Madras HC Dismisses Writ Petition Challenging Section 74 GST Demand for FY 2017-18: Limitation, ITC Mismatch & Fraud Threshold Examined

Background and Context

The Madras High Court, in the matter of Tvl. Power Lead Electricals Vs Deputy State Tax Officer, delivered a significant ruling concerning the invocation of Section 74 of the GST enactments for the tax period 2017-18. The writ petition filed by the assessee was dismissed, with the Court holding that the proceedings were neither time-barred nor improperly initiated. This judgment forms part of a larger batch of 250 writ petitions, of which 53 were finally heard on the broader question of the validity of proceedings under Section 74.

The case touches upon critical intersections of GST law — specifically the distinction between Section 73 and Section 74, the impact of COVID-19 on limitation periods, and the evidentiary threshold required to invoke the extended limitation period available under Section 74.

Facts of the Case

The dispute in this matter originated from a mismatch between Input Tax Credit (ITC) figures reflected in GSTR-2A and the ITC claimed by the assessee in GSTR-3B for the financial year 2017-18. The assessee had claimed excess ITC in GSTR-3B as compared to what was auto-populated in GSTR-2A, resulting in the Department initiating scrutiny proceedings.

Sequence of Events

  1. The Department first issued an Intimation in Form GST DRC-01A dated 20.09.2023 for the tax period 2017-18.
  2. The assessee responded on 29.10.2023, arguing that the proposed action was barred by limitation under Section 73 of the GST enactments.
  3. The assessee's reply on merits was found to be inadequate by the Department.
  4. Consequently, the Department escalated the matter by issuing a Show Cause Notice in Form GST DRC-01 dated 06.12.2023, this time invoking Section 74 instead of Section 73.
  5. The assessee replied to the show cause notice on 04.01.2024.
  6. An Impugned Order dated 03.02.2025 was passed under Section 74, confirming a tax demand of ₹11,84,332/- along with applicable interest and penalty.

Contentions Raised Before the Court

Arguments Advanced by the Assessee

The counsel for the assessee raised several grounds challenging the validity of the proceedings:

  • The Department had initially invoked Section 73 through the intimation in Form GST DRC-01A. Having done so, it was not open to the Department to shift to Section 74 at a later stage, particularly after receiving the assessee's objection dated 29.10.2023.
  • The transition from Section 73 to Section 74 was characterized as a camouflaged attempt to overcome the limitation bar, rather than a genuine invocation based on material evidence of fraud or suppression.
  • There was no independent or sufficient material placed on record to justify resort to the extended period under Section 74, which ordinarily requires an allegation of fraud, wilful misstatement, or suppression of facts.
  • The assessee relied upon the following judicial precedents:
    • Rajaa Offset Vs The State Tax Officer [W.P.No.30189 of 2024]
    • M/s. The Chennai Silks Vs The Assistant Commissioner [W.P.No.29104 of 2023]
    • Emco Cables (India) Private Limited Vs Union of India and Ors., W.P.(C).No.1622 of 2024
    • Subhash Singh Vs Deputy Commissioner, State Goods and Service Tax, Special Appeal No.100 of 2024
    • M/s. Tata Play Limited Vs Union of India and Ors., W.P.No.17184 of 2024

Arguments Advanced by the Department

The Government Advocate representing the Department countered each contention raised by the assessee: