Facts of the Case:

In this case, the petitioner operating under two separate GST registrations at Gobichettipalayam and Erode challenged assessment orders passed pursuant to an inspection conducted on 09.09.2021, wherein the department alleged that the petitioners had engaged in circular/reciprocal transactions and passed on fictitious Input Tax Credit (ITC) without actual supply of goods or services. Following the inspection, proceedings were initiated through scrutiny notices in ASMT-10, replies were furnished by the petitioners, and subsequent proceedings culminated differently for the two registrations. 

In the Gobichettipalayam cases, the department, after an earlier remand by the High Court, directly passed demand orders in DRC-07 without issuing a fresh DRC-01 show cause notice under Section 74. In contrast, for the Erode registration, the department followed the statutory sequence by issuing DRC-01A, DRC-01, receiving replies in DRC-06, and thereafter passing DRC-07 orders. The petitioners challenged the invocation of the extended limitation period under Section 74 as well as the procedural validity of the adjudication.

Issue:

Whether the extended period of limitation under Section 74 was validly invoked based on the inspection findings alleging fraudulent ITC transactions, and whether the assessment orders could be sustained where the adjudicating authority, after an earlier remand by the Court, bypassed the mandatory procedure of issuing a fresh DRC-01 show cause notice before confirming the demand.

Held That:

The High Court upheld the invocation of Section 74, holding that the inspection conducted on 09.09.2021, coupled with allegations of circular trading and passing of fictitious ITC, constituted sufficient material to justify invocation of the extended period of limitation. Referring to its contemporaneous common judgment on Section 74, the Court reiterated that the threshold for invoking the extended limitation under the GST regime is considerably lower than under the erstwhile indirect tax laws.

It observed that once proceedings had commenced through ASMT-10 and replies had been furnished in ASMT-11, the statutory scheme required either closure of proceedings through ASMT-12 or initiation of adjudication by issuing an intimation in DRC-01A followed by a show cause notice in DRC-01 under Section 74. Instead, after the earlier remand by the High Court, the department directly passed DRC-07 demand orders, without issuing a fresh show cause notice. Since ASMT-13 applies only to best judgment assessments of non-filers under Section 62, its invocation in the present factual matrix was held to be inconsistent with the statutory framework. Accordingly, the Court set aside the DRC-07 orders dated 05.07.2023, directed that those orders themselves be treated as DRC-01 show cause notices, and remanded the matter for de novo adjudication after complying with the principles of natural justice, while directing that the intervening period be excluded for limitation purposes.

In case of another GST registration of the petitioner,  the Court found that the department had followed the prescribed statutory procedure by issuing DRC-01A, DRC-01, considering the reply in DRC-06, and thereafter passing the adjudication order. Since no procedural irregularity was established and adequate material existed to justify proceedings under Section 74, the Court dismissed those writ petitions, while granting liberty to the petitioners to file statutory appeals within thirty days subject to depositing 50% of the disputed tax liability.

Case Name: M/s. Southern Steels, Represented by its Partner C. Krishnamurthy Versus The Assistant Commissioner (ST), The Appellate Deputy Commissioner (GST), Erode dated 08.06.2026

To read the complete judgement 2026 Taxo.online 1684