Facts of the Case:

In this case, the petitioner challenged the Order-in-Original and the consequential DRC-07 by which a demand of ₹1,32,467 was raised. The Petitioner argued that before the issuance of the show cause notice (SCN) dated 7 June 2024, it had already deposited the entire tax amount in August 2022, evidenced by a letter dated 31 August 2022 issued by Delhi Sales Corporation. Though the impugned order pertained to 1155 buyers/recipients spread across 79 alleged fake firms, the petitioner’s tax dues stood fully paid much earlier. The impugned order itself acknowledged receipt of ₹2,07,868 from the petitioner under the head “appropriation”.

During the hearing, the Department also confirmed that the petitioner had deposited the full tax amount. Despite this, a penalty was imposed on the petitioner as part of mass proceedings against several entities linked to alleged fake firms. Further, the petitioner submitted that FORM DRC-01 (summary of SCN) was issued on 27 September 2024, whereas the petitioner’s tax deposit was made more than two years earlier. Under Section 74(5) of the CGST Act, a person may pay tax, interest, and 15% penalty prior to SCN, upon which no SCN should be issued for that amount. Alternatively, under Section 74(8), payment within 30 days of SCN concludes proceedings on payment of 25% penalty.

Issue:

Whether, after the petitioner had voluntarily deposited the tax and interest prior to the issuance of SCN, proceedings under Section 74 could validly continue, and whether the petitioner could be required to undergo appeal proceedings despite its compliance under Section 74(5) of the CGST Act.

Held that:

The Court stated that Section 74(5) applies prior to issuance of SCN, permitting voluntary payment of tax, interest, and 15% penalty, obligating the proper officer not to issue SCN for that amount. However, Section 74(8) applies after issuance of SCN, permitting closure of proceedings on payment of tax, interest, and 25% penalty within 30 days. The Court noted that Section 74(5) is a complete code for voluntary payment prior to SCN.

The Court observed that the petitioner deposited tax and interest on 31 August 2022, which was well before the SCN dated 7 June 2024. This payment was admitted in the Order-in-Original itself. Therefore, the statutory bar against issuance of SCN under Section 74(6) stood attracted.

Since the disputed penalty amount was only ₹19,000, and the petitioner had complied substantially, compelling the petitioner to pursue appellate remedy would delay the matter without justification. If the petitioner deposits 15% of the penalty amount, the SCN would be deemed to be closed in terms of Section 74(5). The petitioner expressed willingness to make such payment.

Since the petitioner had already deposited tax and interest in 2022, the Court held that only the 15% penalty under Section 74(5) would need to be deposited for the matter to attain statutory finality. Upon payment of 15% penalty, the SCN must be deemed to be closed in terms of Section 74(5) and 74(6).

The Court directed that if the petitioner deposits 15% of the penalty amount within four weeks, the entire proceedings under the impugned order shall stand quashed, but only with respect to the petitioner, and not for any other noticee linked to the broader investigation.

Case Name:  Delhi Sales Corporation Versus The Principal Commissioner of Central Tax & Ors. dated 21.11.2025