Telangana High Court Grants Interim Stay on Composite GST Show Cause Notice Covering Sections 74, 74A and 130

The Telangana High Court, in RR Metal Industries Vs Union of India, has granted interim relief by staying a composite show cause notice (SCN) issued under Section 74, Section 74A and Section 130 of the CGST Act. The Court has raised serious prima facie concerns on the legality of clubbing multiple tax periods and distinct statutory provisions into a single consolidated proceeding.

This order is significant as it directly touches upon the permissible scope and structure of SCNs under GST, especially where the department attempts to combine alleged fraud-based demands, non-fraud reassessment, and confiscation proceedings in one notice.

Background of the Case

Business Profile and Departmental Action

  • The petitioner, RR Metal Industries, is engaged in manufacturing metal products.
  • Officers from the Directorate General of GST Intelligence (DGGI) conducted a visit to the assessee’s premises and effected seizure of certain stock.
  • Based on the investigation, the department alleged that the assessee had obtained invoices without corresponding movement of goods, thereby indicating possible irregular availment of input tax credit.

Issuance of Composite Show Cause Notice

Pursuant to the above allegations, the department issued a detailed SCN dated 06.12.2025, which had the following key features:

  1. Tax Periods Covered

    • The SCN clubbed together multiple financial years, namely 2022-23 to 2025-26.

  2. Provisions Invoked

    • Demand of GST was proposed under:
      • Section 74 of the CGST Act / Telangana GST Act, and
      • Section 74A of the CGST Act / Telangana GST Act.
    • Simultaneously, a proposal for confiscation of goods was made under Section 130 of the Act.

  3. Combined Proceeding

    • All these aspects – multi-year tax demand under two separate charging provisions and confiscation – were consolidated into a single composite SCN.

The assessee challenged this combined SCN by filing a writ petition before the Telangana High Court, contending that the notice itself is fundamentally unsustainable in law.

Distinct Nature of Section 74 and Section 74A

The assessee’s counsel emphasized that Section 74 and Section 74A operate in different legal fields and are triggered by distinct factual ingredients:

  • Section 74

    • Invoked where non-payment, short payment, erroneous refund, or wrongful availment/utilisation of input tax credit arises by reason of fraud, wilful misstatement or suppression of facts.
    • This provision is thus premised on mens rea or culpable conduct.

  • Section 74A

    • Applies in situations not founded on fraud, suppression or misrepresentation for tax evasion.
    • It deals with reassessment/revision mechanisms without alleging fraudulent intent.

The assessee argued that since the statutory preconditions, nature of default, and legal consequences under these two provisions are fundamentally different, combining both in a single SCN for multiple years is impermissible.

Separate Cause of Action for Each Tax Period

The petitioner contended that: