HC: No Sec. 74 proceedings if assessee voluntarily disclosed short payment of tax and paid tax with interest before SCN {MRF Ltd. vs. Additional Director DGGI Delhi Zonal Unit [2025] 181 taxmann.com 438 (Madras)}
Facts:
MRF Ltd. identified short payment of GST on certain transactions during reconciliation. The company voluntarily disclosed the liability and paid the tax with applicable interest before any SCN was issued. Despite this, the department issued an SCN invoking Section 74, alleging suppression and proposing penalty.
Issue
Whether proceedings under Section 74 of the CGST Act (fraud, wilful misstatement or suppression) can be initiated when the assessee has voluntarily disclosed the short payment and paid tax along with interest before issuance of a show-cause notice
Held
The Madras High Court held that Section 74 proceedings were not sustainable. Once the assessee has voluntarily paid tax and interest prior to the SCN, and there is no clear allegation or evidence of fraud, wilful misstatement or suppression, invocation of Section 74 is impermissible. The Court quashed the SCN, holding that voluntary compliance cannot be treated as suppression, and penal proceedings under Section 74 cannot be mechanically initiated.
