The Hon’ble Madras High Court in the case of MRF Ltd. v. Additional Director DGGI & Anr. [W. P. Nos. 15215 & 15222 of 2022, & W.M.P. Nos. 14392, 14393 & 14399 of 2022 order dated November 28, 2025] held that where the Petitioner voluntarily disclosed short payment on Tyres Tubes and Flaps (TTF) supply treating it as composite supply at 28% rate vide communication dated January 7, 2019 and paid entire tax with interest on February 21, 2019 before DGGI investigation, no fraud, wilful misstatement or suppression exists to invoke Section 74 proceedings and at worst attracts Section 73 for confusion in industry over rate reduction for tubes (w.e.f. November 15, 2017) and flaps (w.e.f. January 1, 2019) from 28% to 18% and quashed SCN dated April 7, 2022.
Facts:
MRF Ltd. (‘the Petitioner’), having manufacturing unit in Arakkonam, Tamil Nadu supplied Tyres Tubes and Flaps (TTF) in carry strapping form raising separate invoices for each item at 28% GST rate initially. After rate reduction for tubes w.e.f. November 15, 2017 and flaps w.e.f. January 1, 2019 from 28% to 18% they continued separate invoicing but communicated intention vide letter dated January 7, 2019 to treat TTF supply as composite supply taxable at 28% and paid differential 10% tax with interest on February 21, 2019 before filing GSTR-3B.
Additional Director DGGI Delhi Zonal Unit and Additional/Joint Commissioner of Central Tax Chennai South (‘the Respondents’) initiated DGGI investigation on January 21, 2019 alleging TTF strapped supply constitutes composite supply at 28% GST and issued SCN dated April 7, 2022 demanding Rs.78 crores for wrongful ITC availment and invoking Section 74 for fraud wilful misstatement or suppression.
The Petitioner contended that supply of TTF in carry strapping form constituted individual supplies not composite supply warranting separate invoicing at applicable rates. The industry confusion prevailed post-rate reductions for tubes and flaps and voluntarily disclosed short payment vide letter dated January 7, 2019 before DGGI investigation and paid tax with interest on February 21, 2019. Further, Section 74 requires fraud wilful misstatement or suppression which is absent as no criminal motive existed and at worst attracts Section 73 for confusion and that Section 39(9) inapplicable as payment initiated pre-investigation and no tax dues existed when SCN issued per Sections 74(5) & 74(6).
The Respondent contended that the Petitioner inserted tubes and flaps inside tyres wrapped together and issued common invoice mentioning different duties, constituting composite supply at 28%. Further the intimation dated January 7, 2019 notwithstanding actual payment occurred post-DGGI investigation on January 21, 2019 violating Section 39(9) prohibiting rectification post-enforcement activity and attracting Section 74 as the Petitioner deliberately reduced rates from 28% to 18% without treating as composite supply.
The Petitioner’s grievance was issuance of SCN under Section 74 without fulfilling jurisdictional ingredients of fraud suppression or wilful misstatement despite voluntary pre-investigation disclosure and full payment before SCN and therefore approached the High Court of Judicature at Madras by praying for certiorarified mandamus to quash the SCN.
Issue:
Whether Show Cause Notice issued under Section 74 of CGST Act alleging wrongful ITC availment for TTF supply is valid in light of the present facts?
Held:
The Hon’ble Madras High Court in W.P. Nos. 15215 & 15222 of 2022 held as under:
- Observed that, the Petitioner supplied Tyres Tubes and Flaps (TTF) in carry strapping form raising separate invoices at 28% GST initially and post-rate reduction, for tubes w.e.f. November 15, 2017 and flaps w.e.f. January 1, 2019 from 28% to 18% continued separate invoicing.
- Noted that, tubes and flaps kept inside tyres and wrapped together constituted supply creating industry confusion whether composite supply or individual supplies.
- Observed that, the Petitioner voluntarily came forward vide communication dated January 7, 2019 stating TTF supply as composite supply and paid entire tax dues with interest on February 21, 2019 the subsequent GSTR-3B due date.
- Held that, the Respondents cannot attribute bad intention such as fraud wilful misstatement or suppression of material facts against Petitioner.
- Observed that, at worst short payment constituted tax not paid or short paid due to confusion attracting proceedings under Section 73 and since short payment remitted with interest before notice issuance no such action possible.
- Held that, Respondents should have considered aspects of confusion among industries viewing subject supply as composite supply.
- Noted that, Section 74 applies only where tax not paid short paid erroneously refunded or ITC wrongly availed by reason of fraud wilful misstatement or suppression of facts to evade tax.
- Observed that, the Petitioner expressed intention to pay tax dues vide communication dated January 7, 2019 much prior to DGGI investigation on January 21, 2019. Hence held no criminal motive namely fraud wilful misstatement or suppression of material facts can be attributed against Petitioner since they had voluntarily disclosed short payment vide aforesaid communication.
- Further noted that, mere timing of payment post-investigation does not establish fraud or suppression when intention clearly communicated earlier.
- Held that, Section 39(9) permits rectification of omission or incorrect particulars other than resulting from scrutiny audit inspection or enforcement activity subject to interest payment.
- Observed that, the Petitioner’s inclination to pay communicated January 7, 2019 prior to DGGI investigation precludes application of enforcement activity bar under Section 39(9).
- Held impugned notice issued without satisfying ingredients of Section 74 and at time of issuance no tax liability existed rendering notice issued without jurisdiction and quashed impugned show cause notice dated April 7, 2022.
- Held acceptance of composite supply to “buy peace” does not preclude contesting the classification in future proceedings, leaving the classification issue open. Allowed the Writ petitions without costs.
Our Comments:
In the present case, it is pertinent to note that while the court had upheld the classification of TTF by MRF as “composite supply”, it does not decide on the issue of classification of TTF as such. However, the decision primarily aligns with the well-established jurisprudence on the proceedings under Section 74. The Hon’ble Supreme Court in the case of GR Infra Projects Limited Ratlam v. State of Madhya Pradesh & Ors. [Petition for Special Leave to Appeal (C) No.33594/2025, order dated November 21, 2025] held that the impugned Show Cause Notice (“SCN”) issued under Section 74 of the GST Act is prima facie bereft of material particulars as it contains only figures without disclosing why there has been fraud, willful misstatement or suppression of facts to evade tax, issued notice returnable in four weeks and stayed further proceedings. Further the Hon’ble Karnataka High Court in the case of M/s. NCS Pearson Inc. v. Union of India & Ors. [Writ Petition No. 7635 OF 2024, order dated July 16, 2025] held that the show cause notice issued under Section 74 of the CGST Act, 2017, alleging wilful suppression to invoke an extended limitation period, was illegal and without jurisdiction as the Revenue had full knowledge of all facts from the AAR and AAAR proceedings, and the key jurisdictional fact of wilful suppression was not satisfied.
Relevant Provisions:
Section 74(1) of the CGST Act, 2017
“Determination of tax pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts.-
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.”
Section 39(9) of the CGST Act, 2017
“39. Furnishing of returns.-
(9) Where any registered person after furnishing a return under sub-section (1) or sub-section (2) or sub-section (3) or subsection (4) or sub-section (5) discovers any omission or incorrect particulars therein, other than as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities, he shall rectify such omission or incorrect particulars in the return to be furnished for the month or quarter during which such omission or incorrect particulars in such form and manner as may be prescribed, subject to payment of interest under this Act:
Provided that no such rectification of any omission or incorrect particulars shall be allowed after the thirtieth day of November following the end of the financial year to which such details pertain, or the actual date of furnishing of relevant annual return, whichever is earlier.”
Notification reducing tube GST rate w.e.f. November 15, 2017: Reduced from 28% to 18%.
Notification reducing flap GST rate w.e.f. January 1, 2019: Reduced from 28% to 18%.
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