GST Demand Orders Quashed as Invalid Section 74 Notice Found Fatal

The petitioners challenged GST demand orders raised over multiple years, which were preceded by notices indicating tax and penalty liabilities. They had made some payments, largely towards penalty, claiming it was under pressure. Later, formal show cause notices were issued under Section 74, followed by final orders confirming the demands.

The petitioners approached the Court, arguing that the entire process was flawed from the beginning. According to them, the notices did not contain any clear allegations of fraud or suppression, which is essential for invoking Section 74. They also pointed out that no proper hearing was granted before passing the orders.

Central Issue: Whether GST demands under Section 74 can stand when the show cause notice lacks fraud allegations and no hearing is provided.

HC’s Ruling: The Court found serious defects in the proceedings and set aside both the notices and the final orders. It held that Section 74 can be invoked only when there are clear allegations of fraud, wilful misstatement, or suppression of facts. In this case, the notices merely referred to unpaid tax without establishing such elements, making them legally unsustainable.

The Court also noted that the authorities failed to grant a proper hearing and did not record adequate reasoning in their orders. These lapses were held to be violations of mandatory legal requirements. Given these foundational flaws, the Court rejected the objection regarding alternative remedy and exercised its writ jurisdiction. If required, The authorities have been given liberty to start fresh proceedings in accordance with law.

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