Facts of the Case

The petitioner, M/s Sakthi Ferro Alloys India Pvt. Ltd., engaged in steel scrap trading, logistics and TMT bar manufacturing, challenged an assessment order dated 05.09.2024 passed under Section 74 of the APGST Act, 2017 for FY 2017-18 to 2021-22, along with rectification orders and DRC-07/DRC-08 summaries, demanding a total of Rs. 130,61,33,604 including interest and penalty. The demand followed an audit under Section 65 that the petitioner claimed exceeded the mandatory three-month completion period, and alleged availment of fake Input Tax Credit from non-existent suppliers using vehicles incapable of transporting the goods in question.

Issues Involved

  1. Whether an audit under Section 65 conducted beyond the mandatory three-month period (absent Commissioner's extension) invalidates the resultant show cause notice and assessment.
  2. Whether invocation of Section 74 (fraud/wilful misstatement) instead of Section 73 was justified, given the department's allegations of fake ITC from non-existent suppliers.

Petitioner's Arguments

  • The Section 65 audit ought to have concluded within three months of the petitioner supplying documents on 28.12.2022, i.e., by 28.03.2023, absent a reasoned extension by the Commissioner; all subsequent discrepancy notices and the assessment based on the invalid audit deserved to be set aside.
  • Neither the notice nor the assessment order made out the essential ingredients of fraud or wilful misstatement/suppression required to invoke Section 74; since the ordinary Section 73 limitation had already expired by the time of assessment, the department deliberately invoked Section 74 merely to escape limitation, and the order should be treated and quashed as one under Section 73.

Respondent's Arguments

  • The petitioner had obtained Input Tax Credit from non-existent suppliers of fake ITC, as demonstrated by verification showing that many of the vehicles claimed to have transported the scrap were not even goods vehicles capable of such transport, justifying invocation of Section 74.

Court Order / Findings

  • Finding that the rival claims - genuineness of suppliers, vehicle movement, and the timeline/validity of the Section 65 audit - required detailed factual investigation, the Court held that such disputed questions of fact are best examined by the appellate authority rather than in writ jurisdiction, and declined to adjudicate the limitation and Section 74 invocation grounds itself.
  • The petitioner was relegated to the statutory appellate remedy, granted three weeks to file the appeal, with the appellate authority directed to entertain it without reference to limitation.
  • The 10% of disputed tax already deposited during the writ petition was directed to be treated as the statutory pre-deposit under Section 107 of the GST Act, with consequent stay of further recovery to apply, and the writ-pendency period excluded from limitation.

Important Clarification

  • Disputed factual questions concerning genuineness of suppliers, actual movement of goods, and whether a Section 65 audit exceeded its statutory time limit are treated as matters for the appellate authority to examine on evidence, not for adjudication in writ jurisdiction.
  • Where an assessee has already deposited 10% of the disputed tax during pendency of a writ petition it is later relegated from, courts routinely treat that deposit as satisfying the Section 107 pre-deposit for the ensuing statutory appeal, with the writ-pendency period excluded from limitation.

Sections Involved

  • Section 74, CGST/APGST Act, 2017 - determination of tax involving fraud or wilful misstatement.
  • Section 65, CGST/APGST Act, 2017 - audit by tax authorities and its time limits.
  • Section 107, CGST/APGST Act, 2017 - appeal to Appellate Authority and pre-deposit.

Decision – In Favour of

Disposed of with directions, in part in favour of the petitioner - relegated to appeal without deciding merits, with the 10% deposit credited as statutory pre-deposit.

Case Details

  • Court: High Court of Andhra Pradesh at Amaravati
  • Case No.: W.P. No.27655 of 2024
  • Coram: Justice R. Raghunandan Rao and Justice Challa Gunaranjan
  • Date: 26th September, 2025

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