Order Date – 25 July 2023

Parties: M/S Nagarjuna Agro Chemicals Pvt.Ltd Vs State of U.P. and Another

Facts – 

• The Petitioner, M/S Nagarjuna Agro Chemicals Pvt.Ltd, has submited returns for the assessment year 2018-19. The department apparently has not initiated any action referable to Section 61 of the Act.
• The department has intiated proceeding under section 74 against the petitioner on certain grounds with regard to classification and consequential tax payable of certain goods. The department has examined the issue and ultimately passed the order impugned whereby the tax previously paid was found short and a demand has been raised for deposit of appropriate short fall in the deposit of tax as also interest and penalty.

Issue – 

• Whether notice can be issued once returns have been submitted by the assessee before initiating action under Section 74 of the Act?

Order – 

• The Divisional Bench of Hon’ble High Court observed that in the present case it does not appear that any discrepancy was noticed by the department in the returns of the petitioner nor any such deficiency was pointed out to the assessee for it to be rectified by it. The returns, therefore, remain intact. It is later at the stage of consideration of the return that the department has found that proper tax has not been deposited and consequently proceedings under Section 74 has been initiated and concluded against the petitioner.
• In the statutory scheme the course followed by the department would clearly be permissible in law. The argument that unless deficiency in return is pointed out to the assesee, and an opportunity is given to rectify such deficiency, that the department can proceed under Section 74 is not borne out from the statutory scheme and the argument in that regard therefore, must fail.
• The scrutiny proceedings of return as well as proceeding under Section 74 are two separate and distinct exigencies and issuance of notice under Section 61(3), therefore, cannot be construed as a condition precedent for initiation of action under Section 74 of the Act.
• Further, merely because no notices were issued under Section 61 of the Act would mean that issues of classification or short payment of tax cannot be dealt with under Section 74 as exercise of such power is not dependent upon issuance of notice under Section 61. The argument is misconceived is thus, repelled.
• The petitioner has a remedy of referring appeal which has not been availed. therefore, the court permits the petitioner to prefer such appeal within two weeks from today and in the event such an appeal is filed, the same shall be entertained without raising any objection with regard to limitation.