Can GST officers issue a fraud notice without proof? Madras HC explains
The Madras High Court has ruled that GST officers need not conclusively establish fraud before issuing a notice under Section 74 of the CGST Act. The judgment clarifies the legal threshold for invoking fraud proceedings under the GST law.
The Madras High Court has clarified that GST authorities are not required to conclusively establish fraud before issuing a show cause notice under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017.
In M/s Fastenex Private Limited vs State Tax Officer & batch matters, Justice C. Saravanan held that a proper officer can issue a notice under Section 74 if the material available on record is sufficient to form a prima facie opinion that tax has not been paid, has been short paid, or input tax credit has been wrongly availed or utilised because of fraud, wilful misstatement or suppression of facts. Whether those allegations are ultimately proved will be decided during adjudication after the taxpayer is given an opportunity to respond.
What does the CGST Act provide?
According to Section 73 of the CGST Act, proceedings can be initiated where tax has not been paid, has been short paid, has been erroneously refunded, or input tax credit has been wrongly availed or utilised for reasons other than fraud, wilful misstatement or suppression of facts.
According to Section 74 of the CGST Act, proceedings apply where the tax shortfall or wrongful input tax credit is alleged to have resulted from fraud, wilful misstatement or suppression of facts to evade tax. The Act prescribes a longer limitation period and higher penalties for proceedings under Section 74 than those under Section 73.
Before the High Court, the petitioners argued that the department should establish fraud before invoking Section 74 and that notices based solely on audit reports or inspection findings were invalid.
