Facts of the Case:

The petitioner filed the present writ petition challenging the Assessment Order dated 05.02.2025 passed in Form GST DRC-07 under Section 74 of the GST enactments for the tax period 2017–2018. The proceedings were initiated by a Show Cause Notice dated 30.08.2024 in Form GST DRC-01 proposing demand of Rs. 2,37,965/- each under SGST and CGST on account of ineligible Input Tax Credit (ITC). The petitioner submitted a reply to the show cause notice and subsequently accepted the tax demand. On 18.10.2024, the petitioner paid the said amount by debiting the Electronic Credit Ledger through Form GST DRC-03.

Upon verification, it was found that during the period from 31.07.2017 to 18.10.2024, sufficient balance was not available in the Electronic Credit Ledger for discharge of the tax liability, specifically from 03.06.2020 in respect of SGST and from 22.05.2019 in respect of CGST. Consequently, the Department treated the payment as delayed and confirmed interest under Section 50(3) along with penalty under Section 74. The interest confirmed amounted to Rs. 4,19,418/- and penalty to Rs. 4,75,930/-, aggregating to Rs. 8,95,348/-. Aggrieved by the levy of interest and penalty despite payment of tax, the petitioner approached the High Court under Article 226 of the Constitution of India.

Issue:

Whether interest under Section 50(3) and penalty under Section 74 were validly imposed where the petitioner had paid the tax liability but had insufficient ITC balance during the relevant period, and whether the High Court should interfere in writ jurisdiction when the petitioner had failed to avail the statutory reduced penalty options under Sections 74(5), 74(8), and 74(11).

Held that:

The Court held that there was no scope for interference with the impugned Assessment Order. It observed that since sufficient balance was not available in the Electronic Credit Ledger during the relevant period, the tax liability was effectively unpaid in law, thereby attracting interest under Section 50, which is compensatory in nature.

The Court further noted that Section 74 provides graded statutory options for reduced penalty i.e. 5% before issuance of the Show Cause Notice under Section 74(5), 25% within 30 days of the Show Cause Notice under Section 74(8), and 50% within 30 days of the assessment order under Section 74(11). The petitioner had not availed any of these alternatives. In view of the admitted tax liability and failure to exercise the beneficial statutory mechanisms, the Court declined to exercise its jurisdiction under Article 226 and dismissed the writ petition. No costs were awarded, and the connected miscellaneous petition was closed.

Case Name: M/s. Geena Garments, Represented by its Partner Versus State Tax Officer, Tiruppur dated 11.02.2026