Commissioner of Customs (P), Lucknow v. Sh. Md. Shahbaz Siddiqui & Ors.

GST update /2026-27/0049

*GST UPDATE ON INVOCATION OF SECTION 74 AFTER SECTION 73 INTIMATION*

In today's update, we discuss the recent judgment of the Madras High Court in *Power Lead Electricals vs. The Deputy State Tax Officer-2* wherein the Court examined whether the Department can invoke Section 74 of the GST Act after initially issuing an intimation under Section 73 and whether such proceedings for FY 2017-18 were barred by limitation.

The judgment assumes significance because in large number of Cases it has been seen that whenever the demand period is barred by limited of law under section 73 then department either raise the demand under section 74 or convert the demand of Section 73 into demand under Section 74 even when the matter does not involve fraud, willful suppression or misstatement of facts as required by Section 74 of CGST Act,2017. Therefore, current case is important in the light of the fact that whether the Department can initially proceed under Section 73 and subsequently invoked Section 74 merely to overcome limitation.

The judgment also clarifies the impact of the Supreme Court's COVID limitation orders, TOLA, Section 168A of the GST Act, and the circumstances in which the Department can validly invoke the extended limitation available under Section 74.

*Brief Facts of the Case –*

The petitioner had claimed Input Tax Credit in GSTR-3B in excess of the credit reflected in GSTR-2A for FY 2017-18. During scrutiny, the Department issued an Intimation in Form GST DRC-01A dated 20.09.2023 proposing action under Section 73.

The petitioner replied that the proposed proceedings were barred by limitation under Section 73 and therefore liable to be dropped.

Thereafter, the Department issued a Show Cause Notice in Form GST DRC-01 dated 06.12.2023 under Section 74 alleging wrongful availment of ITC and subsequently passed an order dated 03.02.2025, confirming tax of ?11,84,332 along with interest and penalty.

The petitioner challenged the order before the Madras High Court.

*Core Issue Before the Court –*

Whether the Department could invoke Section 74 after initially issuing an intimation under Section 73, particularly when the taxpayer had objected that proceedings under Section 73 were barred by limitation?

Whether proceedings initiated under Section 74 for FY 2017-18 were themselves barred by limitation?

*Petitioner's Arguments –*

The petitioner contended that the Department had originally formed an opinion and issued demand under Section 73, as evident from the issuance of Form GST DRC-01A.

According to the petitioner, after the objection regarding limitation was raised, the department merely substituted Section 74 to overcome the limitation prescribed under Section 73.

It was further argued that there were no allegations or evidence of fraud, willful misstatement or suppression of facts, which are essential requirements for invoking Section 74. Therefore, the proceedings under Section 74 were without jurisdiction and liable to be quashed.

*Department's Arguments –*

The Revenue submitted that the proceedings were not barred by limitation because the limitation period stood extended by virtue of:

• the Supreme Court's orders extending limitation during COVID-19;

• the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA);

• Section 168A of the GST Act and the notifications issued thereunder.

The Department further argued that the petitioner had claimed excess ITC in GSTR-3B as compared to GSTR-2A and had failed to furnish a satisfactory explanation during scrutiny. It was also contended that the petitioner's failure to respond adequately on merits justified invocation of Section 74, and the case involved suppression within the meaning of Explanation 2 to Section 74.

*Court's Observation and Decision*

The Madras High Court dismissed the writ petition and upheld the proceedings under Section 74.

(i) Proceedings were within limitation

The Court held that the limitation prescribed under Sections 73 and 74 could not be computed in isolation because the period stood extended on account of:

• the Supreme Court's suo motu COVID limitation orders;

• TOLA;

• Section 168A of the GST Act; and

• the notifications extending limitation.

Accordingly, the proceedings initiated for FY 2017-18 were not time-barred.

(ii) Invocation of Section 74 was valid

The Court referred to its common judgment delivered on the same date in the batch matters including Turbo Energy Private Limited, Fastenex Private Limited and Ispahani Estates Private Limited, wherein it had already examined the scope of Section 74.

The Court observed that the threshold for invoking the extended period under Section 74 of the GST enactments is considerably lower than under the earlier indirect tax laws. Since the returns had been scrutinized under Section 61, ASMT-10 had been issued, and excess ITC had been detected during scrutiny, the Court held that sufficient material existed to justify invocation of Section 74.

(iii) Mere issuance of DRC-01A under Section 73 does not prevent invocation of Section 74

The Court did not accept the argument that issuance of an earlier intimation under Section 73 permanently prevented the Department from invoking Section 74.

Considering the facts of the case and the findings recorded during scrutiny, the Court held that the department was competent to proceed under Section 74.

*Final Decision*

In its final decision court dismissed the writ petition.

However, the Court granted liberty to the petitioner to file a statutory appeal before the Appellate Commissioner within 30 days, subject to compliance with Section 107 of the GST Act, and directed the appellate authority to decide the appeal on merits.

*CA Pradeep Jain*_

*This is solely for educational purpose*

Readers can also access this from our

Linkedin account : ```www.linkedin.com/in/ca-pradeep-jain-b6a31a16```

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GST update /2026-27/0049

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