Patna High Court Upholds Section 74 Show-Cause Notice Based on Audit Findings — Distinguishes Supreme Court Rulings in GR Infra and Tata Steel

The Court held that where audit reveals huge amounts of non-payment in blatant defiance of law and the assessee fails to comply, the proper officer’s satisfaction of suppression suffices for invoking Section 74.

In a detailed judgment running counter to the recent trend of courts quashing Section 74 notices for want of specific fraud allegations, the Patna High Court has upheld a show-cause notice issued under Section 74 of the CGST Act based on audit findings, holding that the proper officer was justified in forming the view that the case involved willful suppression of facts to evade tax [Amit Agency v. Commissioner, CGST & CX & Ors.].

The bench of Justices Rajeev Ranjan Prasad and Sunil Dutta Mishra carefully distinguished the Supreme Court’s recent rulings in M/s GR Infra Projects Ltd. v. State of M.P. and M/s Tata Steel Ltd. v. Union of India. The Court noted that in Tata Steel, the department itself had contested the audit objection before the Public Accounts Committee — indicating a lack of satisfaction — and the SCN contained only a “bland statement” of suppression without foundational facts.

In the present case, the Court found critical distinguishing factors: the audit revealed non-payment of GST amounting to Rs. 32,75,632 across multiple heads including delayed filing of GSTR-1 without paying late fee, non-payment of GST under RCM, and short payment of tax. The petitioner had not contested the final audit report, had not complied with the audit findings within the stipulated 15 days, and the SCN specifically stated that these facts would have gone unnoticed but for the audit — indicating an “outright act in defiance of the law.”

The Court held that sitting in extraordinary writ jurisdiction, it was not to examine the sufficiency of the proper officer’s reasons for forming the opinion of willful suppression, relying on the Supreme Court’s ruling in Sanand Properties Pvt. Ltd. v. Joint Commissioner of Income Tax. The Court observed that where the assessee is aware of obligations but does not comply and cannot satisfy the officer of bona fides, the proper officer would be competent to invoke Section 74.

The petition was dismissed with liberty to file an appeal within one month, with the appellate authority directed to consider it on merits.

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