In W.P. No.3659 of 2023 -AP HC- Andhra Pradesh High Court rules scrutiny under Section 61 of the AP GST Act not always sine qua non for Section 74 proceedings
Justice U. Durga Prasad Rao & Justice Venkata Jyothirmai Pratapa [19-06-2023]

Read Order: M/s Devi Traders v. The State of Andhra Pradesh

Chahat Varma

New Delhi, July 5, 2023: The Andhra Pradesh High Court has dismissed the writ petition filed by M/s Devi Traders (petitioner), stating that the initiation of scrutiny under Sections 61 of the Andhra Pradesh Goods and Services Tax (AP GST Act) was not a prerequisite for taking action under Section 74 of the Act. The court emphasized that if the legislature intended Section 74 to bound by Sections 61 and 65 alone, it would have explicitly mentioned so in Section 74.

Briefly stated, the petitioner in the case argued that as per Section 61 of the AP GST Act, the proper officer must first conduct scrutiny of the petitioner's return for the relevant period and issue a notice to explain any discrepancies found. Only if the petitioner fails to provide a satisfactory explanation or rectify the discrepancies, can the proper officer proceed under Section 74 of the Act. However, in this case, the petitioner claimed that the proper officer directly issued a notice under Section 74 without conducting scrutiny, finding discrepancies, or issuing a reasoned order, which the petitioner stated was illegal and without jurisdiction. On the other hand, the Government Pleader contended that scrutiny under Section 61 was not always a mandatory requirement for invoking proceedings under Section 74. The proper officer can directly invoke Section 74, including attaching the assets of the registered person, in exigent circumstances, to protect the interest of the Government revenue.

The division bench of Justice U. Durga Prasad Rao and Justice Venkata Jyothirmai Pratapa observed that Section 73 and 74 of the AP GST Act were not exclusively controlled by Section 61, as argued by the petitioner. The court clarified that proceedings under Section 74 can be initiated not only through scrutiny under Section 61 but also by resorting to the audit of accounts under Section 65 of the Act.

The bench emphasized that Section 74 of the AP GST Act begins with the phrase ‘where it appears to the proper officer that any tax has not been paid’.  The use of the word ‘appears’ has a wider amplitude, encompassing not only Sections 61 and 65 but also any other credible information from different sources.

The bench said, “when the statute is clear, plain and unambiguous Court has to make a literal interpretation by obliging the Parliamentary supremacy, for, the legislation is the domain of legislative body but not the Court.”

The bench further observed that the main allegation in the notice was that the petitioner fraudulently claimed Input Tax Credit without actually supplying goods or services to the purchasers. In response to this, the respondent authorities had provisionally attached the petitioner's bank account under Section 83 of the AP GST Act. However, since the petitioner had not yet filed any objections or reply to the notice, the bench stated that it cannot be determined at this stage whether the attachment was legal or not.

However, since it was the submission of the petitioner, that they received the show cause notice after the deadline for submission had passed and despite bringing this to the attention of the respondent, the petitioner's explanation and relevant documents were refused, in the interest of justice, the bench allowed the petitioner to submit their explanation and relevant material.