Payment under Section 74(5) CGST can close SCN when tax and interest paid, avoiding appeal

Delhi HC held that under s.74 of the CGST Act, a distinction exists between payments made under s.74(5) and s.74(8). Since the petitioner had already paid tax and interest before issuance of the demand-cum-SCN under s.74(1), and the maximum penalty computed was only Rs.19,000, relegating the petitioner to appellate remedy was unnecessary. The HC directed that if the petitioner deposits 15% of the penalty amount within four weeks, the SCN shall be deemed closed under s.74(5) and the impugned order shall stand quashed qua the petitioner alone. The petition was disposed of with this direction, without affecting other noticees.

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Issues: Whether the writ petition succeeds insofar as the petitioner who paid the tax and interest prior to issuance of a show cause notice can avoid further penalty and have the impugned order quashed against it.

Analysis: The Court examined Sections 74(1), 74(3), 74(5) and 74(8) of the Central Goods and Services Tax Act, 2017 and the factual timeline. Section 74(5) permits a person chargeable with tax to pay the tax with interest and a penalty equivalent to 15% before service of notice under Section 74(1), and upon informing the proper officer the officer shall not serve such notice in respect of the tax so paid; Section 74(8) provides that where tax, interest and 25% penalty is paid within thirty days of issue of notice, proceedings are deemed concluded. The petitioner paid the tax and interest in August 2022 in response to summons (relying on Section 73(5) procedure), and the impugned demand-cum-SCN under Section 74(1) was issued subsequently in June 2024. The Court noted the lesser penalty liability (15% calculation) applicable to pre-notice payment under Section 74(5) and observed that relegation to appellate remedy would cause undue delay. The Department acknowledged receipt/appropriation of the petitioners payment. Balancing the statutory scheme and the facts, the Court held that payment of a reduced penalty under Section 74(5) would close proceedings as to the petitioner.

Conclusion: The writ petition is allowed insofar as it concerns the petitioner; subject to the petitioner depositing 15% of the penalty within four weeks, the impugned order shall be quashed qua the petitioner. The order does not apply to other noticees.

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