The Punjab and Haryana High Court has quashed a Goods and Services Tax ( GST ) demand notice and order issued under Section 74 of the Central Goods and Services Tax Act, 2017, following the earlier closure of proceedings under Section 61 of the Central GST Act. The case involved JSB Trading, a firm dealing in iron scrap, which was accused of wrongly claiming Input Tax Credit ( ITC ) for FY 2017-18.

A notice under Section 61 was issued to JSB Trading for scrutiny of returns regarding ITC claims from suppliers whose GST registrations had been cancelled. Following the firm’s reply, the Proper Officer found the explanation satisfactory and closed the proceedings on February 28, 2023. Be a GST Expert: Get Essential Questions, Key Judgements and Practical Guide, Click Here Despite the closure under Section 61, a demand notice under Section 74(5) was issued on February 23, 2023, followed by a show-cause notice under Section 74(1) on April 21, 2023. Subsequently, the authority imposed a penalty and interest of ₹25.94 lakh on June 14, 2023. The Counsel for the petitioner submits that the reply having been found satisfactory and intimation having been received of no further action to be taken against them, vide letter dated 28.02.2023, the petitioner did not deposit any amount as claimed under Section 74(5) of the GST Act, 2017.

However, notice has been issued to them on 21.04.2023, under Section 74 of the Act for the same reasons and allegations as were mentioned in the notice under Section 61 of the Act. The petitioner had submitted its reply to the show cause notice and pointed out that the proceedings stood dropped under Section 61 of the Act, therefore, further proceedings under Section 74(1) of the Act could not have been initiated. Further the order was also vitiated on the ground of violation of principles of natural justice, as the petitioner had demanded in terms of Section 75(4) of the GST Act – an opportunity of personal hearing, which was admittedly not provided. The court held that once the proceedings under Section 61 were concluded with no action required, initiating proceedings under Section 74 for the same period and issues was improper.  The High Court also stated that the actions of the Proper Officer exhibited contradictory conclusions, as one order closed the proceedings while another imposed liability. Be a GST Expert: Get Essential Questions, Key Judgements and Practical Guide, Click Here

Violations of natural justice were noted, as no personal hearing was granted despite being mandatory under Section 75(4) of the CGST Act. The Punjab and Haryana High Court Division Bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth thus set aside the order dated June 14, 2023, and the notice issued under Section 74(1) of the Goods and Services Tax Act. The ruling reassures taxpayers that the GST framework does not permit reopening settled matters arbitrarily, and the actions must align with procedural fairness and statutory provisions.