Court holds that petitioner's environmental preservation activities qualify for GST exemption under Notification No.12/2017; finds no wilful suppression or fraud warranting penalty under Section 74 of GST Act.
In a significant judgment delivered on September 2, 2026, the Gujarat High Court (Division Bench) has quashed a show-cause notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 ("GST Act") against Naroda Enviro Projects Ltd. The notice had alleged suppression of facts and non-payment of GST for services rendered by the petitioner related to industrial waste treatment and environmental preservation.
The dispute arose after the petitioner, engaged in pollution control and treatment of industrial effluents and solid waste, claimed exemption from GST under Notification No.12/2017-Central Tax (Rate) dated June 28, 2017. This notification exempts from GST services by entities registered under Section 12AA of the Income Tax Act, 1961 ("the Act") that carry out charitable activities including preservation of environment.
The petitioner had obtained registration under Section 12AA of the Income Tax Act effective from December 21, 2005, affirming its charitable status. This was upheld by the Gujarat High Court in a landmark judgment dated July 29, 2019, in Tax Appeal No.627 of 2015 and allied matters, where the Court held that the petitioner's activities fall within "preservation of environment" as defined under Section 2(15) of the Income Tax Act, including treatment of liquid and solid industrial waste as a charitable purpose.
Despite this, GST authorities issued a show-cause notice alleging that the petitioner had deliberately evaded GST by not paying tax on services categorized under heading 9994 (sewage and waste collection, treatment and disposal and other environmental protection services) attracting a 9% GST rate as per Notification No.11/2017. The authorities contended that the petitioner's activities were commercial in nature and did not qualify for exemption under Notification No.12/2017.
The Court analyzed the provisions of the GST Act, the relevant notifications, and the prior judicial findings. It clarified that Notification No.12/2017, issued after Notification No.11/2017, specifically exempts services by entities registered under Section 12AA of the Income Tax Act that undertake charitable activities, including preservation of environment, from GST. The petitioner's activities thus fall squarely within this exemption.
Further, the Court emphasized the strict requirements under Section 74 of the GST Act for invoking proceedings based on fraud, wilful misstatement, or suppression of facts. Citing Supreme Court precedents such as M/s. Uniworth Textiles Ltd. v. Commissioner of Central Excise and Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, the Court held that mere non-payment or non-declaration does not amount to wilful suppression unless there is deliberate intent to evade tax. The petitioner acted bona fide relying on the exemption notification and prior judicial rulings.
The Court noted that the petitioner had ceased claiming exemption and started paying GST from May 13, 2022, after registration under GST, as continuing exemption led to losses due to disallowance of input tax credit. This change in approach negates any intent to evade tax.
Consequently, the Gujarat High Court set aside the show-cause notice dated September 5, 2023, holding that the GST authorities erred in ignoring the petitioner's charitable status and exemption entitlement. The Court ruled that the petitioner's environmental preservation activities are charitable in nature and exempt from GST under Notification No.12/2017, and no malafide intent or suppression was found to invoke Section 74 proceedings.
This judgment clarifies the application of GST exemption to charitable environmental services registered under Section 12AA of the Income Tax Act and reinforces the principle that invocation of punitive GST provisions requires clear evidence of deliberate fraud or suppression.
Bottom Line:
GST - Show cause notice under Section 74 of GST Acts quashed - Activities of the petitioner company held charitable under Section 12AA of the Income Tax Act, 1961 and falling under Notification No.12/2017-Central Tax (Rate), providing exemption from GST for services by entities engaged in charitable activities, including preservation of the environment.
Statutory provision(s): Central Goods and Services Tax Act, 2017 Section 74, Income Tax Act, 1961 Section 12AA, Notification No.12/2017-Central Tax (Rate), Notification No.11/2017-Central Tax (Rate)
Naroda Enviro Projects Ltd. v. Union of India, (Gujarat)(DB) : Law Finder Doc Id # 2975988
