Case Law Details
Sunil Kumar Reddy Dontireddy Vs Superintendent of CGST (Madras High Court)
The Madras High Court, by a common order dated 08.06.2026, decided W.P. Nos. 18541 and 18697 of 2025 challenging two Orders-in-Original passed under the GST enactments. The petitions questioned Order-in-Original No. 79/2024-GST dated 26.12.2024 and Order-in-Original No. 04/2025-GST-(Supdt-R-II) dated 04.02.2025, which were preceded by show cause notices dated 16.05.2024 and 27.05.2024 respectively, covering the assessment years 2017-18 to 2021-22 and 2017-18 to 2022-23.
The impugned orders confirmed various demands of tax, interest and penalty under Section 74 of the CGST Act, 2017 and corresponding provisions of the TNGST Act, including demands relating to IGST, CGST and SGST, non-payment of GST, reverse charge mechanism (RCM) on freight and transport (GTA) services, alleged ineligible input tax credit (ITC), interest under Section 50, and penalties equivalent to the tax determined under Section 74 read with Section 122. The detailed computations of the confirmed demands formed part of the impugned orders.
The Court recorded that both impugned orders were preceded by show cause notices issued under Section 74 of the GST enactments. According to the impugned orders, an audit had been conducted under Section 65 of the GST enactments. Based on discrepancies noticed during the audit, proceedings under Section 74 were initiated against the petitioner.
The petitioner’s principal contention was that mere wrongful availment of input tax credit or mere failure to pay tax within time did not empower the department to invoke Section 74. Reliance was placed on Board Instruction No. 05/2023-GST dated 13.12.2023 (File No. CBIC-20004/3/2023-GST), particularly paragraph 3.3, which states that Section 74(1) can be invoked only where there is fraud, wilful misstatement or suppression of facts to evade tax. It further states that Section 74(1) cannot be invoked merely on account of non-payment of GST without the specific element of fraud, wilful misstatement or suppression of facts to evade tax, and that where investigation indicates material evidence of such conduct, the evidence should also form part of the show cause notice.
The petitioner further submitted that the proprietary concern’s proprietor had not been examined and no statement had been recorded to conclude that the petitioner had indulged in fraud, wilful misstatement or suppression of facts to evade tax so as to justify confirmation of the demand. It was also submitted that five defects had originally been pointed out in the show cause notice, out of which demands relating to three defects were dropped and the petitioner had paid the tax due in respect thereof. In support, reliance was placed on the Supreme Court decision in Uniworth Textiles Ltd. vs Commissioner of Central Excise, Raipur, reported in 2013 (288) E.L.T. 161 (S.C.). The petitioner additionally argued that proceedings relating to different assessment years could not be clubbed together and referred to the decision of the Madras High Court in Titan Company Ltd. v. Joint Commissioner of GST & Central Excise.
The respondent submitted that the GST regime proceeds on the basis of trust and voluntary compliance, with assessees required to correctly declare tax in their returns. The department relies on such declarations while completing assessments. Where incorrect supplies are declared or ineligible input tax credit is availed, proceedings under Sections 73 or 74 may be invoked depending upon the facts of each case. It was further submitted that the petitioner had availed ineligible input tax credit in circumstances where either the supplier had not paid the tax or had not filed returns, and the petitioner had nevertheless availed such credit in GSTR-3B and utilised it for payment of tax liability.
After considering the submissions, the Court observed that the adjudicating authority had recorded clear findings explaining why Section 74 had been invoked in the show cause notices preceding the impugned orders. The impugned orders also contained reasons for invoking the extended period of limitation. Those reasons, reproduced in the order, referred to the voluntary compliance structure of GST, the taxpayer’s obligation to correctly disclose information, the statutory language of Section 74, the meaning of “fraud” and “suppression of facts”, and the conclusion that the petitioner had wrongly availed and utilised ineligible ITC, failed to pay tax by short declaration or non-declaration of liability, failed to disclose the same to the department, and thereby suppressed material facts. The reasoning also recorded that intention could be inferred from the taxpayer’s actions or lack of action and stated that intention to evade payment of tax or avail undue benefit of ineligible ITC need not be proved with mathematical precision.
The Court further noted that on the same day it had passed a detailed order in another batch of writ petitions dealing with the larger question relating to invocation of the extended period of limitation in W.P. Nos. 35967, 35970, 35974 and 35976 of 2024 etc., batch. It held that the reasons recorded in that batch were squarely applicable to the present case. Consequently, the Court held that the challenge to the impugned proceedings on the ground that Section 74 had been wrongly invoked could not be accepted. The Court also observed that the show cause notices themselves specified the reasons for invoking the extended period of limitation.
On the issue of clubbing demands relating to multiple tax periods, the Court held that the issue stood covered against the petitioner by the Karnataka High Court decision in M/s Chimney Hills Education Society vs. Additional Commissioner of Central Tax and Another, reported in 2024 SCC OnLine Kar 21844.
Accordingly, the High Court dismissed both writ petitions. However, it granted liberty to the petitioner to file appeals before the Appellate Authority within thirty days from receipt of a copy of the order, if so desired. No costs were awarded, and the connected miscellaneous petitions were closed.
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