Himachal Pradesh High Court Sets Aside Aditya Industries' GST Notice, Says Fraud Must Be Backed By Facts

On 29 September, the Himachal Pradesh High Court set aside a show-cause notice alleging wrongful availment of Input Tax Credit (ITC) issued to Aditya Industries under Section 74 of the Himachal Pradesh GST Act on the ground that registrations of certain suppliers had been cancelled as they were found to be non-existent, among other reasons.

A Division Bench comprising Justices Ajay Mohan Goel and Yogesh Jaswal emphasised that a GST show-cause notice must set out the facts establishing how the taxpayer committed any of these acts with an intention to evade tax. It cannot invoke Section 74 merely by using the words “fraud”, “wilful misstatement” or “suppression of facts”. The judges observed:

“The Authority has to be very very clear and categoric as to whether the act of the incumbent amounts to fraud or willful misstatement or suppression of facts. Same has to be correlated with the allegations as are contained in the notice. The provisions of Section 74 of HP GST Act cannot be used just as a lip service...”

The Court explained that Section 74 applies where tax has not been paid or has been short-paid, or where ITC has been wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts with an intention to evade tax. It said these conditions must therefore be reflected in the show-cause notice itself.

Referring to the Supreme Court's decisions in Tata Steel Limited v. Union of India and G.R. Infra Projects Limited Ratlam v. State of Madhya Pradesh, it said that merely mentioning fraud or suppression mechanically would not be sufficient. The facts forming the basis for such allegations must be evident from the notice.

In the present case, the Bench found that the authority itself was unclear whether the alleged conduct amounted to fraud, wilful misstatement or suppression of facts. It also found no proper connection between the allegations in the notice and the requirements for invoking Section 74.

Accordingly, the High Court set aside the show-cause notice while granting liberty to the authority to issue a fresh notice, if advised. It directed that if a fresh notice is issued within 60 days, limitation would not come in the way of its issuance. It kept open Aditya Industries' challenge to certain provisions of Section 16 of the CGST Act.

For the Petitioner: Mr. Ajay Vaidya, Advocate.

For the Respondents: Mr. Anup Rattan, Advocate General, with Mr. Sushant Keprate, Additional Advocate General