Section 74 misuse in GST demands fails without fraud evidence and no interest lies where credit was not utilised.

Section 74 proceedings were held unsustainable where the assessees had voluntarily reversed the disputed input tax credit before the show-cause notice and the department lacked independent material showing fraud, wilful misstatement, or suppression of facts to evade tax. The court further held that interest under Section 50(3) was not leviable because the electronic credit ledger never fell below the disputed amount, so the credit was not shown to have been utilised. The demand of penalty also could not stand, and taxing the same credit again after reversal was treated as impermissible double recovery.

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Issues: Whether proceedings under Section 74 could be sustained, and interest and penalty could be levied, where the input tax credit had been voluntarily reversed before issuance of the show-cause notice and the electronic credit ledger retained sufficient balance, in the absence of independent material showing fraud, wilful misstatement, or suppression of facts to evade tax.

Analysis: The writ petitions arose from demands raised under Section 74 on the footing that the petitioners had availed input tax credit on invoices issued by a supplier later described as non-existent. The record showed that the petitioners had reversed the entire disputed credit in their returns before issuance of the show-cause notice and had intimated the department accordingly. The impugned orders proceeded largely on the basis of an alert notice and third-party statements, without independent inquiry into the petitioners' complicity or any material establishing conscious evasion. The reasoning further notes that Section 74 is attracted only where tax is short paid or input tax credit is wrongly availed or utilised by reason of fraud, wilful misstatement, or suppression of facts to evade tax, and that mere non-payment or a disputed availment does not by itself justify invocation of the extended period. On interest, the judgment applies Section 50(3), Rule 88B of the Central Goods and Services Tax Rules, 2017, and the departmental clarification dated 17.07.2023 to hold that where the electronic credit ledger never fell below the disputed amount, the credit cannot be treated as utilised and interest is not exigible. The order also treats the demand of tax again, after voluntary reversal, as resulting in impermissible double recovery.

Conclusion: Invocation of Section 74 was unsustainable, no interest was payable on the facts found, and the penalty demand could not stand; the impugned order was quashed in favour of the assessees.

Ratio Decidendi: Section 74 cannot be invoked without independent material showing fraud, wilful misstatement, or suppression of facts to evade tax, and interest under Section 50(3) is not leviable unless the wrongly availed input tax credit is shown to have been utilised by the electronic credit ledger falling below the disputed amount.

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