TaxTMI 
TaxTMI 
TaxTMI 
SHOW CAUSE NOTICE UNDER SECTION 74 OF CGST ACT IS UNJUSTIFIED WHEN THE TAX AND INTEREST IS PAID VOLUNTARILY
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....HOW CAUSE NOTICE UNDER SECTION 74 OF CGST ACT IS UNJUSTIFIED WHEN THE TAX AND INTEREST IS PAID VOLUNTARILY<br>By: - DR.MARIAPPAN GOVINDARAJAN<br>Goods and Services Tax - GST<br>Dated:- 17-2-2026<br>Section 74 of the Central Goods and Services Tax Act, 2017 ('Act' for short) provides for the issue of show cause notice by the proper officer for the determination of tax if any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised to reason of fraud, or any wilful mis-statement or suppression of facts to evade tax, to the tax payer as to why the tax payer should not pay the amount specified in the notice along with interest payable thereon under Sectio 50 and penalty equivalen....
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....t to the tax specified in the notice. In MRF Ltd. Versus Additional Director DGGI Delhi Zonal Unit, Additional / Joint Commissioner of Central Tax, Chennai South Commissionerate, CGST Commissionerate Chennai. - 2025 (12) TMI 1442 - MADRAS HIGH COURT the petitioner is a listed limited company. The Department issued a show cause notice to the petitioner for the wrongful availment of ITC and directed the petitioner to pay a sum of Rs.78 crores. Due to this notice the shares of the petitioner company had a setback. The petitioner made a supply of tyres, tubes and flaps ('TTF' for short) in carrying strapping form. All these items were chargeable @ 28% at the time of introduction of GST. With effect from 15.11.2017 the GST rate was reduc....
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....ed to 18%. There was a confusion among industries as to whether the supply of TTF in a carry form is a composite supply or individual supply. The petitioner later treated the said supply as 'composite supply' and accordingly paid the difference tax along with interest on 21.02.2019. The same has been communicated to the Department on 07.01.2019. In the meantime, the DGGI had initiated investigation against the petitioner on the supply of TTF and took a view that the supply was a composite supply, for which the petitioner has to pay tax @ 28%. The petitioner filed a writ petition before the High Court, challenging the issue of show cause notice. The petitioner submitted the following before the High Court- • On the date of....
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.... issuance of show cause notice, there was no due of tax or interest and the same have been paid in toto. • Therefore, the Department cannot invoke Section 74 for the issue of show cause notice to the petitioner. • The show cause notice does not fulfil the ingredients of Section 74 of the Act. Therefore, the show cause notice is illegal and liable to be set aside. • The confusion prevailing on the type of supply among the industries, the petitioner in order to bring peace paid all the taxes along with interest. • The payment of tax has been communicated to the Department and the tax has been paid in full after the due date of filing the monthly return, on 21.02.2019. In such case, no action....
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.... can be initiated against the petitioner. • The applicability of Section 74 would arise only if there is a short payment of tax due to fraud or wilful suppression or mistake of fact. In this case the petitioner has no intonation to evade the payment of tax. The Department submitted the following before the High Court- • The petitioner had inserted tubes and flaps inside the tyre and wrapped it together and supply it to the manufacturers. • Without effecting the supply, a common invoice was sent by the petitioner by mentioning different duties for different goods. • Subsequently the petitioner treated the supply as composite supply and communicated the same on 07.01.2019. • ....
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....It is clear that the previous actions of the petitioner in payment of the duties by reducing the tax rate from 28% to 18% without treating the supply as composite supply, which is deliberated and motivated. • The entire amount of tax was paid by the petitioner only after the investigation of DGGI. Therefore, the provisions of Section 74 would attract in the case of the petitioner. • The impugned show cause notice was issued to the petitioner for wrongful availment of input tax credit. • The petitioner had approached the High Court invoking writ jurisdiction without availing alternate remedy available in the Act. The High Court considered the submissions of both the parties. The High Court considered....
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.... the issue to be decided by the Court is as to whether the issuance of impugned show cause notice dated 07.04.2022 have fulfilled the ingredients of Section 74 of the Act. The High Court analysed the impugned show cause notice and the provisions of Section 74 and Section 39 of the Act. The High Court observed that the provisions of Section 74 will attract only in the event of nonpayment of tax or short payment of tax or erroneously refunded or wrong availment of input tax credit by reason of fraud or any wilful mis-statement or suppression of facts. The authorities are supposed to have traced out as to whether there is any evasion of tax in the course of payment of tax dues, the intention of fraud or provision of wilful misstatement or s....
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....uppression of facts. If fraud or mis statement or suppression of fact is established while issuing the show cause notice the said notice will be considered as issued without fulfilling the ingredients of the Section 74 of the Act and such notice is liable to be set aside since the same is issued without jurisdiction. The High Court considered that the petitioner had come forward voluntarily and stated that their supply is composite supply and paid the entire tax along with interest. In such a case, the Department cannot infer any wilful intention to evade the payment of tax. Since the entire amount along with the interest has been paid by the petitioner, the case would attract the provisions of Section 73 of the Act since there is no int....
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....ention to evade the payment of tax. The petitioner communicated the Department indicating intention to pay the tax in entire along with interest which is prior to the investigation caused by DGGI. Therefore, no criminal motive viz. fraud, wilful mis-statement etc., can be attributed against the petitioner. No ingredients of Section 74 was satisfied while issuing the impugned show cause notice and hence the question of application of Section 39(9) of the Act, so as to deprive the petitioner from availing the input tax credit would not at all arise. The said provision would attract only in the event, if the enforcement action was initiated, much prior to the intimation of the petitioner to pay the short payment of tax. The High Court....
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.... further observed that since the department issued the show cause notice without satisfying the ingredients of the provisions of Section 74 the writ jurisdiction can be invoked by the petitioner. The High Court set aside the impugned show cause notice and allowed the writ petition. =============<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....