Extended Limitation Under Section 74 Valid for Fake ITC | HC

Case Details: Southern Steels vs. Assistant Commissioner (ST) - [2026] 187 taxmann.com 763 (Madras)

Judiciary and Counsel Details

• C.Saravanan, J.
• K. Raja & P. Muthukrishnan for the Petitioner. 
• C. Harsharaj, Spl. Govt. Pleader for the Respondent.

Facts of the Case

The petitioner operated two GST registrations. Following an inspection, the jurisdictional officer under the CGST Act initiated scrutiny alleging circular or reciprocal transactions and the availment of fictitious ITC on non-supplies, culminating in DRC-07 orders for both registrations. In respect of the registration, earlier orders had been set aside in prior writ proceedings, and the matter was remanded, after which fresh DRC-07 orders were passed without issuing DRC-01. The proceedings followed the sequence of DRC-01A, DRC-01, reply in DRC-06 and adjudication. The petitioner challenged the invocation of the extended limitation period under Section 74 of the CGST Act and the validity of the adjudication proceedings. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that the inspection findings indicating circular transactions and fictitious ITC on non-supplies constituted prima facie material to invoke the extended limitation period under Sections 74 and 75 of the CGST Act and the Tamil Nadu GST Act, observing that the threshold for invoking the extended period under the GST regime is lower than under the earlier indirect tax laws. It further held that the proceedings were valid as they followed the prescribed procedure through DRC-01A, DRC-01, reply in DRC-06 and adjudication. However, the Court found that the proceedings were procedurally defective because DRC-07 was issued without a prior DRC-01 after remand, contrary to Rule 142 of the CGST Rules, the Tamil Nadu GST Rules, and the principles of natural justice. Accordingly, the DRC-07 orders were set aside.