Section 74 Proceedings Upheld for Excess ITC & RCM Default: Madras HC

Sameera Hotels (Chennai) Private Limited Vs State Tax Officer (Inspection-I) (Madras High Court)

The Madras High Court disposed of a batch of writ petitions challenging orders passed under Section 74 of the respective GST enactments for Assessment Years 2018-19 to 2022-23. The petitions arose after a surprise inspection conducted on 09.05.2024, following which the petitioner received GST DRC-01A intimations identifying discrepancies. Show cause notices in GST DRC-01 dated 31.07.2024 proposed determination of tax under Section 74. The petitioner submitted replies, after which the impugned assessment orders were passed.

The petitioner contended that although Section 74 had been invoked, the show cause notices did not particularise the ingredients necessary for invoking the provision. It was further argued that the impugned orders merely referred to “willfulness” while sustaining the demand and were therefore liable to be quashed. The petitioner also raised a plea regarding limitation but fairly conceded that, for Assessment Years 2018-19 and 2019-20, the time limit for passing orders under Section 73 had not expired when the impugned orders were passed.

The State defended the proceedings, submitting that the orders were within limitation even if Section 73 were applicable. It was also argued that the petitioner had not raised any objection regarding the jurisdiction to invoke Section 74 in its replies to the show cause notices and had instead contested the matter only on merits. The respondents further contended that the writ petitions had been filed beyond the statutory period for filing an appeal under Section 107 of the GST enactments.

After considering the submissions, the High Court observed that there was no dispute that the petitioner had availed Input Tax Credit (ITC) in excess of the amount reflected in GSTR-2A and had utilised such ITC to discharge tax liability in GSTR-3B. The Court held that these facts constituted prima facie indications of wrongful availment and utilisation of ITC, amounting to suppression of facts with an intention to evade tax.

The Court referred to its common order passed in the connected batch of cases, wherein it had explained that the threshold for invoking the extended period of limitation under Section 74 of the GST enactments is lower than under the earlier indirect tax legislations. It also noted that the petitioner’s contention regarding limitation stood covered against it by an earlier decision of the Court, particularly in relation to Assessment Years 2018-19 and 2019-20.

Additionally, the Court recorded that there were indications that the petitioner had not discharged GST liability under the Reverse Charge Mechanism (RCM) on commissions paid to foreign booking agencies.

Holding that there was no merit in the challenge to the proceedings under Section 74, the High Court dismissed the writ petitions. However, it granted liberty to the petitioner to pursue the statutory appellate remedy by filing appeals before the Appellate Commissioner within 30 days, subject to compliance with the requirements of Section 107 of the respective GST enactments.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

By this Common Order, all these Writ Petitions are being disposed of.

2. These cases were heard along with a batch of 250 Writ Petitions and as one of the 53 Writ Petitions which were finally heard on the larger issue regarding the challenge to the proceedings under Section 74 of the respective GST Enactments.

3. By a Common Order today in W. P.No.2142 of 2026 [Turbo Energy Private Limited], W.P.Nos.35967, 35970, 35974 and 35976 of 2024 [Fastenex Private Limited] and W.P.Nos.14487, 14492 and 14500 of 2025 [Ispahani Estates Private Limited], a detailed order has been passed insofar as the invocation of extended period of limitation under Section 74 of the respective GST Enactments.

4. In these Writ Petitions, the Petitioner has challenged the respective Impugned Orders, as detailed below:-

5. It is the case of the Petitioner that a surprise Inspection was conducted by the 1^st Respondent on 09.05.2024, under the Authorization of the 3^rd Respondent, at the business premises of the Petitioner.

6. Pursuant to the said Inspection, the Petitioner was issued with an Intimation Notices in GST DRC-01A dated 02.07.2024, pointing out certain discrepancies. This was followed by Show Cause Notices in GST DRC-01 dated 31.07.2024 for the respective Tax Periods, proposing to determine tax under Section 74 of the respective GST Enactments.

7. The Petitioner replied to the respective Show Cause Notices on 14.08.2024 and 16.08.2024, which has culminated in the respective Impugned Orders.

8. The learned counsel for the Petitioner would submit that though the Department has invoked Section 74 of the respective GST Enactments in the respective Show Cause Notices dated 31.07.2024, the Notices have not particularized the ingredients and therefore, the Impugned Orders are liable to be quashed.

9. That apart, it is submitted that the Impugned Orders merely use the term “willfulness” in the conclusion for sustaining the demands under Section 74 of the respective GST Enactments. They are reproduced below:-

W.P.Nos.33258, 33262, 33268 and 33272 of 2025

“The claim of ITC under IGST was not proved, and the tax due on the import of service was not paid. This shows the willfulness on the part of the taxable persons.”

W.P.No.33275 of 2025

“The reconciliation of ITC under CGST and SGST was not proved, and the tax due on the import of service was not paid. This shows the willfulness on the part of the taxable person.”

10. However, the learned counsel for the Petitioner would fairly concede that for the Tax Period 2018-2019 and 2019-2020, the last date for passing the orders under Section 73 of the respective GST Enactments would have expired on 28.02.2025 and that the Impugned Orders have been passed in time.

11. The learned Special Government Pleader for the Respondents would defend the impugned proceedings stating that, apart from the fact that the orders are to be held in time even if Section 73 was to be made applicable, the proceedings are in time. That apart, it is for the Petitioner to convince that the order can be passed in terms of Section 75(2) of the respective GST Enactments.

12. It is submitted that the fact remains that no mention regarding the same was made by the Petitioner in reply dated 16.08.2024 in response to the Show Cause Notices in GST DRC-01 dated 31.07.2024.

13. It is therefore submitted that the reply filed by the Petitioner in response to the Notice was on the merits of the case and not on the jurisdiction to pass an order under Section 74 of the respective GST Enactments.

14. It is submitted that, admittedly, the Show Cause Notices in GST DRC-01 dated 31.07.2024 were issued for the respective Tax Periods by invoking the ingredients and for sustaining the impugned demand under Section 74 of the respective GST Enactments.

15. It is submitted that these Writ Petitions have been filed belatedly beyond the time prescribed for filing an appeal under Section 107 of the respective GST Enactments, and therefore these Writ Petitions are liable to be dismissed in terms of the decision of the Hon’ble Supreme Court in Assistant Commissioner (CT) LTU, Kakinada and other Glaxo Smith Kline Consumer Health Care Limited, 2020 SCC Online SC 440.

16. I have considered the arguments advanced by the learned counsel for the Petitioner and the learned Special Government Pleader for the Respondents.

17. There is no dispute that the Petitioner has availed Input Tax Credit in excess of the amount reflected in GSTR-2A for discharging the tax liability in GSTR-3B.

18. Thus, there are prima facie indications that the Petitioner had wrongly availed Input Tax Credit and utilized the same to discharge the tax liability in GSTR-3B. Thus, there is suppression of fact with an intention to evade tax.

19. This is in view of the Common Order passed in the batch today by a Separate Order, wherein it has been explained in detail that the threshold for invoking the extended period of limitation under Section 74 of the respective GST Enactments is much lower compared to the earlier Indirect Tax Legislations.

20. That apart, it is the contention of the Petitioner that the proceedings were time barred, the issue is now covered against the Petitioner in terms of the decision of this Court in M/s. Tata Play Limited and Others Vs Union of India, Ministry of Finance, New Delhi and others in W.P.Nos.17184 of 2024 etc., batch dated 12.06.2025 as modified by 05.11.2025 [2025 32 Centax 318], wherein, for at least 2 of the Assessment Orders concerned herein i.e., 2018-2019 and 2019-2020, the time for passing orders under Section 73 of the respective GST Enactments itself would have not expired.

21. That apart, there are indications that the Petitioner has also not discharged the tax liability on Reverse Charge Mechanism on the commissions received from the Foreign Booking Agencies.

22. Therefore, there are no merits in these Writ Petitions insofar as challenge to the Impugned Orders under Section 74 of the respective GST Enactments. Therefore, these Writ Petitions are liable to be dismissed.

23. Accordingly, these Writ Petitions are dismissed with liberty to the Petitioner to work out the remedy on merits before the Appellate Commissioner.

24. The Petitioner shall file an appeal before the Appellate Commissioner within a period of 30 days from the date of receipt of a copy of this order, in which case, the Appellate Commissioner shall entertain and dispose of the appeal on merits subject to the Petitioner complying with the requirements of Section 107 of the respective GST Enactments. No costs. Connected Writ Miscellaneous Petitions are closed.