Section 74 Invocation to be Considered as Preliminary Issue.

Issue: Whether the validity of invoking Section 74 of the CGST/KGST Act, which pertains to fraud, misstatement, or suppression of facts, should be treated as a preliminary issue before proceeding with final adjudication of a show cause notice.

Facts:

The respondent-department issued a show cause notice against the petitioner-assessee.
The petitioner filed a writ petition seeking to quash the show cause notice, arguing that the invocation of Section 74 was unjustified.
The respondent submitted that the petitioner’s reply to the show cause notice would be considered before final adjudication.

Decision:

The court, referring to the precedent set in WP(C) No. 31434 of 2024, directed that the validity of invoking Section 74 be treated as a preliminary issue before proceeding with final adjudication.
The respondent was instructed to consider the petitioner’s reply before issuing final orders.
The respondent was further directed to assess the petitioner’s objection regarding the applicability of Section 74 as a preliminary issue.
The court mandated that the petitioner be given an opportunity for a hearing before any final decision was made.
The writ petition was disposed of.
The ruling was in favor of the assessee.

Key Takeaways:

The validity of invoking Section 74 of the CGST/KGST Act should be treated as a preliminary issue.
The assessee’s reply and objections must be considered before final adjudication.
A reasonable opportunity for a hearing is essential before any final decision is made.
Case law precedents, such as WP(C) No. 31434 of 2024, play a significant role in determining how similar cases are handled.
Section 74 of Central Goods and Services Tax Act, 2017/Kerala State Goods and Services Tax Act, 2017 applied to this case.

HIGH COURT OF KERALA

Honey Rose Varghese

State of Kerala

Gopinath P., J.

WP(C) NO. 41590 OF 2024

NOVEMBER 25, 2024

Akhil Suresh, Kalliyani Krishna B., Isabell Manoj, Rahul T. and Amrith M.J., Advs. for the Petitioner. Thushara James, Sr. Adv. for the Respondent.

JUDGMENT

1. The petitioner has approached this Court seeking the following reliefs:

. “Issue a writ in the nature of certiorari, or any other appropriate writ, order or direction, quashing Exhibit P1 Show Cause Notice;

.Issue such other appropriate writ, direction or order as this Hon’ble Court may deem fit and necessary”.

2. The learned Senior Government Pleader submits that if any reply has been filed to the show cause notice, the same shall be considered before final orders of adjudication are issued.

3. The learned counsel appearing for the petitioner would submit that the only remaining grievance of the petitioner is that there is no ground for invoking the provisions of Section 74 of the Central Goods and Services Tax/State Goods and Services Tax Acts, 2017 (CGST/SGST Acts) in the facts and circumstances of this case. It is submitted that the petitioner will be satisfied if a direction is issued as in the judgment of this Court dated 12-09-2024 in WP(C)No.31434 of 2024, where this Court permitted the noticee in that case to take up the contention before the adjudicating authority that the notice invoking provisions under Section 74 of the CGST/SGST Acts is not warranted, and with a further direction to the adjudicating authority to treat that issue as a preliminary issue and to take a decision in that matter before proceeding further with the adjudication.

4. Having heard the learned counsel for the petitioner and the learned Senior Government Pleader and having regard to the directions issued by this Court in Ext.P3 judgment dated 12-09-2024 in WP(C)No.31434 of 2024, this writ petition will also stand disposed of directing that the reply filed by the petitioner as Ext.P2 and in respect of which Ext.P5 acknowledgement has been issued shall be considered by the adjudicating authority before final orders are passed on the show cause notice. Further, the adjudicating authority shall also consider any objection raised by the petitioner regarding the question as to whether there were any grounds to issue notice under Section 74 of the CGST/SGST Acts. The adjudicating authority shall consider such objection (if raised) as a preliminary issue, and orders shall be passed on the same before proceeding further with the adjudication of the show cause notice. The petitioner shall be afforded an opportunity of hearing before any orders are passed as directed above.

5. Writ petition ordered accordingly.