NON-COMPLIANCE OF SECTION 74(9) AND SECTION 75(4) OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017

Section 74 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides for the determination of tax not paid or short paid or erroneously refunded or input tax wrongly availed or utilized for the period up to the Financial Year 2023-2024 by reason of fraud or any wilful misstatement or suppression of facts, the proper Officer shall serve notice on the person chargeable with tax requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon and a penalty equivalent to the tax specified in the notice.  In response to the said notice, the registered person shall file a reply within the time stipulated in the notice. Section 74(9) provides that the proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.

Section 75 of the Act provides the general provisions for determination of tax. Section 75(4) of the Act requires that an opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.

The proper officer who is going to determine the tax shall observe the provisions of the Section 74(9) and 75(4) of the Act. If the same are not followed strictly, then any order passed by the said order may be liable to be set aside by the appellate authority or by a High Court by means of writ petition. Generally, a High Court will not entertain any writ petition challenging any impugned order since there is an alternative remedy is available by filing an appeal before the First Appellate Authority, i.e., Commissioner (Appeals). However, the High Court may entertain a writ petition in exceptional circumstances, where there is-

• A breach of fundamental rights;
• A violation of the principles of Natural Justice;
• An excess jurisdiction;
• A challenge to the vires of a statute or delegated legislation.

In Sunil Chauhan Prop Of Shree Chem India Versus The Principal Commissioner Of CGST Delhi North & Ors. - 2026 (7) TMI 712 - DELHI HIGH COURT, the petitioner is engaged in the business of trading in agro chemical products including insecticides and pesticides. The Director General of Goods and Services Tax Intelligence (‘DGGI’ for short) issued a show cause notice on 17.06.2025 under Section 74 of the Act to the tune of Rs.5.51 crores for the financial years from 2018-19 to 2022-23 along with interest and penalty. The show cause notice alleged mis-declaration, undervaluation and clandestine clearance of taxable goods.

The petitioner filed a reply to the show cause notice on 16.07.2025. The petitioner denied the allegations as contained in the show cause notice. The petitioner also requested to allow him to cross examine some persons who recorded statements before the Department. However, the impugned order was issued confirming the demand raised in the show cause notice along with interest and penalty. The impugned order also records that opportunities of personal hearings were offered to the petitioner on 09.10.2025, 14.10.2025 and 06.11.2025. The petitioner alleged that he was not informed of about the personal hearings. Therefore, the petitioner filed the present writ petition before the High Court.         

The petitioner submitted the following before the High Court-

• The petitioner filed reply to the impugned show cause notice. The proper officer considered the reply as neither in consonance to the allegations contained in the show cause notice nor do they seem to validate their stance.
• The mandatory requirement under Section 75(4) of the Act has not complied with. The impugned order records that personal hearings were given to the petitioner on 3 days for which no intimation has been received from the Proper Officer. Therefore, there is a clear violence of Section 75(4) of the Act.
• The Statement recorded from the petitioner under Section 70 of the Act is not voluntary and he was coerced to record such statement. Therefore, the same cannot be relied on by the Proper Officer.
• The Statements from the third parties were also obtained by the Proper Officer. The request of the petitioner to allow him to cross examine such persons are not taken into account by the Proper Officer.
• The Adjudicating Authority has exceeded its jurisdiction in imposing the penalties in the impugned order.

The High Court heard the submissions of the petitioner and perused the materials on record. The High Court observed that the petitioner, in the present writ petition, seeks to invoke the writ jurisdiction of the High Court on the grounds the adjudication proceedings are vitiated for non-compliance with section 74(9) and 75(4) of the Act, denial of the opportunity to cross examine the witnesses on whose statements, the Proper Officer relied, excess jurisdiction in imposing penalty.  The High Court considered the issue as the present case falling with in the recognised exceptions warranting interference under Article 226 of the Constitution.

The High Court considered all of the submissions of the petitioner and decided the issues as below-

• Section 74(9) of the Act obligates the proper officer to consider the reply made by the petitioner before determination of the tax. Section 74(9) of the Act casts a duty upon the Adjudicating Authority to apply its mind to the defence raise by the noticee. At the same time the adequacy of reasons recorded by the Adjudicating Authority and the correctness of the findings are falling within the domain of the Appellate Authority.
• Merely because the Adjudicating Authority has not elaborately dealt with every statement contained in the reply would not consider at all. Whether the reasoning furnished in the impugned order is adequate or touching upon the merit of the case and are more appropriately examined in the appeal. Therefore, the High Court is not persuaded to hold that the contention founded upon Section 79(4) of the Act constitutes such an exceptional circumstance as would warrant exercise of writ jurisdiction.
• The impugned order indicated that personal hearings were offered to the petitioner but the petitioner disputed the same. The High Court that such disputes cannot be decided by the High Court in the writ jurisdiction.
• The petitioner alleged that the statements were obtained from under coercion. He was not allowed to cross examine the third-party witnesses from whom the Proper Officer recorded the statements and relied on the same. The High Court observed that the petitioner did not disclose a patent jurisdictional defect or establish a manifest violation of the principles of Natural Justice as would justify invocation of the extraordinary jurisdiction of the High Court.
• The High Court considered the final submission of the petitioner – the Adjudicating Authority is not having jurisdiction to impose penalty. The High Court observed that the provisions of the Act do not contemplate separate adjudication proceedings for penalty under Section 122 of the Act where such liability arises out of the very adjudication undertaken under Sections, 73 or 74 of the Act. The petitioner did not also disclose any patent illegality to impose the penalties warranting interference under Article 226 of the Constitution.

The High Court observed that the issues raised in the present writ petition did not disclose a case falling within the recognised exceptions to the rule of alternate remedy. The issues involved disputed questions of fact requiring appreciation of records and the legality of the findings recorded in the impugned order all of which can be appropriately examined by the appellate authority.

In view of the above the High Court dismissed the writ petition.