Facts of the Case:

The present writ petitions formed part of a larger batch of over 250 writ petitions concerning the legality of proceedings initiated under Section 74 of the respective GST enactments, particularly the invocation of the extended period of limitation.

The petitioner here challenged Orders-in-Original which were preceded by show cause notices in Form GST DRC-01. The notices alleged discrepancies relating to mismatch between GSTR-3B and GSTR-2A, differences between GSTR-7 and GSTR-3B, and variations between turnover reported in GSTR-9 and Form 26AS. The petitioner submitted manual replies contending that the differences had either been rectified in subsequent tax periods or represented exempted turnover, and argued that there was neither suppression of facts nor tax evasion.

It was further contended that the proceedings under Section 74 were invalid as the notices failed to disclose any material or reasons demonstrating fraud, wilful misstatement, or suppression of facts necessary for invoking the extended limitation period. The Revenue, however, asserted that the proceedings were initiated pursuant to an inspection conducted on 18 July 2023, which revealed short-payment of tax, and that the notices specifically invoked Section 74 while alleging wilful suppression of facts.

Issue:

Whether proceedings under Section 74 of the GST enactments could be validly initiated without expressly recording detailed reasons establishing fraud, wilful misstatement or suppression of facts in the show cause notice, and whether the impugned assessment orders were liable to be interfered with in view of apparent computational and factual errors in determining the tax liability.

Held That:

The Court observed that the proceedings were initiated pursuant to an inspection conducted by the Department, during which records disclosed apparent short-payment of tax when compared with the figures reflected in Form 26AS and GSTR-7. Referring to its common judgment rendered in the connected batch of cases, the Court reiterated that the expression “where it appears” employed in Section 74 permits the proper officer to invoke the provision once the available records prima facie indicate tax short-payment attributable to fraud, wilful misstatement or suppression of facts. The Court further noted that the show cause notices specifically invoked Section 74 and expressly referred to “wilful suppression of facts”, thereby satisfying the statutory requirement at the stage of initiation. The petitioner’s replies were found to be cursory and inadequate, as they failed to effectively rebut the allegations or furnish sufficient documentary evidence explaining the discrepancies.

However, the Court found that the assessment for the tax period 2020–21 suffered from significant computational and factual errors. The Revenue had erroneously treated the exempted turnover disclosed in GSTR-9 as the tax liability in the revenue abstract and consequently computed an incorrect demand. The impugned order also inadvertently referred to exempted turnover pertaining to an earlier assessment year while determining the tax liability. Considering these patent errors, coupled with the inadequacy of the petitioner’s reply, the Court set aside the impugned orders and remanded the matters to the adjudicating authority for fresh consideration. The petitioner was directed to file comprehensive replies supported by relevant documents, and the authority was directed to pass fresh orders on merits after granting an opportunity of personal hearing.

The Madras High Court held that the invocation of Section 74 was legally sustainable in the facts of the case.

Case Name: Tvl. K. Ezhil Arasan, Contractor Versus The Joint Commissioner (ST) Intelligence, Salem, The Commercial Tax Officer, Salem, Tamil Nadu. dated 08.06.2026

To read the complete judgement 2026 Taxo.online 1772