The Madras High Court has remitted a GST dispute to the jurisdictional tax authority for fresh consideration, while directing the authority to examine whether the extended period of limitation under Section 74 of the GST enactments was actually invokable in the facts of the case.
The bench Justice C. Saravanan directed that the expression “indulge” in paragraph 27 of the original order be replaced with “engaged” and specifically adding that the adjudicating authority should consider whether there was any basis for invoking the extended limitation period under Section 74.
The petitioner/assessee is engaged in the treatment of effluents discharged from dyeing units. The proceedings arose from an order which confirmed the proposal contained in the GST DRC-01 show cause notice dated March 28, 2024.
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The immediate financial issue before the Court was an interest liability of ₹72,25,154 imposed on the company in respect of belated payment of tax for the 2017-2018 tax period.
The underlying tax dispute concerned the rate at which GST was initially discharged. The petitioner had originally paid tax at 5%, but the Department subsequently pointed out that tax was payable at 18%. Following the Department’s intimation, the company paid the differential tax in several installments.
The record shows that the Department had issued an intimation in GST DRC-01A dated July 28, 2020. Following that intimation, the petitioner made differential tax payments through DRC-03 on various dates between November 2020 and January 2022.
The payments comprised equal SGST and CGST components. The six payments recorded in the judgment totalled ₹1,47,42,804, consisting of ₹73,71,402 towards SGST and ₹73,71,402 towards CGST. The payments were made on November 26, 2020; December 4, 2020; July 14, 2021; September 28, 2021; and January 11, 2022. The payment table appears on page 3 of the judgment.
The petitioner contended that it had discharged the differential tax after the Department pointed out the error and therefore argued that the subsequent proceedings under Section 74 were without merit. It also submitted that an erroneous invocation of Section 74 had deprived it of the benefit of the amnesty mechanism introduced under Section 128-A of the GST enactments.
The Department defended the impugned order and argued that the detailed show cause notice and detailed order did not themselves invoke Section 74, although the corresponding summaries in GST DRC-01 and DRC-07 contained references to Section 74.
The Revenue further contended that since the tax had admittedly not been paid within the prescribed time and was paid only after the DRC-01A intimation, the petitioner remained liable to pay interest under Section 50(1) of the respective GST enactments. The Department also argued that the writ petition could be rejected on the ground of availability of an alternative remedy.
The petitioner, in rejoinder, maintained that if proceedings under Sections 73 or 74 were not legally invokable, there could be no basis for recovering the interest through those proceedings. Reliance was also placed on the Division Bench judgment in Eternit Everest Limited v. Union of India, (1997) 89 ELT 28.
The bench observed that Sections 73 and 74 constitute a complete code for the circumstances covered by those provisions, read with Section 75(12) and Section 79 of the GST enactments.
The Court noted that the dispute admittedly related to the 2017-18 tax period and that the petitioner had paid the tax belatedly after the Department pointed out the liability. The Court also recorded that the company had, by letter dated April 12, 2024, stated that it would pay the interest arrears in five instalments.
The Court held that the petitioner was statutorily required not only to discharge the tax but also the applicable interest under Section 50(1), together with the applicable penalty provisions under the GST framework.
The Court further noted that the DRC-01A intimation had been issued on July 28, 2020, while the formal show cause notice and summary in DRC-01 were issued on March 28, 2024, after the petitioner had already paid the differential tax.
The Court referred to the Explanation to Section 75(12), inserted with effect from January 1, 2022, which clarifies the scope of the expression “self-assessed tax” to include tax payable on outward supplies furnished under Section 37 but not included in the return filed under Section 39.
On that basis, the Court held that the recovery proceedings could be justified under the statutory scheme governing recovery of unpaid self-assessed tax and interest. It further observed that, in any event, the petitioner would be required to pay interest under Section 50 read with Sections 75(12) and 79.
The Court did not accept the petitioner’s argument that the recovery proceedings automatically failed merely because of the manner in which Section 74 was referred to in the GST summaries.
It held that the proceedings under Section 74 were maintainable and observed that the threshold for invoking the extended period of limitation under Section 74 was addressed in detail in the common order passed in the connected batch of cases. According to the Court, that threshold is considerably different from the position under earlier indirect tax legislation.
However, the Court ultimately chose not to put an end to the matter. Taking into account the nature of the petitioner’s activities, namely treatment of effluents discharged from dyeing units, the Court remitted the matter to the respondent authority to reconsider the petitioner’s reply and pass a fresh order within three months from receipt of the Court’s order.
The Court directed that an additional sentence be inserted stating that, since the matter was being remitted for a fresh order, the respondent may consider whether there was any case for invoking the extended period of limitation under Section 74.
This clarification is significant because it makes clear that the fresh adjudication is not confined merely to computation or payment of interest. The adjudicating authority has specifically been permitted to examine the foundational question of whether the extended limitation period under Section 74 was justified on the facts.
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