No Penalty If Taxes and Interest Paid Before Issuance of GST SCN : Telangana HC

 

 

The Hon’ble Telangana High Court in the case of Rays Power Infra Pvt. Ltd. v. Superintendent of Central Tax [Writ Petition 298 of 2024 on February 28, 2024], ruled that if the assessee clears all the tax obligations including interest at any day, before the issuance of show cause notice, they shall not be obligated for any additional taxes through the method of penalty or interest and the proceedings will be deemed concluded.

The Telangana High Court ruled that the Revenue Department exceeded its jurisdiction by initiating recovery proceedings through a show cause notice (SCN) and a subsequent demand order (FORM GST DRC-07) against a taxpayer who had already paid the full tax amount related to the wrongful availment of Input Tax Credit (ITC). The taxpayer has the option to file a writ petition rather than go through the appeals process, the court ruled, quashing the demand order on the grounds that the SCN was inherently flawed.

According to the court, Section 74 of the CGST Act, which addresses situations involving fraud, misrepresentation, or suppression of facts, could only be used in the event that there was substantial evidence that the taxpayer had engaged in these activities.

Since the taxpayer had settled the tax liability along with the accrued interest upon discovery of the audit findings, the Revenue’s attempt to categorize the taxpayer’s actions under fraud or misstatement was negated.

It was emphasized that, in accordance with Sections 73(5) and (6) of the CGST Act, no further proceedings should be taken by the appropriate official and all procedures are considered to have been completed if a taxpayer settles the tax liability with interest prior to the issuing of a SCN.

The High Court clarified that Section 73 (1) of the CGST Act permits a taxpayer to rectify wrongly availed or utilized ITC by paying the required tax amount plus interest, indicating that further proceedings for the same tax issue cannot be pursued once the tax liability with interest is paid.

The copy of the order is as under: