HCL Infotech Ltd. v. State of Uttar Pradesh & Others

GST Update / 2026-27/0069

GST UPDATE ON FRESH SECTION 74 SCN, LIMITATION AND PREJUDICE OF ADJUDICATING AUTHORITY
The Allahabad High Court, in HCL Infotech Ltd. v. State of Uttar Pradesh & Others, recently examined the validity of a fresh Show Cause Notice issued under Section 74 of the CGST/UPGST Act, 2017 in respect of FY 2017-18. The dispute arose in the backdrop of an earlier show cause notice under Section 73, proceeding which was subsequently dropped, followed by a Section 74 notice that was quashed by the High Court with liberty to the Revenue to initiate fresh proceedings, subject to the existence of the requisite ingredients under Section 74.
The present judgment is particularly relevant in determining the effect of such judicial liberty on limitation under Section 75(3) and the extent to which the Revenue can pursue the matter thereafter. At the same time, the Court examined whether the language used by the adjudicating authority in the subsequent SCN reflected a pre-determined or prejudicial approach. While upholding the Revenue’s ability to proceed within the period arising from the earlier Court’s direction, the Court ultimately set aside the impugned notice on account of prejudice and lack of impartiality, while permitting the matter to be considered afresh by a different officer.
Brief Facts of the Case -
HCL Infotech Ltd. was subjected to proceedings relating to FY 2017-18 concerning various alleged irregularities in availment of ITC. Initially, the department issued a Show Cause Notice dated 30.09.2023 under Section 73 of the Act. The notice raised various issues including ITC availed on imports without supporting documents such as Bills of Entry, ITC availed through TRAN-1, zero-rated supplies without supporting LUT/RFD-11, unreconciled ITC as per GSTR-9C and excess ITC requiring reversal under Rules 42 and 43. The said Section 73 proceedings were subsequently dropped on 30.12.2023.
Thereafter, another SCN dated 03.08.2024 under Section 74 was issued on the same tax period/issues. The petitioner challenged the said notice before the High Court. The High Court quashed this Section 74 show cause notice. However, the Court expressly permitted the department to initiate fresh proceedings under Section 74 by issuing a fresh SCN containing such basic ingredients, if they existed.
Subsequently, the department issued another SCN dated 22.07.2026 under Section 74, which was challenged by HCL Infotech before the Allahabad High Court.

Core Issues Before the High Court –

Whether the fresh SCN dated 22.07.2026 issued under Section 74 was barred by limitation?
Whether the department could issue a fresh Section 74 SCN after the earlier Section 73 proceedings on the same issues had been dropped?
Whether the earlier High Court judgment permitted the Revenue to initiate fresh proceedings under Section 74?
Whether the observations made by the adjudicating authority in the impugned SCN demonstrated prejudice or pre-determination of the issue, thereby violating principles of natural justice?

Petitioner’s Argument –
The petitioner contended that the impugned SCN dated 22.07.2026 was barred by limitation. According to the petitioner, the limitation for issuance of the notice had already expired on 05.08.2024 and there was no provision under the GST law permitting issuance of a fresh notice beyond the prescribed period merely because an earlier SCN had been quashed.
The petitioner further argued that Section 75(3) could not be invoked because the earlier High Court proceedings involved quashing of a Show Cause Notice and not setting aside of any final adjudication order.
It was also contended that the earlier writ judgment had recorded findings in favour of the petitioner and therefore the Revenue could not reopen the same jurisdictional issues.
The petitioner further argued that the department had already initiated proceedings under Section 73 for the same tax period and issues through SCN dated 30.09.2023. Since those proceedings were subsequently dropped on 30.12.2023, a second proceeding under Section 74 on the same issues could not be initiated.
The petitioner also challenged certain observations contained in the impugned SCN, particularly the allegation that the petitioner had “misled the Court” and made a willful misstatement. It was argued that such observations demonstrated that the adjudicating authority had already formed a prejudicial opinion against the petitioner even before adjudication.
Department’s Argument –
The Revenue contended that the earlier High Court order dated 27.09.2024 had specifically granted liberty to the department to initiate fresh proceedings under Section 74. According to the Revenue, once such liberty was granted by the Court, Section 75(3) permitted the department to act within two years from the date of communication of the Court’s order. Therefore, the fresh proceedings were within the permissible period.
The Revenue further argued that the earlier High Court judgment had not decided the merits of the tax dispute. The earlier Section 73 SCN had merely been quashed.
The Revenue therefore contended that the department had not lost jurisdiction merely because the earlier Section 73 proceedings had been dropped or because the subsequent Section 74 SCN had been quashed.
Court’s Observation and Decision
The Court examined the earlier judgment dated 27.09.2024 and observed that the earlier writ petition had expressly permitted the department to initiate fresh proceedings under Section 74, subject to the existence of the necessary ingredients of fraud, willful misstatement or suppression of facts.
The earlier order had attained finality and had not been challenged before the Supreme Court. Therefore, the petitioner could not subsequently contend that the Revenue had no authority to initiate fresh proceedings under Section 74.
On Limitation –
The Court considered Section 75(3) of the Act, which provides that where an order is required to be issued pursuant to the direction of an Appellate Authority, Appellate Tribunal or Court, such order is to be issued within two years from the date of communication of such direction.
The Court acknowledged that Section 75(3), on a literal reading, generally contemplates a situation where an adjudication order has been set aside and fresh proceedings are required.
However, in the present case, the earlier High Court had issued a specific positive direction permitting fresh Section 74 proceedings. Therefore, the Revenue was entitled to act pursuant to that direction within two years from communication of the order dated 27.09.2024.
Accordingly, the Court rejected the petitioner’s limitation objection and held that the fresh proceedings were not barred merely because the normal limitation period had otherwise expired.
On Earlier Section 73 Proceedings –
The Court also considered the fact that proceedings under Section 73 had earlier been initiated and subsequently dropped.
The Court noted that Sections 73 and 74 operate in different fields. Section 73 applies to cases of tax not paid/short paid or ITC wrongly availed or utilised for reasons other than fraud, willful misstatement or suppression of facts, whereas Section 74 applies where such circumstances involving fraud, willful misstatement or suppression exist.
Therefore, the earlier dropping of the Section 73 proceedings did not, by itself, permanently prevent the Revenue from initiating proceedings under Section 74, particularly when the earlier writ order had expressly left liberty to issue a fresh Section 74 SCN if the jurisdictional ingredients existed.
On Prejudice and Bias –
However, the Court found serious fault with the language used in the impugned SCN.
The SCN contained observations alleging that the petitioner had “misled the Court” and had made a willful misstatement in relation to the earlier proceedings.
The Court observed that such comments were unnecessary and inappropriate. More importantly, the language of the SCN demonstrated an element of prejudice on the part of the adjudicating authority.
The Court observed that the prejudice was particularly concerning because it appeared to arise from the fact that the petitioner had previously approached the High Court and obtained relief.
The Court therefore held that merely deleting the objectionable observations would not be sufficient because the overall recital itself indicated that the adjudicating authority had already formed a prejudicial view.
Accordingly,the impugned SCN dated 22.07.2026 was set aside solely on the ground of prejudice/bias of the adjudicating authority. Court directed to issue fresh SCN within two weeks and also the matter should be assigned to an officer other than the officer who had issued the impugned SCN. The fresh adjudicating authority must apply its mind to the facts neutrally and without being prejudiced by observations made in the earlier proceedings.

CA Pradeep Jain_

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