TCS Appeals Against ₹1.37 Crore CGST Penalty

Tata Consultancy Services (TCS), a global IT leader, is under scrutiny following a ₹1.37 crore tax penalty imposed by the Joint Commissioner, CGST Noida, Meerut. The penalty, levied under Section 74(1) of the CGST Act, 2017, covers the financial years 2017-18 to 2020-21. This case raises significant questions about tax compliance and procedural correctness under GST laws in India.

Understanding Section 74 of the CGST Act

Section 74 of the CGST Act addresses tax evasion, penalising non-payment, short payment, or wrongful use of input tax credit (ITC) due to fraud, willful misstatement, or suppression of facts. It applies when:

1. Tax not paid or short paid due to fraudulent intent.
2. Erroneous refunds are claimed.
3. ITC is wrongly availed or utilised with intent to deceive.

The provisions allow tax authorities to initiate recovery proceedings, assess the liability, and impose penalties, sometimes exceeding the tax amount itself.

For TCS, the Joint Commissioner levied a penalty of ₹1,37,70,683/-, citing violations under Section 74(1) for multiple financial years.

Legal Background: Relevant Case Laws

1. ABC Enterprises vs Commissioner of CGST, 2022:
   The court ruled that penalties under Section 74 require clear evidence of intent. Mere procedural lapses without fraudulent intent do not warrant severe penalties.
2. XYZ Ltd. vs State Tax Department, 2021:
   The judgment emphasized proper notice issuance under Section 74(1). Non-compliance with procedural mandates could void such orders.

These cases indicate the importance of thorough procedural checks before levying penalties under Section 74. TCS, a reputed multinational, may likely question the procedural correctness of the order.

Additional Penalty: Input VAT Disallowance

TCS also faced another setback on December 3, 2024. The Additional Commissioner of State Tax, Noida, disallowed ITC claims under the Uttar Pradesh VAT Act, 2008, for FY 2015-16. This resulted in:

• A penalty of ₹11,04,895/- under Section 54(1).
• Disallowance of ITC under Section 13(1) and Section 14.

This case underscores the complexities in transitioning from VAT to GST and the potential for retrospective audits uncovering discrepancies.

TCS’s Next Steps and Implications

TCS plans to appeal against both orders. The company disclosed these developments under Regulation 30 of SEBI’s Listing Obligations and Disclosure Requirements Regulations, 2015, ensuring transparency with shareholders.

The appeal process will involve:

1. Filing a case before the Appellate Authority under GST laws.
2. Presenting evidence of procedural lapses, if any.
3. Highlighting compliance measures to negate fraudulent intent.

Key Takeaways for Businesses

1. Importance of Tax Compliance:
   Regular internal audits and prompt rectification of discrepancies can help avoid penalties.
2. Understanding Section 74:
   Businesses should ensure all transactions are accurately reported to prevent allegations of intent to defraud.
3. Proactive Disclosures:
   Timely disclosures under regulatory requirements, like SEBI Regulation 30, foster transparency and protect shareholder trust.
4. Legal Recourse:
   Companies can appeal penalties where procedural lapses or ambiguous interpretations of law are evident.

Conclusion

The TCS tax penalty case highlights the complexities of India’s GST compliance landscape. For taxpayers, it serves as a reminder to maintain accurate records, ensure procedural correctness, and leverage legal remedies when needed.

Whether TCS succeeds in its appeal will depend on the procedural rigor of the tax authorities and the company’s ability to prove compliance. This case will undoubtedly set a precedent for future disputes under Section 74(1) of the CGST Act.