The Himachal Pradesh High Court has granted interim protection by staying further proceedings arising from a GST show cause notice, after observing that the product in question was being manufactured as an Ayurvedic medicine under a valid licence issued by the competent authority. 

The bench of Justice Vivek Singh Thakur and Justice Ranjan Sharma found that a prima facie case existed in favour of the petitioner, particularly on its contention that there was no suppression of facts to justify invocation of the extended limitation period under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017. 

A writ petition was filed challenging a GST DRC-01 show cause notice dated April 2, 2026, issued under Section 74 of the CGST Act alleging incorrect declaration of tax liability and wrongful availment and utilization of Input Tax Credit (ITC). The petitioner contended that the notice had been issued after the expiry of the normal limitation period of three years and that the Department had wrongly invoked the extended period by alleging suppression of facts. 

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According to the petitioner, the product in dispute was manufactured by M/s Avalon Cosmetics Private Limited, which had been granted a valid drug licence by the competent authority to manufacture Ayurvedic medicines, including the product under consideration. The petitioner argued that it had consistently classified the product as an Ayurvedic medicine in its monthly and annual GST returns and during assessments. Since the classification was based on an official drug licence issued by the competent authority, there could be no allegation of deliberate misclassification or suppression of material facts. 

The petitioner further maintained that the extended limitation under Section 74 of the CGST Act could not be invoked merely because the Department later formed a different opinion regarding the classification of the product. It asserted that all relevant information had always been disclosed to the tax authorities and that the statutory requirement of fraud, wilful misstatement or suppression of facts necessary for invoking Section 74 was absent. 

Opposing the petition, the GST Department submitted that the alleged misclassification came to light only during an audit. It argued that since the discrepancy was detected through audit proceedings, no action could have been initiated earlier, thereby justifying the issuance of the notice under Section 74 of the CGST Act. 

The High Court observed that the product was admittedly being manufactured as a medicine pursuant to permission granted by the competent licensing authority. In these circumstances, and subject to further material that may be produced by the respondents, the Court held that the petitioner had established a prima facie case warranting interim protection. 

The Bench ordered that all further proceedings pursuant to the impugned GST show cause notice shall remain stayed until the next date of hearing. At the same time, the Court clarified that the interim stay would not exempt the petitioner from participating in the adjudication process. It directed the company to file its reply to the show cause notice within 30 days. 

Separately, the Court also permitted the petitioner to correct an inadvertent error in the memo of parties regarding the designation of one of the respondents. 

The matter has been listed for further consideration on August 5, 2026, when the respondents are expected to file their reply and the Court will examine the merits of the challenge in greater detail. 

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