Madras High Court directs reconsideration of overlapping GST recovery proceedings

Background of the dispute

The Madras High Court was called upon to examine a challenge by Tvl. Musthafa & Co Vs Deputy State Tax Officer regarding a demand raised under the GST law for the tax period 2019–2020.

The assessee approached the Court against an order issued in Form DRC-07 dated 22.08.2024, passed by the Deputy State Tax Officer. This order flowed from a show cause notice in Form DRC-01 dated 27.05.2024. The assessee had not responded to this notice, which resulted in an ex parte confirmation of demand towards tax, interest and penalty.

Subsequently, however, another proceeding for the same tax period 2019–2020 culminated in an assessment order dated 31.08.2024, in which the demand on the same issue was dropped by the State Tax Officer. This gave rise to a situation where two sets of proceedings appeared to overlap on the same subject matter.

Impugned DRC-07 demand details

Under the impugned Form DRC-07 dated 22.08.2024, the following amounts were confirmed against the assessee for the tax period 2019–2020:

  • Under CGST and SGST, the components were as follows (all figures in ₹):

    • Excess claim ITC:

      • CGST: 94,244
      • SGST: 94,244

    • Penalty due U/S.73(9):

      • CGST: 10,000
      • SGST: 10,000

    • Interest due U/S.50(3) (from 20.04.2020 to 22.08.2024 – 1584 days delay):

      • CGST: 73,619
      • SGST: 73,619

    • Penalty due U/S.123:

      • CGST: 5,000
      • SGST: 5,000

    • Total tax due:

      • CGST: 1,82,863
      • SGST: 1,82,863

    • Amount paid:

      • CGST: NIL
      • SGST: NIL

    • Balance:

      • CGST: 1,82,863
      • SGST: 1,82,863

The assessee had not discharged any portion of this demand, and the order had been passed solely because there was no reply to the Form DRC-01 dated 27.05.2024.

Earlier show cause notice and subsequent assessment order

The core contention raised by the assessee before the High Court was that, on the very same substantive issue — namely, alleged excess claim of input tax credit for the same tax period — an earlier show cause notice in Form DRC-01 dated 13.12.2023 had already been issued.

Following that earlier notice, the jurisdictional State Tax Officer passed an assessment order dated 31.08.2024 for the identical tax period 2019–2020, whereby the demand referred to in that proceeding was dropped.

Thus, at the time the Court was considering the writ petition, the scenario was as follows: