GST S. 74 Invoked despite Reversing ITC Voluntarily before Initiation of Audit: Orissa HC to address Jurisdictional Dispute [Read Order]

In a recent ruling, the Orissa High Court to examine the jurisdictional validity of initiating assessment proceedings under Section 74 of the Central Goods and Services Tax ( CGS T) Act, 2017, particularly in cases involving voluntary reversal of Input Tax Credit (ITC) prior to the commencement of an audit. The matter is scheduled on June 17, 2025.

Meanwhile, the Court directed the petitioner to deposit the interest amount and granted interim relief by staying the penalty imposed under the impugned order until the next date of hearing.

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The petitioner challenged an order passed under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act), contending that the assessment and penalty proceedings were unwarranted.

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Represented by Senior Advocate Mr. Bibekanand Mohanti, the petitioner argued that it had voluntarily reversed the ITC amounting to ₹1,49,729 and paid it well before the audit was initiated. Despite this, authorities proceeded under Section 74, which is typically invoked in cases involving fraud, suppression, or willful misstatement.

The counsel submitted that the authorities ought to have initiated proceedings under Section 73 of the CGST Act, a less stringent provision applicable in cases without intent to defraud. He further pointed out that if the authority proceeded to undertake assessment under Section 73, the petitioner would have the opportunity to avail the benefit of notification dated 15th October, 2024.

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Senior Standing Counsel for the GST Department, Mr. Ch. S. Misra, defended the actions of the tax authorities and requested four weeks’ time to file a counter-affidavit.

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The bench of Chief Justice Harish Tandon and Justice M.S. Raman noted that “Since jurisdictional aspect leading to framing assessment under Section 74 of the CGST Act has been questioned, the matter requires consideration. Adequate number of copies of writ petition be served on the Senior Standing Counsel to enable him to file counter-affidavit.”

As an interim relief, the court directed that if the petitioner deposits the interest amount within four weeks, the penalty imposed by the demand order dated January 3, 2025, shall remain stayed until the next hearing on June 17, 2025.

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To Read the full text of the Order CLICK HERE

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