Facts of the Case

M/s Chetak Motors Pvt. Ltd. and others (“Petitioners”) approached the High Court of Delhi under Article 226 of the Constitution of India, challenging a Show Cause Notice (SCN) dated 24th June 2025 issued under Section 74 of the Central Goods and Service Tax Act, 2017 (CGST Act). The Petitioners contended that invocation of Section 74 was unwarranted as there was no fraud, wilful mis‑statement, or suppression of facts. They also alleged that the authorities acted on a preconceived notion and failed to supply the documents relied upon (RUDs). 

Issues Involved

  1. Whether Section 74 of the CGST Act could be invoked against the Petitioners in the absence of fraud, suppression, or wilful mis‑statement.
  2. Whether the adjudicating authority acted with a preconceived notion.
  3. Whether the Petitioners were entitled to the documents relied upon (RUDs) before adjudication. 

Petitioner’s Arguments

The Petitioners argued that:

  • Invocation of Section 74 was unsustainable as there was no fraud, wilful mis‑statement, or suppression of material facts.
  • The authorities were acting with a preconceived notion against them.
  • They were not supplied with the Relied Upon Documents (RUDs) which the GST Department claimed to rely upon.

Respondent’s Arguments

The Revenue submitted that:

  • The SCN was issued under Section 74 on the basis that Petitioners had shown wilful non‑payment of tax and suppression of liabilities, particularly in relation to Input Tax Credit (ITC) reversal under Section 17(2) and Rule 42 & 43 of the CGST Rules.
  • The Petitioners failed to disclose correct facts in their GST returns, and only during departmental investigation were these irregularities unearthed.
  • Therefore, invocation of Section 74 was justified.

Court’s Order / Findings

The High Court held as follows:

  • On the invocation of Section 74, the Court declined to entertain the petition at the interim stage, noting that the SCN gave specific reasons for invoking Section 74 based on wilful omission and suppression.
  • The allegation of a preconceived notion was rejected as speculative and not tenable in the absence of evidence.
  • On the issue of RUDs, the Court directed that the documents be supplied to the Petitioners by 30th September 2025, with time to respond and attend a personal hearing thereafter.
  • The adjudicating authority was directed to decide the matter fairly and in accordance with law.

Important Clarifications

  • Section 74 of the CGST Act relates to cases where tax has not been paid due to fraud, wilful mis‑statement, or suppression of facts.
  • The Court did not rule on the ultimate merit of whether Section 74 was rightly invoked but refused to quash the SCN at the interim stage. 

Sections & Rules Involved

  • Section 74, CGST Act, 2017 — Authority to issue SCN for tax evasion involving fraud or wilful suppression.
  • Section 17(2), CGST Act, 2017 — Reversal of Input Tax Credit in specified conditions.
  • Rule 42 & 43, CGST Rules — Conditions for computation and reversal of ITC.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/75412092025CW141272025_155526.pdf

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