Facts of the Case

Shri Basavaraj V. Sajjan, registered under the Central Goods and Services Tax Act / Karnataka Goods and Services Tax Act, 2017 and engaged in works contract services, filed returns for Assessment Year 2018-19. The department, dissatisfied with the returns, initiated proceedings under Section 74 alleging fraud or suppression, and the Additional Commissioner passed an adjudication order dated 28.11.2024 (Annexure C1) at Kalaburagi. The petitioner challenged the show cause notice dated 30.09.2023 and the consequent order before the High Court of Karnataka, Kalaburagi Bench, seeking that the demand be treated as one under Section 73 instead of Section 74, and that he be permitted to avail the amnesty scheme under Section 128A of the CGST/SGST Act. The matter was heard and decided by a single Judge on 01.07.2025.

Issues Involved

  1. Whether proceedings alleging short payment of GST arising from delayed receipt of consideration from a government department amount to fraud, wilful misstatement or suppression of facts warranting Section 74.
  2. Whether such a demand should instead be treated as one under Section 73, which does not require an element of fraud or suppression.
  3. Whether the petitioner's disclosure of the transaction to tax authorities negated any suppression.

Petitioner's Arguments

  • The petitioner had performed works contract services for the Public Works Department and had not received the differential GST amount from PWD, causing delay in payment of tax.
  • The transaction with PWD, including the consideration received, had been disclosed to both the Income Tax Department and the GST authorities, negating any element of concealment.
  • Non-recovery of dues from PWD could not be treated as suppression of facts, and the petitioner was willing to pay whatever amount was still determined to be due.
  • The only relief sought was that the order be treated as one under Section 73 rather than Section 74, so as to also avail the benefit of the amnesty scheme under Section 128A.

Respondent's Arguments

  • The department justified the impugned order and sought dismissal of the writ petition, maintaining that Section 74 proceedings were rightly invoked.
  • However, the department's counsel could not dispute that the petitioner had in fact disclosed the PWD transaction and the consideration received to the authorities.

Court Order / Findings

  • The Court explained that Section 73 applies to short payment or wrong availment of credit for reasons other than fraud or suppression, while Section 74 requires fraud, wilful misstatement or suppression of facts.
  • Finding that the petitioner had disclosed the PWD transaction and the consideration received, the Court held there was short payment of GST but no suppression of facts, since the respondent could not controvert this disclosure.
  • The Court accordingly directed that the impugned order at Annexure C1 be treated as one passed under Section 73 of the CGST/KGST Act rather than under Section 74.
  • The petition was disposed of in these terms (ordered accordingly), without disturbing the quantum already determined.

Important Clarification

  • Mere short payment of GST caused by a payer's own delay in receiving consideration from a client (including a government department) does not, by itself, constitute suppression of facts under Section 74.
  • Disclosure of the underlying transaction to tax authorities is a strong indicator against invoking the fraud/suppression limb, and courts will recharacterise such demands under Section 73.
  • Recharacterisation from Section 74 to Section 73 is significant because it opens the door to reduced penalty exposure and eligibility for amnesty benefits such as Section 128A.

Sections Involved

  • Section 73, CGST/KGST Act, 2017 — determination of tax not paid or short paid for reasons other than fraud, wilful misstatement or suppression of facts.
  • Section 74, CGST/KGST Act, 2017 — determination of tax not paid or short paid by reason of fraud, wilful misstatement or suppression of facts, attracting higher penalty.
  • Section 128A, CGST/SGST Act, 2017 — amnesty scheme providing conditional waiver of interest and penalty for specified past periods.

Decision – In Favour of

Disposed of in part in favour of the assessee. The tax demand itself was not disturbed, but the order was directed to be treated as one under the milder Section 73 rather than Section 74, enabling amnesty benefits.

Case Details

Court: High Court of Karnataka, Kalaburagi Bench
Case No.: Writ Petition No.200889 of 2025 (T-RES)
Neutral Citation: 2025:KHC-K:3536
Coram: Hon'ble Mr. Justice M.I. Arun
Date of Decision: 01.07.2025

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