The Hon’ble Madras High Court in the case of JIT Auto Comp v. Assistant Commissioner [W.P. No. 16474 of 2024 dated July 08, 2025] held that initiation of proceedings under Section 74 was not justified in absence of any finding of fraud or suppression, particularly when the petitioner had filed a Chartered Accountant’s certificate to substantiate its claim. The impugned order was set aside as being mechanically passed without examining the material on record, and the matter was remanded to be dealt with under Section 73 of the CGST Act, 2017, subject to deposit of the disputed tax.
Facts:
The JIT Auto Comp (“the Petitioner”) received a show cause notice under Section 74 of the CGST Act, 2017, alleging mismatch in GSTR-2A and GSTR-3B returns.
Initially unable to furnish a certificate from the supplier’s CA due to the supplier’s liquidation, the Petitioner later submitted a certificate from its own Chartered Accountant, confirming supply of goods, receipt, payment, and GST compliance.
Despite this, the Proper Officer proceeded to pass an order under Section 74, ignoring the CA certificate and Petitioner’s detailed response.
The Petitioner approached the Hon’ble High Court, offering to deposit the entire disputed tax of ₹81,12,876/- for reconsideration under Section 73 instead.
Issue:
Whether initiation of proceedings under Section 74 without a finding of fraud, and ignoring available evidence (CA certificate), was sustainable in law?
Held:
The Hon’ble Madras High Court in W.P. No. 16474 of 2024, held as under:
- Observed that, there was no dispute regarding the supplier being in liquidation and that the Petitioner did eventually submit a valid CA certificate substantiating its claim.
- Noted that, the Proper Officer failed to render any findings or even refer to the CA certificate, indicating a mechanical approach to adjudication.
- Held that, the proceedings under Section 74, which presuppose fraud or wilful misstatement, were not justified, and the matter was more appropriately covered under Section 73.
- Further, the impugned order dated March 18, 2024 was set aside, and the matter was remanded for fresh adjudication under Section 73, conditional upon Petitioner depositing the disputed tax within two weeks.
Our Comments:
In this case, the Court reiterated the important legal distinction between Section 73 and Section 74 of the CGST Act. It clarified that proceedings under Section 74 can only be initiated when there is a clear allegation of fraud, suppression of facts, or wilful misstatement on the part of the taxpayer. If no such allegation is made or established, invoking Section 74 is not legally valid and such action would be considered beyond the authority of law (ultra vires). Therefore, in the absence of any finding of fraud or suppression, the proceedings ought to have been initiated under Section 73 instead.
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