest/penalty is generally available for demands raised under Section 73 (non-fraud). Taxpayers stuck with Section 74 orders are using writ jurisdiction to seek a “re-characterization” of the demand to Section 73 to access this benefit.

• Section 75(2) as a Bridge: This section is a critical tool. It mandates that if an appellate authority/court finds that the charges of fraud/suppression (Section 74) are not sustainable, the notice shall be deemed to be issued under Section 73. This automatic conversion saves the demand from being time-barred while removing the fraud stigma.

• Conditions for Remand: Courts are willing to grant this opportunity only if the revenue is secured. Hence, the direction to pay the remaining tax (50% for the non-amnesty year 2022-23) was a prerequisite for the fresh hearing.

• Strategic Litigation: By undertaking not to dispute the tax, the assessee effectively narrowed the dispute to just the “nature of the offense” (Fraud vs. Error), a smart strategy to save on interest and penalty costs under the amnesty scheme.