High Court Quashes GST Notice Under Section 74 Following Voluntary ITC Reversal

The petitioner, Niket Bipinbhai Patel, was issued a show cause notice dated October 28, 2025, under Section 74(1) of the CGST Act, alleging the wrongful availment of Input Tax Credit (ITC) amounting to Rs. 38,60,608. The respondent authority also blocked the petitioner’s Electronic Credit Ledger (ECL) for a sum of Rs. 98,11,678.

The petitioner argued that since the entire output tax liability had been discharged in cash and the credit reversed, there was no “tax not paid” or “short paid” to justify a notice under Section 74, which specifically deals with fraud or willful misstatement.

Issue Before Court: Whether the tax authorities can validly initiate proceedings under Section 74 of the CGST Act and block the Electronic Credit Ledger when the taxpayer has already reversed the disputed ITC and discharged the tax liability in cash.

HC’s Order: The Hon’ble High Court allowed the writ petition, quashing the impugned notice and directing the unblocking of the ITC. The Court observed that for Section 74 to be invoked, there must be an actual short payment or non-payment of tax.

As the petitioner had already reversed the ITC via DRC-03 and paid the GST liability in cash, the statutory pre-requisites for Section 74 were not satisfied. The Court held that the respondent had misinterpreted and misapplied the statutory provisions. The respondent was ordered to unblock the remaining ITC of Rs. 98,11,678 within three weeks.

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