Facts of the Case:

In this case, the petitioner filed returns in Form GSTR-1 and GSTR-3B for the period 2017-18 to 2022-23. During audit and scrutiny proceedings conducted by the GST department, discrepancies were allegedly detected relating to short payment of tax, excess availment of Input Tax Credit (ITC), and non-payment of GST on certain receipts reflected in Form 26AS and profit and loss accounts. The department alleged contravention of Sections 9, 16, 50 and 74 of the CGST Act, 2017.

The show cause notice issued under Section 74 alleged that the petitioner had indulged in suppression and wilful misstatement with intent to evade tax. Prior to issuance of the show cause notice, the petitioner had already deposited substantial tax amounts through DRC-03 after the discrepancies were pointed out during audit. However, according to the department, interest and penalty liabilities remained unpaid. The petitioner was accordingly called upon to pay interest under Section 50 and penalty under Section 74.

Despite service of the show cause notice, the petitioner did not file any written response. During personal hearing, the petitioner’s representative allegedly admitted liability towards interest and penalty and undertook to deposit the remaining amount within two months. Thereafter, adjudication orders dated 04.02.2025 and 06.02.2025 were passed confirming interest and penalty demands.

Instead of availing the statutory appellate remedy under Section 107 of the CGST Act, the petitioner approached the High Court after nearly ten months, challenging the show cause notices, adjudication orders, garnishee proceedings under DRC-13, and also challenging a CBIC Circular dated 16.09.2025.

Issue:

Whether proceedings under Section 74 of the CGST Act could validly continue even after the taxpayer had voluntarily deposited the tax amount prior to issuance of the show cause notice, and whether the department could invoke allegations of suppression and wilful misstatement so as to justify levy of interest and penalty under Section 74.

Held That:

The Court observed that the show cause notice specifically contained allegations of wilful suppression and misstatement with intent to evade tax. Since the petitioner neither filed any reply contesting such allegations nor disputed the proceedings before the adjudicating authority, the petitioner could not subsequently challenge the invocation of Section 74 in writ jurisdiction.

The Court further noted that the petitioner had voluntarily deposited tax amounts after the audit objections were raised and had also, through its representative, admitted liability towards interest and penalty during personal hearing. In such circumstances, the petitioner was estopped from taking a contradictory stand before the High Court. The Court held that mere payment of tax after detection during audit does not automatically preclude initiation of proceedings under Section 74, particularly where allegations of suppression and wrongful availment of ITC are specifically made.

The Court also emphasized that the petitioner had an effective statutory remedy of appeal under Section 107 of the CGST Act but failed to avail the same within limitation. The writ petition filed after expiry of the appellate limitation period could not be entertained merely to circumvent statutory remedies.

Case Name: Manju Devi Agarwal v. Central Board of Indirect Taxes and Customs GST Policy Wing dated 27.04.2026

To read the complete judgement 2026 Taxo.online 1331