Madras HC Quashes SCNs Against Apollo Tyres & MRF; Says S.74 GST Act Cannot Be Invoked When Tax Was Paid Voluntarily

The Madras High Court has quashed Show Cause Notices issued to Apollo Tyres Limited and MRF Limited alleging wrongful availment of Input Tax Credit (ITC) for the composite supply of Tyres, Tubes and Flaps (TFF) since tax difference was paid voluntarily. In twin judgments dated November 28,2025, Justice Krishnan Ramasamy examined if Show Cause Notice had fulfilled the ingredients of Section 74 to hold that payment deferred due to confusion prevailing confusion in the industry regarding tax treatment of TFF is not attributable to tax evasion. The High Court dismissed grounds for invoking Section 74 of the CGST Act together with Respondent's stance that payment subsequent to initiation of investigation was invalid. The High Court observed that there was 'no criminal motive' attributable to the Petitioner. On account of rate rationalization of tubes and flaps from 28% to 18% separate invoices were raised treating the supplies as a composite supply. However, the tyre makers were doubtful about tax treatment of supply of Tyres, Tubes and Flaps (TTF) in a carry strapping form, whether the same was a composite supply or individual supply. A communication was sent in which Petitioner stated that they will be treating the supply as a composite one and pay the short payment of additional 10%, along with the interest, for the tubes for the period between November 15, 2017 and January 05, 2019 and for the flaps for the period between January 01, 2019 and January 05, 2019. The Director General of GST Intelligence (DGGI) initiated an investigation on the premise that supply was effected as a “composite supply” for which Petitioner should have paid GST at the rate of 28%. On April 07, 2022 a show cause notice was issued which sought a sum of Rs. 78 crores as payback from the Petitioner, Apollo Tyres Limited. Hence, writ petitions were filed calling-into-question issuance of Show Cause Notice under Section 74 of the CGST Act, 2017. Petitioner submitted that issuance of show cause notice had caused adverse impact on its stock values. Further, it was contended that Section 74 could not be invoked as inclination to pay dues was communicated much before initiation of the investigation. On the contrary, Respondents put forth that though intimation about tax short paid was communicated but entire tax amount was paid by the Petitioner only after the investigation of DGGI. It was contended by the Respondents that bar under Section 39(9) would apply as such a payment mechanism was not valid in terms of Section 39(9) and hence, the Petitioner was not entitled for avail ITC. On applicability of Section 74 the High Court emphasized on the 'intention to pay' and held that no ingredients were satisfied due to confusion prevailing in the industry at the time thus, present case would fall out of the periphery of Section 74. It was observed that merely on the ground that the tax amount was remitted subsequent to the initiation of investigation by DGGI, Section 74 cannot be invoked. It was also noted that Industry confusion whether bundled supply was composite supply and taxable at 28% could be considered as tax not paid or short paid attracting Section 73. However, in the present case as Petitioner remitted tax along with interest before the issuance of notice and hence no such action could be taken. From a perusal of Section 39(9) which dealt with Furnishing of Returns, the High Court inferred that an assessee can be permitted to rectify the returns in the events other than scrutiny, audit, inspection or enforcement activity by the tax authorities and avail ITC. In this vein, it was noted that Petitioner's inclination to make the payment of tax dues was communicated as early as on January 07, 2019, which was much prior to the date of DGGI investigation. Accordingly, the High Court allowed these writ petitions. Case Name: MRF Limited vs. Additional Director, DGGI For Appellant: Advocates V. Lakshmikumaran, R. Charulatha, Raghav Rajeev, Nirmal, Preeti Mohan, Sagarika Shankar appeared for MRF whereas Senior Advocate Joseph Kodianthana appeared for Apollo Tyres For Respondent: ASG AR.L. Sundaresan with SPC Rajinish Pathiyil Click here to read the order in case of MRF Limited. Click here to read the order in case of Apollo Tyres Limited.

Madras HC Quashes SCNs Against Apollo Tyres & MRF; Says S.74 GST Act Cannot Be Invoked When Tax Was Paid Voluntarily

Parul Bose

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