Case Law Details
Abarna Match Industries Vs State Tax Officer (Madras High Court)
In this case, the petitioner challenged an order dated 26.12.2025 passed under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017. The dispute arose after the petitioner had claimed and received a refund of ₹4,75,859 based on available input tax credit (ITC). Subsequently, the Revenue succeeded in an appeal before the Appellate Authority, resulting in reversal of the refund.
The petitioner submitted that it had decided to file a second appeal and had already deposited the required 10% amount. However, due to glitches in the GST portal, the appeal could not be taken on file. During this period, the respondent passed the impugned order under Section 74 of the Act.
The petitioner argued that, in view of the Circular dated 18.11.2019, particularly Clause 22, an order under Sections 73 or 74 could not be passed. It was also contended that the respondent could not invoke Section 74 to impose interest and penalty in the circumstances of the case.
The Revenue, on the other hand, maintained that once a refund had been sanctioned and availed, recovery proceedings under Section 73 or Section 74 were necessary to recover the liability arising from the reversal of the refund.
The Court examined Clauses 20, 21 and 22 of the Circular dated 18.11.2019. It observed that Clauses 20 and 21 specifically contemplate proceedings under Sections 73 or 74 where refund claims involving ineligible ITC are rejected and require recovery of wrongly availed ITC along with interest and penalty. Clause 22 applies only where refund claims are rejected for reasons other than ineligibility of credit.
The Court found that the present dispute related to the alleged ineligibility of ITC. While the respondent asserted that the credit was ineligible, the petitioner maintained that the credit was available and had already preferred a second appeal on that issue. Therefore, Clause 22 of the Circular could not be invoked by the petitioner.
However, the Court left open the question of whether the case properly fell under Section 73 or Section 74, holding that the issue need not be decided at that stage.
Taking note of the fact that the petitioner had already filed a second appeal which could not be taken on record solely due to a portal glitch, the Court directed that the appeal be taken on file and decided in accordance with law. The impugned order dated 26.12.2025 was ordered to remain in abeyance until the disposal of the second appeal.
The Court further directed that if the second appeal is decided in favour of the petitioner, the impugned order would automatically stand set aside and lapse. If the appeal is decided in favour of the Revenue, the petitioner would be at liberty to challenge the impugned order and raise all available grounds, including objections regarding invocation of Section 74. The writ petition was disposed of without costs.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The writ petition is filed challenging the impugned order dated 26.12.2025, which is an order passed under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017.
2. Heard Mr.S.Karunakar, learned counsel appearing for the petitioner and Mr.R.Suresh Kumar, learned Additional Government Pleader, who takes notice on behalf of the respondent.
3. The learned counsel appearing for the petitioner would submit that, on account of the available credit, the petitioner claimed the benefit of input tax and sought a refund of Rs.4,75,859/-, which was originally ordered. However, on appeal by the Revenue to the Appellate Authority, the same was reversed.
4. He would further submit that the petitioner has already decided to file a second appeal before the appropriate authority. While the appeal was being uploaded, even though the petitioner had already deposited the 10% amount, the appeal was not taken on file due to glitches in the portal. In the interregnum, the impugned order was passed under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017.
5. It is the contention of the learned counsel for the petitioner that, firstly, in view of the circular dated 18.11.2019, and more specifically with reference to Class 22, an order under Sections 73 or 74 of the Act cannot be passed. In any event, this is not a case where the respondent can fix their claim under Section 74 of the Act and charge penalty and interest as per the same section.
6. Per contra, the learned Additional Government Pleader would submit that if the refund in this case has already been ordered and the petitioner has availed the refund, steps must be taken by passing the appropriate order under Section 73 or 74, as the case may be, to recover the liability from the petitioner.
7. He would further submit that, therefore, the authorities were justified in passing the impugned order.
8. I have considered the rival submissions made by either side and perused the material records of this case.
9. As far as the alleged violation of the circular dated 18.11.2019 is concerned, I am unable to accept the submission made by the learned counsel for the petitioner. Clauses 20 to 22 of the said circular are extracted below for ready reference:
20. In case of rejection of refund claim of unutilized/accumulated ITC due to ineligibility of the input tax credit under any provisions of the CGST Act and rules made thereunder, the proper officer shall have to issue a show cause notice in FORM GST RFD-08, under section 54 of the CGST Act, read with section 73 or 74 of the CGST Act, requiring the applicant to show cause as to why:
(a)the refund amount corresponding to the ineligible ITC should not be rejected as per the relevant provisions of the law; and
(b) the amount of ineligible ITC should not be recovered as wrongly availed ITC under section 73 or section 74 of the CGST Act, as the case may be, along with interest and penalty, if any.
21. The above notice shall be adjudicated following the principles of natural justice and an order shall be issued, in FORM GST RFD-06, under section 54 of the CGST Act, read with section 73 or section 74 of the CGST Act, as the case may be. If the adjudicating authority decides against the applicant in respect of both points (a) and (b) above, then FORM GST RFD-06 shall have to be issued accordingly, and the amount of ineligible ITC, along with interest and penalty, if any, shall be entered by the officer in the electronic liability register of the applicant through issuance of FORM GST DRC-07. Alternatively, the applicant can voluntarily pay this amount, along with interest and penalty, as applicable, before service of the demand notice, and intimate the same to the proper officer in FORM GST DRC-03 in accordance with sub-section (5) of section 73 or sub-section (5) of section 74 of the CGST Act, as the case may be, read with sub-rule (2) of rule 142 of the CGST Rules. In such cases, the need for serving a demand notice for recovery of ineligible ITC will be obviated. In any case, the proper officer shall order for the rejected amount to be re-credited to the electronic credit ledger of the applicant using FORM GST PMT-03, only after the receipt of an undertaking from the applicant to the effect that he shall not file an appeal or in case he files an appeal, the same is finally decided against the applicant.
22. In case of rejection of a claim for refund, on account of any reason other than the ineligibility of credit, the process described in para 20 and 21 above shall be followed with the only difference that there shall be no proceedings for recovery of ineligible ITC under section 73 or section 74, as the case may be.
10. Therefore, in a case of rejection of a refund, which would include the appellate stage as well, the authorities must resort to proceedings under Section 73 or 74 of the Act, as the case may be, in accordance with Clauses 20 and 21 of the said circular. Clause 22 of the circular, however, states that in cases where a claim for refund is rejected for reasons other than the ineligibility of credit, an order under Section 73 or 74 of the Act, as the case may be, need not be issued.
11. In the present case, even as per the parties’ submissions, it is apparent that the respondent is claiming ineligibility of credit, whereas the petitioner contends that the credit is available and is therefore preferring this second appeal. Accordingly, Clause 22 cannot be invoked in the instant case. As regards the other issue of whether the case falls under Section 73 or 74 of the Act, the same is kept open and need not be decided at this stage.
12. In view of the order to be passed, noting that the petitioner has already preferred a second appeal which has not been taken on file solely due to a glitch in the portal, I am of the view that the impugned order can be kept in abeyance until the final decision in the second appeal. The order shall be deemed communicated to the petitioner and shall take effect only on the date of passing of the order in the second appeal, depending on its outcome, these grounds can be raised by the petitioner through appropriate proceedings.
13. In view thereof, this writ petition is disposed of on the following terms:-
i. The second appeal preferred by the petitioner shall be taken on file as early as possible, as the petitioner has already deposited 10% of the requisite amount and shall be disposed of by the appropriate authority in the manner known to law.
ii. The impugned order dated 26.12.2025 shall be kept in abeyance until the date of decision in the second appeal. If the second appeal ends in favor of the petitioner, automatically the order dated 26.12.2025, shall be deemed to be set aside and lapsed.
iii. If the second appeal ends in favor of the revenue, then it would be open for the petitioner to again reiterate the impugned order dated 26.12.2025 by way of appropriate proceedings and raise all its ground including the invocation of Section 74 of the TNGST Act, 2017.
iv. No costs. Consequently, connected miscellaneous petition is closed.
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