Madras HC Examines Validity of Section 74 SCNs Issued Allegedly Without 'Jurisdictional Foundation'

Madras HC Examines Validity of Section 74 SCNs Issued Allegedly Without ‘Jurisdictional Foundation’

Parallel Jurisdiction: Can the DGGI Chennai unit initiate fresh proceedings under Section 74 for a tax period that has already been investigated and covered by a Show Cause Notice (SCN) issued by the DGGI Vadodara unit?
Misuse of Section 74: Can the extended period of limitation under Section 74 be invoked solely to save a demand from being time-barred under Section 73, without any cogent evidence of fraud or suppression?
Writ Maintainability: Is a writ petition maintainable at the SCN stage if the notice is issued without the mandatory formation of opinion (“jurisdictional foundation”) regarding evasion?

Prior Investigation: The assessee, Siemens Gamesa Renewable Energy Power Pvt. Ltd., had already been investigated by the DGGI Vadodara unit. The Vadodara unit had examined the relevant contractual documents and issued an SCN for the disputed period.
Fresh Proceedings: Subsequently, the DGGI Chennai unit initiated fresh proceedings against the assessee for the same period invoking Section 74 (fraud/wilful misstatement).
Assessee’s Contention: The assessee argued that:
- The Chennai unit’s action constitutes jurisdictional overreach and double jeopardy.
- The invocation of Section 74 is a “colourable exercise of power” intended merely to bypass the expiry of the normal limitation period under Section 73.
- The mandatory objective evaluation (“reason to believe”) required to allege fraud is absent.

The Madras High Court admitted the batch of pleas for hearing, making significant observations on the legal threshold for Section 74:

“Where it appears” $\approx$ “Reason to Believe”: The Court observed that the phrase “where it appears” in Section 74 carries the same legal weight as “reason to believe.” It requires an objective evaluation of relevant material to form an opinion. It is not a subjective or arbitrary power.
Strict Compliance for Extended Limitation: Invoking the extended limitation period has serious civil and quasi-criminal consequences. Therefore, it requires strict compliance with constitutional safeguards under Article 265.
No Fraud, No Section 74: The Court noted that absent “cogent material evidence” demonstrating fraud or suppression, the extended period cannot be lawfully applied. It cannot be used as a safety net for departmental delays.
Writ Maintainability: While courts usually avoid interfering at the SCN stage, intervention is justified when proceedings are ex facie without jurisdiction or issued in violation of statutory preconditions (i.e., issuing a fraud notice without evidence of fraud).

Section 74 is Not a Substitute for Section 73: Tax authorities cannot casually switch to Section 74 (Fraud) simply because the time limit for Section 73 (Non-Fraud) has expired. They must prove the intent to evade.
Jurisdictional Foundation: An SCN issued without the foundational material to support allegations of fraud is legally defective and can be challenged in court.
One Authority Rule: Once one arm of the department (e.g., DGGI Vadodara) has seized jurisdiction and issued a notice, another arm (DGGI Chennai) cannot investigate the same matter, preventing harassment of the taxpayer.