Tata Steel Faces Scrutiny Over Input Tax Credit Availed During FY19-23

New Delhi: The Supreme Court has set aside a show cause-cum-demand notice issued to Tata Steel over alleged irregular input tax credit (ITC) of more than Rs 1,000 crore, ruling that tax authorities failed to establish deliberate tax evasion.

The notice sought recovery of Rs 1,007.55 crore in GST for FY19 through FY23, alleging that Tata Steel had irregularly availed ITC in violation of provisions of the Central and State GST laws.

Court Finds No Evidence of Fraud

A bench comprising Justices JB Pardiwala and K Vinod Chandran said the notice did not disclose facts establishing that Tata Steel deliberately attempted to evade tax or claim excess ITC.

The court observed that merely referring to “suppression of facts” to invoke an extended limitation period was insufficient to sustain proceedings under Section 74 of the Central GST Act.

Tata Steel had argued that the notice contained no allegations demonstrating fraud, wilful misstatement or suppression of facts.

The dispute arose over an alleged mismatch in ITC and short payment of tax during the financial years under scrutiny. Section 74 applies to GST demands involving fraud, wilful misstatement or suppression of facts.

Assessing Officer Must Record Satisfaction

The Supreme Court said proceedings under Sections 73 or 74 can be initiated only after the assessing officer records satisfaction based on relevant circumstances.

Even where an audit raises objections, the assessing officer must independently record satisfaction before issuing a notice, the court said.

For invoking Section 74, the officer must establish not merely an ITC mismatch or tax shortfall, but also circumstances involving fraud, wilful misstatement or suppression.

The court also noted that the department had taken audit objections to the Public Accounts Committee, indicating a lack of necessary satisfaction to sustain the demand proceedings.