Facts of the Case

Central GST authorities filed a batch of six writ appeals against similar Single Judge orders that had interfered with Show Cause Notices, Orders-in-Original, or Orders-in-Appeal issued under Section 74 of the CGST Act, 2017 against various Toyota group companies (including Toyotetsu India, TT Steel Service India, Toyota Techno Park India, Toyota Kirloskar Auto Parts, Toyotetsu India Auto Parts, and Toyoda Gosei South India). The demands related to disallowance of Input Tax Credit on salaries paid to employees seconded from foreign parent companies, treated by the Department as consideration for manpower recruitment/supply services attracting GST under reverse charge. The Single Judge had directed the Additional Commissioner to consider, on facts, whether the Section 74 proceedings could be converted to Section 73 proceedings to enable the companies to avail the Amnesty Scheme under Section 128A.

Issues Involved

  1. Whether the Single Judge erred in interfering with the Show Cause Notices/Orders and granting liberty to seek conversion from Section 74 to Section 73 proceedings without first recording a finding on whether grounds for conversion existed.
  2. Whether invocation of the extended limitation period under Section 74 was justified in secondment-of-employee ITC cases, given the Supreme Court's ruling in Northern Operating Systems and the subsequent CBIC circular.

Petitioner's (Revenue's) Arguments

  • While the Single Judge called upon the Additional Commissioner to consider conversion of the Section 74 proceedings to Section 73 for Amnesty Scheme purposes, no finding of fact was rendered on whether materials existed to justify such conversion, leaving the direction incomplete.

Respondent Companies' Arguments

  • Following the Supreme Court's decision in C.C.,C.E.& S.T.-Bangalore (Adjudication) vs. Northern Operating Systems Pvt. Ltd., which held that Section 74-type proceedings must turn on intent to evade, and given that the ITC claims and demands related to employee secondment where there could have been no such intent, invocation of Section 74 was itself unjustified.
  • Since the law on secondment was settled by the Apex Court only in May 2022, and the tax periods in question were close to that decision, initiation under Section 74 (rather than Section 73) could be unjustified, warranting Article 226 relief.

Court Order / Findings

  • The Division Bench referred to the CBIC Circular dated 13.12.2023, which recorded that field formations were mechanically invoking the extended period of limitation under Section 74(1) and clarified that Section 74(1) can be invoked only where there is material evidence of fraud, wilful misstatement, or suppression of facts to evade tax — not merely on account of non-payment of GST.
  • The Court held it was not persuaded to interfere with the Single Judge's approach, since the interference with the SCNs/Orders was only to facilitate consideration of conversion to Section 73 and consequent Amnesty Scheme benefit, without expressing any opinion on merits.
  • The respondents were held entitled to furnish documents; the Additional Commissioner (Anti-Evasion) was directed to consider the same and pass orders examining the factual matrix in light of Northern Operating Systems and the CBIC circular.
  • Liberty was reserved to both sides to pursue further remedies against the outcome, with exclusion of time spent in the writ appeals/petitions while computing limitation.

Important Clarification

  • Section 74(1) proceedings cannot be mechanically invoked merely on account of a tax short-payment or ITC disallowance; there must be material evidence of fraud, wilful misstatement, or suppression to evade tax, as clarified in the CBIC Circular dated 13.12.2023 following Northern Operating Systems.
  • Where secondment-of-employee ITC demands are raised for periods proximate to the Supreme Court's May 2022 ruling, taxpayers may seek conversion of Section 74 proceedings to Section 73 to access the Section 128A Amnesty Scheme, subject to the Department's factual assessment.

Sections Involved

  • Section 74, CGST Act, 2017 — determination of tax involving fraud/suppression, with extended limitation.
  • Section 73, CGST Act, 2017 — determination of tax in non-fraud cases, standard limitation.
  • Section 128A, CGST Act, 2017 — Amnesty Scheme waiving interest/penalty for specified periods, available typically for Section 73 proceedings.

Decision – In Favour of

Disposed of with directions, in favour of the Assessee companies — Revenue's appeals were dismissed and the Single Judge's direction to consider conversion to Section 73 for Amnesty benefit was upheld, with the merits kept open.

Case Details

Court: High Court of Karnataka at Bengaluru
Case No.: Writ Appeal No. 1655 of 2025 (T-RES) C/W WA Nos. 1198, 1203, 1208, 1213 and 1222 of 2025
Neutral Citation: NC: 2025:KHC:54190-DB
Coram: Hon'ble Mr. Justice B.M. Shyam Prasad and Hon'ble Mr. Justice T.M. Nadaf
Date of Order: 16.12.2025

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