Mere Audit Objection Alone Cannot be taken as Basis for Issuing SCN under S. 74: Jharkhand HC Grants Interim Stay on GST Proceedings [Read Order]

The Jharkhand High Court has stayed further proceedings pursuant to a demand-cum-show cause notice ( SCN ) issued under Section 74 of the Goods and Services Tax ( GST ) Act, 2017, observing that a mere audit objection cannot form the sole basis for such action in the absence of suppression or fraud.

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The case was filed by M/s. P.K. Agarwala, a partnership firm engaged in business activities at Rakha Copper Projects, Jamshedpur. The petitioner challenged the SCN dated 29.07.2024 issued under Section 74 of the CGST Act on the ground that it was initiated solely on the basis of an audit objection dated 24.06.2024, despite the fact that the interest payment for the relevant financial year had already been made.

The petitioner contended that the GST liability related to Financial Year 2017-18 had been duly discharged by paying the requisite interest in the Financial Year 2019-20. It was argued that there was no suppression of facts, misstatement, or fraud, which are mandatory prerequisites for invoking the extended period of limitation under Section 74. The SCN, the petitioner claimed, was issued mechanically based on an audit note without any independent examination of intent to evade tax.

The Bench comprising Chief Justice M. S. Ramachandra Rao and Justice Deepak Roshan took cognizance of the petitioner's arguments and observed that prima facie, the SCN appeared to be without jurisdiction. The Court noted that in the absence of suppression or wilful misstatement by the assessee, a notice under Section 74 could not be sustained merely on the strength of an audit objection.

It observed that “Prima facie, the demand-cum-notice to show cause issued on 29.07.2024 invoking Section 74 of the CGST Act, 2017 appears to be without jurisdiction inasmuch as interest payment was admittedly made by the petitioner in financial year 2019-20 in respect of G.S.T. pertaining to financial year 2017-18, and there was no suppression by the petitioner of the same, and merely on the basis of an audit objection raised on 24.06.2024, notice under Section 74 of the CGST Act, 2017 could not have been issued to the petitioner.”

Accordingly, the High Court granted an interim stay on all further proceedings arising from the impugned demand-cum-show cause notice dated 29.07.2024. The matter has been listed for further hearing on 15.07.2025, and the respondents have been directed to file a counter-affidavit in the interim.

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