Manoja Kumar Nayak v. Commissioner, GST & Central Excise

GST update /2026-27/0033

GST UPDATE

Hon’ble Court: ORISSA HIGH COURT : CUTTACK

Case Title: Manoja Kumar Nayak v. Commissioner, GST & Central Excise

Petition No.: 12682 of 2025

Hon’ble Judge(s) Hon'ble Chief Justice Harish Tandon and Hon'ble Justice Murahari Sri Raman

Date of Order 08.04.2026

Outcome In favour of the Petitioner

Brief Facts of the Case

The petitioner, M/s. Manoja Kumar Nayak was issued a communication Anti-Evasion alleging that the petitioner had availed ITC of ?4,39,970/- from M/s. Auxesia Traders, Kolkata, which was stated to be a non-existent and bogus entity. The petitioner was requested to reverse the ITC along with applicable interest and penalty. In response, the petitioner informed the department that he had already voluntarily reversed the entire disputed ITC through GSTR-3B returns for the period April 2023 and June 2024. Further, it was held that sufficient balance remained in the Electronic Credit Ledger and therefore no interest under Section 50 was payable. Despite this, the department issued Show Cause Notice proposing the demand of tax, interest and penalty by invoking Section 74 of the CGST Act. The petitioner challenged the proceedings before the Hon’ble Court.

Relevant Section

• Section 74 of the CGST Act

• Section 50 of the CGST Act

• Section 16 of the CGST Act

Question before Hon’ble Court

• Whether penalty under Section 74 could survive solely on the basis of a DGGI Alert Notice particularly when the disputed ITC had already been reversed?

• Whether interest under Section 50 was payable after voluntary reversal of ITC?

Brief Arguments by Petitioner

The Petitioner challenged the invocation of Section 74 proceedings and the subsequent levy of tax, interest, and penalties on the following grounds:

• The Petitioner argued that Section 74 can only be invoked when there is specific evidence of fraud, wilful misstatement, or suppression of facts intended to evade tax. They contended that the authorities invoked Section 74 mechanically simply because the limitation period for Section 73 had elapsed.

• The Petitioner held that they had voluntarily reversed the disputed Input Tax Credit (ITC) in their GSTR-3B returns for April 2023 and June 2024 to avoid litigation. Under Section 74(5), a person may pay the tax based on their own ascertainment before the service of a Show Cause Notice (SCN); since the tax was reversed prior to the SCN, the Petitioner argued the proceeding should have been dropped.

• The Petitioner argued that interest under Section 50 is only chargeable on ITC that is both "wrongly availed and utilised". In the instant case, Electronic Credit Ledger (ECL) consistently maintained a balance higher than the disputed ITC amount, meaning the credit was never "utilised" to discharge output tax liability and therefore the interest was not payable.

• The Petitioner contended that the Adjudicating Authority failed to exercise independent application of mind. The department had merely relied upon the DGGI Alert Notice without producing any independent evidence against the petitioner. They argued there was no finding of fact regarding the Petitioner's actual complicity with the supplier's alleged non-existence at the time of the transactions.

• The Petitioner noted the omission of Form GST DRC-01A (pre-SCN notice), which they claimed was a violation of the principles of natural justice. Further, demanding the tax again after it had already been reversed amounted to double taxation.

Brief Arguments by Respondent

• The Revenue relied on the DGGI Alert Notice stating that the supplier (M/s. Auxesia Traders) was a non-existent and fictitious entity created solely to pass on fake ITC without any underlying supply of goods or services.

• The Revenue argued that under Section 155, the burden of proving eligibility for ITC lies entirely on the person claiming it. They contended the Petitioner failed to take reasonable steps to ensure the genuineness of the supplier and deliberately availed inadmissible ITC to defraud the exchequer.

• The Adjudicating Authority asserted that the Petitioner did not submit documents to prove that the ITC reversed in the GSTR-3B returns was the exact same credit related to the allegations. They further argued that under Rule 142, payments toward tax, interest, or penalties should be made via Form GST DRC-03, and therefore reversal through GSTR-3B was procedurally invalid and could not be taken into consideration.

• The Revenue claimed that had the department not initiated an inquiry, the wrong availment would have remained unnoticed; thus, the extended period of limitation under Section 74 was justified.

• The Revenue argued that the Petitioner wrongly approached the High Court directly via a writ petition where the alternate remedy was available as per GST Act.

Cases Relied Upon

Case Laws Citation

Cosmic Dye Chemical v. Collector of Central Excise (1995) 6 SCC 117

C.C., C.E. & S.T., Bangalore (Adjudication) v. Northern Operating Systems Pvt. Ltd. (2022) 18 SCR 901

Uniworth Textiles Ltd. v. Commissioner of Central Excise (2013) 9 SCC 753

Escorts Ltd. v. Commissioner of Central Excise (2015) 9 SCC 109

State of Karnataka v. Ecom Gill Coffee Trading Private Limited (2023) 2 SCR 647

Commissioner of Central Excise, Mumbai v. Fiat India Pvt. Ltd. (2012) 12 SCR 975

Findings and Judgement

On Invocation of Section 74

The Court found that the entire proceeding was based on an Alert Notice issued by DGGI, Kolkata. The adjudicating authority failed to:

• Conduct any independent inquiry;

• Examine whether the petitioner was involved in any fraud;

• Determine from which date the supplier became non-existent;

• Produce any evidence showing collusion between the petitioner and the supplier.

The Court observed that the Order-in-Original merely reproduced allegations from the Alert Notice and did not contain any independent finding establishing fraud, suppression or wilful misstatement. The Court therefore held that the foundational requirements for invoking Section 74 were absent.

Further, it was observed that the disputed transactions pertained to August 2017 to December 2017. The proceedings were initiated only in July 2024. Limitation under Section 73 had already expired. Therefore, the department attempted to invoke Section 74 after the limitation period under Section 73 had lapsed, despite absence of any material showing fraud or suppression.

Furthermore, since the petitioner reversed the entire ITC immediately after receiving the departmental communication and before issuance of the Show Cause Notice which clearly demonstrated bona fides of the petitioner. Therefore, the department has wrongly invoked the extended period under Section 74.

On payment of Interest

The Court relied upon Section 50(3) read with Rule 88B and CBIC Circular dated 17.07.2023 which states that where sufficient balance exists in the Electronic Credit Ledger, reversal of wrongly availed ITC does not result in utilisation of such ITC. Therefore, interest is not payable. Therefore, no interest liability arises where the Electronic Credit Ledger never falls below the amount of the disputed ITC.

On Imposition of Penalty

The Court found that since the ITC had already been reversed. Demand of the same amount and simultaneously penalty equal to the same amount would lead to double taxation and double penalisation for the same transaction. Accordingly, the penalty under Section 74 was held unsustainable.

Accordingly, the Court quashed the Order-in-Original dated 03.02.2025 passed allowed the writ petition.

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