Madras High Court Dismisses Plea Against Section 74 GST Order, Upholds Rs. 8.95 Lakh Penalty

The Madras High Court dismissed the writ petition of a company filed challenging a Section 74 GST assessment order for AY 2017-18. After admitting ineligible ITC and paying tax, the firm failed to use reduced-penalty options. The Court upheld the interest and the Rs. 8.95 lakh penalty, finding no grounds to interfere.

The company, Geena Garments, has filed the present appeal in the Madras High Court, challenging a GST Assessment Order dated February 05, 2025, passed under Section 74 of the GST Act in Form GST DRC-07. The case concerns the Assessment Year 2017-18.

Prior to the impugned assessment order, a Show Cause notice (SCN) dated August 30, 2024, was issued in Form GST DRC-01 addressed to the assessee, asking why a demand amounting to Rs. 237,965 each under SGST and CGST for claiming ineligible Input Tax Credit (ITC) should not be imposed against it. However, the assessee could not deny the demand and accepted it. The tax demand was paid on October 18, 2024, using the Electronic Credit Ledger.

However, when the tax department verified the petitioner’s ITC, it noted that the credit ledger did not have a sufficient balance to make the aforementioned payment from the period between July 31, 2017, and October 18, 2024. In conclusion, tax authorities confirmed the interest and penalty amounting to Rs. 8.95 lakh on the petitioner vide the impugned Assessment Order.

During the hearing, the court noted that the petitioner had a chance to pay the required tax demand with a reduced penalty within the prescribed time limit under Sections 74(5), 74(8), and 74(11) of the GST Act. These provisions allow payment with a 15%, 25%, or 50% penalty depending on the stage of payment. However, the petitioner still did not make use of any of these options.

Since the petitioner had already admitted the tax liability and failed to opt for the available statutory reliefs, the Court held that there was no reason to interfere with the direction of the impugned assessment order passed by the tax authorities. Accordingly, the court dismissed the present writ petition without costs.