Facts of the Case:

In this case, the petitioner was engaged in facilitating the sale of medical equipment by overseas suppliers to buyers in India and providing marketing, distribution and support services to its foreign group companies. In respect of replacement of parts from inventory under warranty support services supplied to foreign group companies, the petitioner had paid GST amounting to ₹7,65,03,407 under the heads of CGST and SGST.

Subsequently, the Revenue issued a show cause notice dated 16.07.2024 under Section 74 of the CGST Act, 2017, demanding the same tax amount under the head IGST for the same transaction and period. The demand was confirmed vide Order-in-Original dated 31.12.2024, which was challenged by the petitioner before the High Court.

The petitioner contended that the entire GST liability of ₹7,65,03,407 had already been discharged, although under the incorrect tax heads of CGST and SGST instead of IGST. Since the tax had already reached the Government treasury, recovery of the same amount again under the IGST head would result in double recovery. It was further argued that the wrong classification of the tax head, by itself, could not justify invocation of Section 74 in the absence of fraud, wilful misstatement or suppression of facts.

The Revenue, on the other hand, argued that CGST, SGST and IGST are credited to distinct Government accounts and that there was no statutory obligation upon the Department to adjust CGST and SGST already paid against the IGST liability. It further alleged that the petitioner had systematically misclassified inter-State supplies as intra-State supplies and that such conduct amounted to suppression under Explanation 2 to Section 74. The Revenue also raised the objection of availability of an alternative remedy.

Issue:

Whether payment of CGST and SGST on a transaction subsequently held to be an inter-State supply can be adjusted or transferred towards the corresponding IGST liability.  Whether recovery of IGST under Section 74 is justified where the taxpayer has already discharged the entire GST amount under the incorrect tax heads of CGST and SGST. Whether mere payment of tax under an incorrect head, without establishing fraud, wilful misstatement or suppression of facts, is sufficient to invoke Section 74 of the CGST Act.

Held That:

The High Court held that the admitted payment of ₹7,65,03,407 under the heads of CGST and SGST could not be disregarded merely because the amount was deposited under the incorrect tax heads. The principal issue was whether such payment constituted payment of tax to the Government and whether the wrong classification of the tax head, by itself, justified fresh recovery proceedings under Section 74.

The Court examined Section 77 of the CGST Act read with Section 19 of the IGST Act, which provide for the treatment of tax paid under the wrong head when a transaction initially considered to be an intra-State supply is subsequently held to be an inter-State supply, and vice versa. The Court also considered Rule 4 of the GST Refund Rules concerning sanction and adjustment of refunds.

On a combined reading of these provisions, the Court held that the Revenue could have transferred the amount already paid under CGST and SGST to the IGST account. Consequently, the Department could not invoke Section 74 merely because the tax had been deposited under the incorrect heads. The Court also relied upon the Kerala High Court’s decision in Saji S. v. Commissioner, State GST, wherein it was held that the Department should permit transfer of tax paid under the wrong head rather than subjecting the taxpayer to fresh recovery proceedings.

With respect to invocation of Section 74, the Court relied upon the Supreme Court’s decision in Tata Steel Limited v. Union of India, wherein it was held that the proper officer must record satisfaction regarding the existence of fraud, wilful misrepresentation or suppression of facts leading to short payment of tax. The foundational facts supporting such allegations must be evident from the show cause notice itself, and mere mechanical reproduction of statutory expressions is insufficient.

Applying the aforesaid principles, the Court observed that the present case did not involve any deliberate attempt to evade tax. Accordingly, invocation of Section 74 was held to be unwarranted.

The High Court, therefore, quashed and set aside the Order-in-Original and directed the petitioner to submit an application, along with proof of payment of ₹7,65,03,407, within three weeks for transfer of the amount from the CGST and SGST accounts to the IGST account. The Department was directed to forthwith transfer the said amount upon receipt of the application.

However, the Court clarified that it had not adjudicated the quantum of IGST actually payable. The Department was at liberty to initiate appropriate proceedings for recovery of any amount exceeding ₹7,65,03,407, if otherwise legally payable. The petitioner was also granted liberty to pursue an appeal in respect of the separate amount of ₹11,36,447.

Case Name: DHR HOLDING INDIA PRIVATE LIMITED v. UNION OF INDIA & ORS. dated 30.10.2026