Voluntary Payment of Tax Without Objection Under Section 74

Voluntary Payment of Tax Without Objection Under Section 74 Notice Confirms Evasion and Entails Penalty and Interest

Issue

Whether voluntary deposit of the entire tax liability via Form GST DRC-03 without objection in response to a Section 74(1) notice absolves the assessee from equal penalty and interest under Section 74.

Facts

For the period 2019–20, a notice under Section 74(1) of the CGST/UPGST Act was issued to the assessee alleging tax evasion and proposing tax, equal penalty, and interest.
The assessee deposited the entire demanded tax via Form GST DRC-03 without raising any demur or objection.
The proper officer subsequently issued Show Cause Notices (SCNs) limited to the computation of applicable penalty and interest.
The assessee filed a reply in Form GST DRC-06, citing the prior tax deposit and seeking closure/waiver.
The officer passed an assessment order under Section 74(9) imposing a penalty equal to the tax amount along with interest.
The assessee challenged the order via a writ petition, alleging violation of Section 74(5) on the ground that tax was paid voluntarily before formal SCN service.

Decision

Held in favor of the Revenue; the assessee’s acceptance of the initial notice and tax deposit without objection confirmed all allegations, eliminating the need to record further findings on fraud or evasion.
Held in favor of the Revenue; admission of tax liability in response to a Section 74 notice carries the consequential statutory liability to pay full penalty and interest under Section 74.
Held in favor of the Revenue; voluntary tax payment under Section 74(5) does not grant absolute absolution from penalty and interest under Section 74.
Held in favor of the Revenue; subsequent SCNs were validly restricted to the computation of penalty and interest, and the writ petition was dismissed as devoid of merit.

Key Takeaways

No Exemption from Penalty Under Section 74: Voluntary payment of tax following a Section 74 notice does not automatically discharge the taxpayer from equal penalty and interest liabilities.
Effect of Unconditional Payment: Depositing tax without demur in response to a fraud/evasion notice operates as an admission of the allegations, dispensing with the officer’s obligation to render detailed findings on intent.
Scope of Subordinated SCNs: Where tax is paid upon receipt of a Section 74(1) notice/statement, subsequent statutory notices can be validly confined to quantifying and levying penalty and interest.

HIGH COURT OF ALLAHABAD

Rizvi Builders and Supplier

State of U.P.

Alok Mathur and Amitabh Kumar Rai, JJ.

WRIT TAX No. 1156 of 2026

SEPTEMBER 17, 2026

Roop Gupta for the Petitioner. Prashant Kumar Srivastava, C.S.C. for the Respondent.

ORDER

1. Heard Sri Roop Gupta, learned counsel for the petitioner and learned Standing Counsel for the respondents.

2. By means of the present petition, the petitioner has challenged the notice dated 01.12.2021 issued under Section 74 of the Uttar Pradesh Goods and Services Tax Act, 2017 (hereinafter referred to as “the Act of 2017”) by the Assistant Commissioner, State Tax, District Gonda, for the financial year 2019-20, requiring the petitioner to submit his reply to the said notice by 28.12.2021, failing which ex parte proceedings would be conducted against the petitioner. Further challenge is the order dated 28.03.2026 passed under Section 74(9) of the Act of 2017.

3. It has been submitted on behalf of the petitioner that as per the impugned notice, a demand for evasion of tax was raised against the petitioner to the tune of Rs.7,94,280/- and a penalty of the same amount was proposed along with interest in accordance with law. The petitioner, after receiving the said notice, voluntarily and without any demur deposited the amount of Rs.7,94,280/- by way of Form GST DRC-03 on 23.02.2022 and, therefore, submitted that he has duly complied with the statutory scheme and, according to the petitioner, nothing further was required to be done, inasmuch as the amount of alleged tax demanded by the respondents stood deposited and, accordingly, the petitioner had discharged his entire liability in this manner.

4. It is the case of the petitioner that despite depositing the entire amount of tax, the respondents again proceeded by issuing a show cause notice to the petitioner dated 13.01.2025, directing him to file his reply by 11.02.2025 and a second reminder was issued on 21.01.2025 directing the petitioner to file his reply by 27.01.2025. It is stated that in response to the aforesaid notices, the petitioner submitted his reply, which, according to the petitioner, is evident from Form GST DRC-06, indicating that he had submitted his reply on 15.03.2022. It is in the aforesaid circumstances that the order dated 28.03.2026 has been passed, directing the petitioner to deposit an amount of Rs. 7,94,280/- towards penalty and an amount of Rs. 3,40,146/- towards interest.

5. Learned counsel for the petitioner has submitted that the said order is illegal and arbitrary and violative of Section 74(5) of the Act of 2017, inasmuch as, despite submission of the reply, the same was not considered and the respondents proceeded to pass the impugned order imposing penalty and interest upon the petitioner. The petitioner further submits that in the most bona fide manner, he had deposited the entire amount of tax as assessed soon after receiving the show cause notice and, accordingly, in the peculiar circumstances of the present case, there was no occasion to levy penalty and interest upon the petitioner. On the aforesaid grounds, the petitioner has assailed the validity of the order dated 28.03.2026.

6. Learned Standing Counsel, on the other hand, has opposed the writ petition. He has submitted that there is no dispute that, in the present case, proceedings were initiated under Section 74 of the Act of 2017 after noticing certain fraudulent entries and certain fraudulent transactions undertaken by the petitioner. There is again no dispute that on receipt of the show cause notice under Section 74 of the Act of 2017, the petitioner had voluntarily deposited the tax amount as stated in the said notice. It was stated that once the petitioner had voluntarily deposited the said amount, he had accepted all the allegations levelled in the show cause notice and duly deposited the tax amount.

7. Learned Standing Counsel further submits that merely on deposit of the tax amount, the liability of the petitioner to pay the outstanding amount of penalty and interest does not stand absolved and, accordingly, the subsequent show cause notices issued to the petitioner were confined to payment of the outstanding amount of penalty and interest, which was payable by the petitioner under Section 74 of the Act of 2017. The petitioner submitted his reply and, as is evident from Form GST DRC-06, the only stand taken by the petitioner was that he had already deposited the amount as mentioned in the show cause notice. It is not the case of the petitioner that he has assailed or challenged any of the findings pertaining to the proceedings under Section 74 of the Act of 2017 or that the petitioner was not involved in any fraudulent transaction for which the proceedings were initiated under Section 74 of the Act of 2017.

8. Accordingly, it was submitted that there is no infirmity in the impugned order, inasmuch as the said order itself records that the petitioner had tendered the outstanding amount of tax and by means of the impugned order, a demand has been raised only with regard to penalty and interest. Therefore, in the circumstances of the present case, no case for interference is made out and learned Standing Counsel has prayed for dismissal of the writ petition.

9. After considering the rival contentions of the parties and upon perusal of the record, it is noticed that a show cause notice was issued to the petitioner under Section 74(1) of the Act of 2017. It is again not disputed that upon receipt of the said notice, the petitioner had deposited the entire amount on 23.02.2022. Accordingly, once the petitioner himself had accepted the allegations and had not raised any objection by filing a reply, there was no necessity for the assessing authority to record any further finding with regard to fraud. Once the assessee has acquiesced to the show cause notice, all the terms, conditions and findings recorded in the show cause notice stand confirmed and the allegations stated therein stand admitted and accordingly order dated 28.03.2026 was passed under Section 74(9) of the Act of 2017. The petitioner, even subsequently, did not, at any stage, object to the findings stated in the show cause notice regarding invocation of Section 74 of the Act of 2017. It was only subsequently, when the issue of payment of penalty and interest arose and two show cause notices were issued to the petitioner, that he merely stated that he had deposited the amount as stated in the initial show cause notice towards tax without demur.

10. Accordingly, we notice that once there is an admission with regard to the liability created by the show cause notice issued under Section 74 of the Act of 2017, the consequential liability towards penalty and interest also follows. It is only with regard to the subsequent computation of penalty and interest that show cause notices were issued to the petitioner, to which he merely responded by stating that he had deposited the initial amount of tax. It is upon consideration of the reply submitted by the petitioner that the impugned order dated 28.03.2026 under Section 74(9) of the Act of 2017 has been passed.

11. Accordingly, in the aforesaid circumstances, this Court is of the considered view that there was no violation of Section 74(5) of the Act of 2017. The case is peculiar inasmuch as the petitioner himself has not disputed the notice issued under Section 74 of the Act of 2017 and has voluntarily paid the entire amount of tax. Once the amount of tax has been paid, the petitioner cannot resile from his liability to pay interest and penalty.

12. For the aforesaid reasons, no ground for interference is made out. The petition is devoid of merit and is, accordingly, dismissed.