Madras HC Upholds GST Section 74 Notices, Dismisses Writ Petitions

Canon India Private Limited Vs State Tax Officer (Madras High Court)

The Madras High Court heard three writ petitions filed by the petitioner challenging Show Cause Notices in Form GST DRC-01 dated 13.07.2024 relating to the tax periods 2017-2018, 2018-2019 and 2019-2020.

The Court noted that these writ petitions had initially been heard along with a batch of matters challenging proceedings under Section 74 of the GST enactments. Subsequently, on the petitioner’s request, the matters were de-tagged for separate disposal in terms of the Division Bench decision in BASF Catalysts India Private Limited. The petitioner had also relied upon the decision of the Supreme Court in Collector of Central Excise H.M.M. Limited.

The petitioner submitted that separate show cause notices had also been issued for the assessment years 2020-2021, 2021-2022 and 2022-2023. By an interim order dated 06.08.2024, the Court had stayed the proceedings relating to the present tax periods while observing that, if proceedings under Section 74 were ultimately found unsustainable, action under Section 73 could still be taken for later assessment years. Subsequently, the writ petitions concerning the later years were closed after recording that the petitioner had submitted replies and directing the respondents to consider those objections and pass orders after granting a reasonable opportunity of hearing.

The petitioner further requested that the present matters be remitted to the respondents by quashing the impugned show cause notices and directing issuance of fresh notices under Section 73 in light of the Court’s decision in M/s. Tata Play Limited and others, as modified on 05.11.2025. The petitioner referred to the limitation table contained in that order for financial years 2017-2018, 2018-2019 and 2019-2020.

It was also submitted that the pendency of the impugned show cause notices was resulting in denial of benefits under the Authorised Economic Operator (AEO) Programme. According to the petitioner, the notices dated 13.07.2024 suffered from a fatal error as they had allegedly been issued after expiry of limitation. The petitioner further submitted that the matter should be remitted for re-examination to determine whether any shortfall in tax payment, if any, properly fell within the scope of Section 73. Reliance was placed on the Division Bench decision in BASF Catalysts India Private Limited, particularly the directions deeming allegations of fraud, wilful misstatement or suppression to have been deleted from the show cause notices, requiring replies, reasoned adjudication, personal hearing and disclosure of judgments proposed to be relied upon.

The petitioner also contended that although Section 74 had been invoked, the show cause notices did not contain particulars justifying invocation of that provision and therefore required reconsideration from the perspective of Section 73.

The respondents opposed the writ petitions. They submitted that the facts differed from those in BASF Catalysts India Private Limited and that the petitioner had failed to cooperate during inspection conducted under Section 67 by not producing necessary documents. According to the respondents, such failure constituted “suppression of facts” within Explanation 2 to Section 74 of the GST enactments.

After considering the rival submissions, the Court held that the petitioner’s challenge on the ground of limitation had to be answered against the petitioner in view of the Court’s separate orders passed the same day in Turbo Energy Private Limited, Fastenex Estates Private Limited and Ispahani Estates Private Limited, the ratio of which applied to the present cases. The Court also held that the larger issue regarding invocation of the extended period of limitation stood answered against the petitioner by those decisions. It found that the impugned show cause notices had been issued well before expiry of the limitation prescribed under Section 74.

The Court observed that the show cause notices had been preceded by intimations in Form GST DRC-01A dated 11.06.2024. The petitioner had replied only for the tax period 2017-2018 and had not replied for the tax periods 2018-2019 and 2019-2020. The Court noted that, in the absence of a reply, orders could be passed under either Section 73 or Section 74. It further observed that the absence of replies for 2018-2019 and 2019-2020 invited invocation of Section 74 in view of the definition of “suppression” contained in Explanation 2 to Section 74, which was deleted only later by the Finance (No. 2) Act, 2024. Accordingly, the Court held that invocation of Section 74 for those two tax periods could not be challenged.

The Court further held that even if Section 74 had been wrongly invoked, it was for the petitioner to establish its case by filing a reply in Form GST DRC-06. Without such reply and adjudication, the Court could not conclude that invocation of Section 74 lacked jurisdiction. The Court also held that several disputed questions of fact were involved, making the writ petitions under Article 226 not maintainable. It observed that each tax year constituted an independent block and that proceedings invoking the extended period under Section 74, where the necessary ingredients existed, could not be short-circuited in writ jurisdiction merely because proceedings for later assessment years had taken a different course.

Finding no merit in the challenge, the Court dismissed all the writ petitions. However, it granted liberty to the petitioner to file replies to the respective show cause notices dated 13.07.2024. Upon such replies being filed, the first respondent was directed to pass final orders on merits and in accordance with law, preferably within three months. Subject to compliance with this direction, attachment of the petitioner’s bank account would stand automatically vacated. If the petitioner failed to file replies, the respondent would be at liberty to recover tax in accordance with law. The Court also directed that due notice be given before passing any final order.

Cases Discussed

1. BASF Catalysts India Private Limited, Represented by its Authorized Signatory Vs. The Deputy Commissioner (ST)-I, Chennai – W.A. Nos. 1258, 1259, 1260, 1261 & 1262 of 2024 (Madras High Court, Order dated 28.03.2025)
2. Collector of Central Excise v. H.M.M. Limited, (1995) 3 SCC 322 (Supreme Court)
3. M/s. Tata Play Limited & Others v. Union of India, Ministry of Finance & Others – W.P. No. 17184 of 2024 etc. batch (Madras High Court, Orders dated 12.06.2025 and 05.11.2025)
4. Turbo Energy Private Limited – W.P. No. 2142 of 2026 (Madras High Court)
5. Fastenex Estates Private Limited – W.P. Nos. 35967, 35970, 35974 & 35976 of 2024 (Madras High Court)
6. Ispahani Estates Private Limited – W.P. Nos. 14487, 14492 & 14500 of 2025 (Madras High Court)

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

Heard the learned Senior Counsel for the Petitioner and the learned Special Government Pleader for the Respondents.

2. In these Writ Petitions, the Petitioner has challenged the impugned Show Cause Notices as detailed below:-

3. Earlier, this case was heard at length along with a batch of cases where proceedings under Section 74 of the respective GST Enactments were challenged. After the submissions of the learned Senior Counsel for the Petitioner, the present cases were to be reserved for passing orders along with the said batch.

4. However, during the interregnum, the learned Senior Counsel for the Petitioner, requested for de-tagging these cases for passing separate orders in terms of the decision of the Division Bench of this Court in BASF Catalysts India Private Limited, Represented by its Authorized Signatory Vs. The Deputy Commissioner (ST)-I, Chennai in W.A.Nos.1258, 1259, 1260, 1261 and 1262 of 2024 vide Order dated 28.03.2025.

5. Earlier, the learned Senior Counsel for the Petitioner had advanced arguments on behalf of the Petitioner based on the decision of the Hon’ble Supreme Court in Collector of Central Excise H.M.M. Limited, 1995 (3) SCC 322.

6. The learned Senior Counsel for the Petitioner would submit that the Petitioner had been issued with three other Show Cause Notices for the Tax Period 2020-2021, 2021-2022 and 2022-2023 impugned in W.P.Nos.20931, 21416 and 21422 of 2024 along with the impugned Show Cause Notices for the Tax Period 2017-2018, 2018-2019 and 2019-2020.

7. Vide Order dated 06.08.2024 in these three Writ Petitions, the Court ordered as under:-

“6. As far as W.P.Nos.20931, 21416 and 21422 of 2024 are concerned they are pertaining to Assessment Years 2020-2021, 2021-2022 and 2022­2023, Show Cause Notices were issued well within the period of three years. Therefore, in the event if this Court concludes that the Show Cause Notice was issued under Section 74(1) of the Act, is not sustainable, the officers can proceed under Section 73(1) for the Assessment Years 2020-2021, 2021-2022 and 2022-2023 alone. Therefore, there shall be an order of interim stay in W.P.Nos.21399, 21403 and 20935 of 2024.

6. As far as W.P.Nos.20931, 21416 and 21422 of 2024 are concerned, notice to the Respondents returnable by 27.08.2024. Private Notice is also permitted.

7. At this juncture, the learned Senior Counsel for the Petitioner seeks time for filing reply to the Show Cause Notices issued which are all challenged in P.Nos.20931, 21416 and 21422 of 2024 by eight weeks time. However, the learned counsel for the Respondent made objection for the said submission.”

8. Therefore, by Order dated 11.2024, W.P.Nos.20931, 21416 and 21422 of 2024, were disposed with the following observations:-

“When the matters were taken up for hearing, it was submitted by the learned Senior Advocate for the petitioner(s) that the above three writ petitions are filed challenging the show cause notice dated 13.07.2024 in DRC-01 for the assessment years 2020-21, 2021-22 and 2022-23 respectively and there was also an interim direction to submit their reply. The learned Senior Advocate further submitted that replies to the show cause notice have also been submitted by the petitioner.

2. In response to the same, Mr. C. Harsha Raj, learned Additional Government Pleader appearing for the Respondents would submit that orders would be passed by the Respondents after considering the objections and granting the petitioner an opportunity of hearing.

3. Recording the same, these writ petitions are closed. The 1^st Respondent shall consider the objections filed by the petitioner and orders shall be passed in accordance with law after affording a reasonable opportunity of hearing to the petitioner. No costs. Consequently, connected miscellaneous petitions are closed.”

9. It is further submitted that these cases can be remitted back to the Respondents by quashing the impugned Show Cause Notices with a direction to the Respondents to issue fresh Show Cause Notices under Section 73 of the respective GST enactments in the light 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]. Paragraph No.3 of the Order dated 05.11.2025 is reproduced below:-

10. The learned Senior Counsel for the Petitioner submitted that in view of the Impugned Show Cause Notices, the Petitioner is being denied the benefit of the Authorised Economic Operator (AEO) Programme of the Central Board of Excise of Customs, presently known as the Central Board of Indirect Taxes and Customs, in terms of Circular No.33/2016-Customs dated 22.07.2016. Such denial is on account of the impugned Show Cause Notices dated 13.07.2024 issued to the Petitioner for the Tax Periods 2017-2018, 2018-2019 and 2019-2020, which are the subject matter of these Writ Petitions.

11. It is submitted that there was a fatal error for issuance of the respective Show Cause Notices dated 13.07.2024 long after the expiry of limitation.

12. The learned Senior Counsel for the Petitioner further submitted that the matter may be remitted back to the Respondents for re-examination of the issue after recording whether there is any shortfall in payment of tax, if any, falling within the scope of Section 73 of the respective GST Enactments.

13. In support of the said contention, reliance was placed on the decision of the Division Bench of this Court in BASF Catalysts India Private Limited (referred to supra), wherein, the Hon’ble Division Bench observed as under:-

“2. The charges of fraud or willful mis­statement or suppression of facts to evade tax made in the show cause notices shall be deemed to have been scored off or redacted.

3. Appellant shall reply to the show cause notices within six weeks from today. The show cause notices shall be disposed by a reasoned order dealing with all submissions of appellant. Before passing any order, a personal hearing shall be given, notice whereof shall be communicated at least seven working days in advance.

4. If the Adjudicating Authority is going to rely on any judgment of any Court or Tribunal, a list thereof shall be made available along with the notice for personal hearing, so that appellant will be able to deal with/distinguish the same during the personal hearing.

5. Appeals stand disposed of. There shall be no order as to costs. Consequently, all interim applications are closed.”

14. The learned Senior Counsel for the Petitioner drew the attention of this Court to the averments made in Paragraph 3 of the Affidavit filed in support of the Writ Petitions, Paragraph 8 of the Counter Affidavit filed by the Respondents, and Paragraph 12 of the Rejoinder.

15. It is submitted that although Section 74 of the respective GST Enactments has been invoked, the Show Cause Notices issued thereafter do not contain any details justifying the invocation of Section 74 of the respective GST Enactments. Therefore, it is contended that the Petitioner’s case requires re-examination from the perspective of Section 73 of the respective GST Enactments.

16. The learned Special Government Pleader for the Respondents, on the other hand, submitted that the facts of the present cases are totally different and therefore the decision of the Division Bench of this Court in BASF Catalysts India Private Limited (referred to supra) is not applicable to the facts of the present cases.

17. The learned Special Government Pleader for the Respondents further submitted that the Petitioner had not cooperated during the inspection conducted under Section 67 of the respective GST Enactments and had also failed to produce the necessary documents. It is therefore submitted that in terms of the definition of “Suppression” in Explanation-2 to Section 74 of the respective GST Enactments, such failure to furnish the documents would also constitute “Suppression of facts”.

18. I have considered arguments advanced by the learned Senior Counsel for the Petitioner and the learned Special Government Pleader for the Respondents.

19. The challenge to the impugned Show Cause Notices on the ground of limitation has to be answered against the Petitioner in the light of the views expressed by this Court today by a common order in the case of P.No.2142 of 2026 [Turbo Energy Private Limited], W.P.No.35967, 35970, 35974 and 35976 of 2024 [Fastenex Estates Private Limited] and W.P.Nos.14487, 14492 and 14500 of 2025 [Ispahani Estates Private Limited]. The ratio therein applies to the facts of the present cases.

20. The larger issue regarding invocation of extended period of limitation is also answered against the Petitioner today in W.P.No.2142 of 2026 [Turbo Energy Private Limited], W.P.No.35967, 35970, 35974 and 35976 of 2024 [Fastenex Estates Private Limited] and W.P.Nos.14487, 14492 and 14500 of 2025 [Ispahani Estates Private Limited], by a Separate Order. The ratio therein applies to the facts of the present case.

21. The impugned Show Cause Notices had been issued long before the expiry of limitation prescribed under Section 74 of the respective GST Enactments.

22. Facts on record reveal that the impugned Show Cause Notices were preceded by an Intimation in GST DRC-01A all dated 11.06.2024. They were also replied by the Petitioner on the dates mentioned in the Show Cause Notices for the respective Tax Periods.

23. The Petitioner replied to the intimation in GST DRC-01A only for the Tax Period 2017-2018. The Petitioner has not replied for the Tax Period 2018-2019 and 2019-2020. Without a reply to the Show Cause Notice, order can be passed under Section 73 or Section 74 of the respective GST Enactments.

24. The fact that the Petitioner has not replied to the intimation in GST DRC-01A all dated 11.06.2024 for the Assessment Years 2018-2019 and 2019-2020 itself invites the invocation of machinery under Section 74 of the respective GST Enactments in view of definition of the expression “Suppression” in the Explanation-2 to Section 74 of the respective GST Enactments which came to be deleted only later by virtue of Finance (No.2) Act, 2024 (15/2024) dated 16.08.2024.

25. Therefore, even otherwise invocation of Section 74 of the respective GST Enactments for the Tax Period 2018-2019 and 2019-2020 covered by W.P.Nos.21403 and 20935 of 2024 cannot be challenged.

26. Even if Section 74 of the respective GST Enactments was wrongly invoked, it is for the Petitioner to establish the case by filing a reply in Form GST DRC-06. It is not possible to straight away to come to a conclusion that invocation of machinery under Section 74 of the respective GST Enactments was without jurisdiction without a proper reply from the Petitioner and adjudication by the Respondents.

27. Besides, there are several disputed questions of facts which cannot be decided in a summary proceeding under Article 226 of the Constitution of India. Therefore, these Writ Petitions under Article 226 are not maintainable and are liable to be dismissed.

28. That apart, even if orders have been passed for the Assessment Years 2020-2021, 2021-2022 and 2022-2023, challenge to invocation of Section 74 of the respective GST Enactments for these Assessment Years namely 2017-2018, 2018-2019 and 2019-2020 cannot be countenanced, as each tax year is an independent block and if there are ingredients to invoke extended period of limitation, such proceedings can be initiated under Section 74 of the respective GST Enactments and cannot be scuttled or short-circuited under Article 226 of the Constitution of India.

29. Therefore, I see no merits in the challenge to the impugned Show Cause Notices.

30. These Writ Petitions are therefore liable to be dismissed and are accordingly dismissed. However, liberty is given to the Petitioner to file a reply to the respective Show Cause Notices in GST DRC-01 dated 13.07.2024.

31. In case the Petitioner complies with the above stipulation, the 1st Respondent shall proceed to pass a final order on merits and in accordance with law as expeditiously as possible, preferably, within a period of three (3) months of such reply. Subject to the Petitioner complying with the above stipulation, the attachment of the bank account of the Petitioner shall also stand automatically vacated.

32. In case the Petitioner fails to comply with the above stipulation, the 1^st Respondent is at liberty to proceed against the Petitioner to recover the tax in accordance with law as if these Writ Petitions were dismissed in limine today.

33. Needless to state, before passing any such order, the 1st Respondent shall give due notice to the Petitioner. No costs. Connected Writ Miscellaneous Petitions are closed.