High Court Quashes GST Section 74 Notice Issued Beyond Limitation :

Zodiac Energy Ltd. was engaged in the business of supply and installation of Solar Power Generating Systems through composite contracts. The petitioner assembled the required components and installed the systems at customers’ premises. Notification No. 24/2018-Central Tax (Rate), dated 31 December 2018, introduced an explanation prescribing a deemed valuation mechanism whereby 70% of the gross consideration for specified supplies was treated as the value of goods and the remaining 30% as the value of taxable services. The Revenue treated the petitioner’s pre-1 January 2019 solar transactions as “works contract” liable to GST at 18%, instead of the 5% rate claimed by the petitioner.

The petitioner argued that its transactions constituted composite supplies under Section 8 read with Section 2(90) of the GST Act and that GST had consistently been charged and paid at 5%. Thereafter, the Revenue issued Form GST DRC-01A on 1 August 2024 under Section 74(5), followed by a show-cause notice in Form GST DRC-01 dated 5 August 2024. The petitioner challenged the invocation of the extended limitation under Section 74, asserting that there was no fraud, wilful misstatement or suppression of facts.

During the pendency of the writ petition, the authority passed an Order-in-Original dated 4 February 2025 in Form GST DRC-07, determining tax, interest and penalty against the petitioner. The petitioner accordingly amended its petition to challenge the said order as well. The Court observed that Notification No. 24/2018 was issued only on 31 December 2018. Therefore, the Revenue’s attempt to apply the notification to transactions entered into before that date and treat the petitioner’s composite solar supply as a works contract taxable at 18% was not sustainable.

The Court examined that the show-cause notice dated 5 August 2024 did not itself disclose any fraud, wilful misstatement or suppression of facts on the petitioner’s part. The alleged intention behind withdrawal of the earlier writ petition was also held to be without any basis and could not justify assumption of jurisdiction under the extended limitation period. Importantly, the Court noted that the earlier Special Civil Application No. 6274 of 2021 had not resulted in any stay of proceedings against the petitioner. The High Court further held that the Revenue’s reliance on the petitioner’s alleged failure to furnish information was insufficient. 

The Gujarat High Court held that the Revenue could not assume jurisdiction under Section 74(1) read with Section 74(10) merely to take advantage of the extended five-year limitation in the absence of fraud, wilful misstatement or suppression of facts. Accordingly, the Court quashed and set aside the show-cause notice dated 5 August 2024 and the consequential Order-in-Original dated 4 February 2025.