S.74(5) | GST Proceedings Can Be Closed On Payment Of 15% Pre-SCN Penalty Where Tax Already Deposited Prior To SCN: Delhi High Court

The Delhi High Court recently allowed Delhi Sales Corporation to deposit pre-SCN penalty contemplated under Section 74(5) of the Goods and Services Tax Act, despite issuance of show cause notice under Section 74(8).This, after a division bench of Justices Prathiba M. Singh and Shail Jain noted that the Petitioner-Corporation had already deposited tax and interest in terms of Section 74(5).For context, section 74 pertains to Determination of tax not paid or short paid. It contemplates issuance of a notice (pre-SCN) initially under Section 74(1) of the Act, as to why the taxable amount along with interest ought not to be recovered.Upon such notice (pre-SCN) being issued, the person chargeable with tax has the option under Section 74(5) to pay the tax along with 15% of the penalty on his own. If the same is done, then no further notice would be served upon such a person.On the other hand, if the amount is not paid and a show cause notice is actually served and thereafter, within 30 days, the tax along with interest and penalty equivalent to 25% is paid in terms of Section 74(8), then the proceedings emanating from the show cause notice are deemed to be concluded.In the present case, pre-SCN was issued to the Petitioner on 6th July, 2022. In response to the same, the Petitioner paid the tax amount along with interest under Section 73(5). However, the 15% penalty was not paid.As a consequence, the Department issued SCN on 7th June, 2024 and subsequently raised demand for a sum of Rs. 1,32,467/-.The Petitioner argued that prior to the issuance of SCN, the entire demand was paid in the month of August, 2022 itself. Hence, no further penalty can be imposed.The Department however opposed the plea.The Court after hearing the parties observed that since tax and interest stood paid within 30 days prescribed under Section 74(5), “if the Petitioner deposits 15% of the penalty amount, the SCN would be deemed to be closed in terms of Section 74(5) of the CGST Act.”Appearance: Mr. M.A. Ansari, Ms. Tabbassum Firdause, Mohd. Saleem, Md. Imran Ahmad & Mr. Ahmad Ansari, Advs. for Petitioner; Mr. Akash Verma, Adv. for R-1. Mr. Sandeep Tyagi, SPC, UOI.Case title: Delhi Sales Corporation v. The Principal Commissioner Of Central Tax & Ors.Citation: 2025 LiveLaw (Del) 1569Case no.: W.P.(C) 15646/2025Click here to read order

S.74(5) | GST Proceedings Can Be Closed On Payment Of 15% Pre-SCN Penalty Where Tax Already Deposited Prior To SCN: Delhi High Court

Kapil Dhyani

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