Once section 61 scrutiny proceeding is dropped subsequent notice under section 74 invalid - says Punjab & Haryana High Court
Section 74 Proceedings Invalid After Dropping Section 61 Scrutiny – Contradictory Jurisdiction Not Permissible
Date & Year of Judgment
4th November 2024
The Court has clarified that once scrutiny proceedings under Section 61 are dropped as satisfactory, the same issue cannot be resurrected under Section 74 on identical grounds.
Case Reference
M/s JSB Trading Co vs State of Punjab and another
CWP-14843-2023 (O&M)
1. Main Issue Involved
Whether proceedings under Section 74 of the CGST/PGST Act can be validly initiated and continued after scrutiny proceedings under Section 61, on the same issue and for the same financial year, have been dropped by the Proper Officer as satisfactory.
The issue goes to jurisdictional consistency — whether the Proper Officer can take two contradictory stands on the same subject matter.
2. Sections and Rules Discussed
Section 61 – Scrutiny of Returns
Section 74(1) – Determination of tax involving fraud/suppression
Section 74(5) – Pre-notice voluntary payment
Section 75(4) – Mandatory personal hearing
Rule 142(1A) – DRC-01A intimation
The Court examined the statutory sequence between Section 61 scrutiny and Section 74 adjudication.
3. Facts of the Case
Petitioner engaged in iron scrap business.
ITC claimed for FY 2017-18.
Notice under Section 61 dated 05.09.2022 issued for scrutiny of ITC.
Petitioner replied.
On 28.02.2023, ASMT-12 issued — reply found satisfactory; no further action required.
Meanwhile, on 23.02.2023, DRC-01A issued proposing demand under Section 74(5).
Subsequently, SCN under Section 74(1) dated 21.04.2023 issued.
Final order passed on 14.06.2023 imposing tax, interest, penalty.
Petitioner challenged proceedings.
The same Proper Officer first found reply satisfactory, then proceeded under Section 74 on identical grounds.
4. Petitioner’s Submissions
Once Section 61 proceedings were dropped, same issue cannot be reopened under Section 74.
Proceedings under Section 74 are vitiated.
Personal hearing under Section 75(4) was not granted.
The order is contradictory and without jurisdiction.
Petitioner raised both jurisdictional defect and violation of natural justice.
5. State’s Submissions
Proceedings under Section 74(5) were initiated prior to dropping Section 61.
Dropping of Section 61 proceedings was erroneous.
Petitioner did not properly respond under Section 74.
Order valid.
Revenue attempted to treat Section 74 proceedings as independent and unaffected by Section 61 outcome.
6. Analysis and Findings of the Court
The Court carefully examined the statutory scheme.
A. Nature of Section 61
Section 61 provides for scrutiny of returns and consequential action only if reply is not satisfactory.
B. Preconditions for Section 74
The Court reiterated that Section 74 can be invoked only when fraud, wilful misstatement or suppression exists.
C. Contradictory Findings by Same Officer
The Court found that:
On 23.02.2023, while issuing DRC-01A under Section 74(5), the officer stated reply under Section 61 was unsatisfactory.
On 28.02.2023, the same officer dropped Section 61 proceedings as satisfactory.
Two contradictory stands cannot co-exist.
Important Observations of the Court
(Para 10)
“The sine qua non for initiating proceedings under Section 74 are that the concerned officer should reach to a conclusion that the ITC has been wrongly availed or utilized by reason of fraud or any wilful mis-statement or suppression of facts to evade tax.”
(Para 12)
“Thus, there are two different views expressed by the same Proper Officer, one while intimating the liability under Section 74(5) of the Act and the other by subsequently dropping the proceedings under Section 61(2) on 28.02.2023.”
(Para 13)
“Therefore, it can be presumed that after the notice was given under Section 74(5) of the Act, the Authority has reached to the conclusion that no additional demand is payable/chargeable and therefore, the proceedings stand dropped. Thus, on that day when the order was passed on 28.02.2023, proceedings initiated on 23.02.2023 would also stand closed and the Authority could not have thereafter again issued notice under Section 74(1) of the Act. The entire proceedings after passing of order on 28.02.2023 are, thus, found to be vitiated in law, and are accordingly quashed and set aside.”
Once scrutiny concludes in favour of the assessee, identical allegations cannot be revived under Section 74; such action is jurisdictionally void.
7. Final Judgment
SCN dated 21.04.2023 under Section 74(1) quashed.
Order dated 14.06.2023 set aside.
Entire proceedings held vitiated in law.
The Court treated the matter as a jurisdictional defect, not merely procedural irregularity.
8. CA BTA Insights
This judgment is extremely important for GST defence strategy.
Key Legal Takeaways:
Section 61 scrutiny and Section 74 proceedings cannot operate inconsistently on same issue.
Same Proper Officer cannot take mutually destructive positions.
Satisfaction under Section 74 must be independent and reasoned.
Once proceedings dropped, jurisdiction under Section 74 collapses.
Section 75(4) personal hearing is mandatory.
Practical Litigation Strategy:
Always check whether ASMT-12 dropping exists.
If yes, challenge subsequent Section 74 notice on jurisdiction.
Highlight contradiction in officer’s satisfaction.
Argue estoppel against department.
Raise violation of Section 75(4) additionally.
This ruling protects taxpayers from reopening of concluded scrutiny proceedings through Section 74 on identical grounds.