HC Stays Refund Recovery, Will Examine if Section 74 Can Reopen Finalized Refund Orders.

Issue

Whether the GST department can initiate proceedings under Section 74 (fraud, misstatement, etc.) to recover a refund that has already been sanctioned under Section 54, or if the department is legally bound to challenge the finalized refund order only through the statutory appeal (Section 107) or review (Section 108) mechanisms.

Facts

The GST department initiated proceedings under Section 74 of the CGST Act to recover alleged erroneous refunds of approximately ₹206 crore paid to NATCO Pharmaceuticals Ltd. for the period FY 2020–21 to 2024–25.
NATCO challenged this action, arguing that the refund orders were passed under Section 54 and had attained finality.
NATCO contended that the department cannot use a fresh proceeding under Section 74 to “reopen” or “reassess” a finalized refund order, as this would bypass the specific legal remedies of appeal (Section 107) or review (Section 108).
The assessee relied on favorable judgments from the Gujarat High Court (Patanjali Foods Ltd.) and the Madras High Court (Eveready Industries India Ltd.) which held that Section 74 cannot be used to revisit finalized refund orders.
On the merits, NATCO argued the underlying dispute was merely a reinterpretation of whether its licensing/marketing rights constituted an “export of services” and that the issue was revenue-neutral.

Decision

The Telangana High Court granted interim protection to NATCO Pharmaceuticals Ltd.
It restrained the department from taking any coercive recovery action against the assessee under the impugned Section 74 proceedings.
The High Court, noting that similar issues were already pending, tagged the matter with connected writ petitions.
The case is listed for a further hearing on December 8, 2025, to examine the fundamental legal question.

Key Takeaways

Procedural Battle: This case highlights a major jurisdictional conflict: can the department use a demand provision (Section 74) to bypass a refund appeal/review provision (Section 107/108)?
Prima Facie Merit: By granting an interim stay, the High Court has indicated that the assessee’s argument—that finalized refund orders cannot be reopened via Section 74—has prima facie merit and warrants detailed judicial examination.
Growing Judicial Consensus: This issue is not isolated. The reliance on other High Court rulings (Gujarat and Madras) shows a developing judicial consensus that the department cannot use Section 74 as a tool to collaterally attack a final refund order.
Issue is Sub Judice: The core question is now sub judice (under judicial consideration). The final decision will be critical in defining the finality of GST refund orders and the limits of the department’s powers.