HC Quashes GST SCN Issued Under Section 74: No Fraud or Suppression When Tax Was Voluntarily Paid

MRF Ltd. and its authorised representative challenged show cause notices issued by the DGGI under Section 74 of the CGST Act, alleging wrongful availment of ITC and short payment of tax on tyre–tube–flap (TTF) supplies. Initially, all three items attracted 28% GST; later, tubes and flaps were reduced to 18%. Industry-wide confusion persisted on whether TTF supplied in strapping form constituted a “composite supply” or individual supplies.

But despite the voluntary disclosure and payment made by MRF, DGGI initiated an investigation and thereafter issued the impugned SCN under Section 74, alleging suppression and invoking Section 39(9) to deny rectification.

Main Issue: Whether the DGGI could invoke Section 74 of the CGST Act despite the assessee’s prior voluntary disclosure and payment, and whether the show cause notice satisfied the statutory ingredients of fraud, wilful misstatement or suppression.

Court Decided: The Court held that Section 74 can be invoked only where tax short payment arises from fraud, wilful misstatement, or suppression of facts with intent to evade tax. On examining the record, it found no material indicating fraud or suppression by MRF. The company had on its own accord asked to treat TTF as a composite supply and would thus pay the differential tax. The short payment arose solely from industry-wide confusion regarding tax classification, not from any intent to evade. Since the essential jurisdictional ingredients of Section 74 were absent, the very foundation for issuing a fraud-based SCN failed.

The Court emphasised that the bar on rectification applies only when omissions are discovered “as a result of scrutiny, audit, inspection, or enforcement”, which is not the case here. Thus, the argument that the payment was barred by Section 39(9) was untenable. At the time of issuing the SCN, no tax was due from MRF, and thus initiation of Section 74 proceedings was without jurisdiction. The Court therefore quashed the impugned SCN in full, while leaving open the general question of whether TTF should be treated as a composite or individual supply to be considered in any appropriate proceeding.

To Read Full Judgment, Download PDF Given Below