The Madras High Court addressed a case involving Tvl. Dr. M. Sundaram Hospital Pvt. Ltd., which faced allegations of wrongful input tax credit (ITC) usage after an inspection by the State Tax Officer. The hospital contended that there was no fraud or suppression involved, suggesting that proceedings should fall under Section 73 rather than Section 74 of the GST Act, and questioned the jurisdiction of the State authority.
The Court examined whether writ petitions are suitable for addressing disputes related to GST classification, jurisdiction, and the invocation of Section 74. It concluded that classification issues involve disputed facts requiring detailed adjudication, which is more appropriate for appellate forums rather than writ jurisdiction.
On the issue of jurisdiction, the Court noted the principle of cross-empowerment under GST, which allows both Central and State authorities to initiate enforcement actions, regardless of administrative assignment. Regarding the invocation of Section 74, the Court suggested that if the taxpayer disputes its application, the matter should be challenged before an appellate authority, not via writ petitions.
Read More: Madras High Court: Writ jurisdiction cannot be used to decide disputed classification and Section 74 cases, proper remedy lies before the appellate authority [Order attached]
The Court upheld the Single Judge's decision, allowing the petitioner to appeal under Section 107, where all grounds, including jurisdiction and absence of mens rea, can be addressed. This decision emphasizes the importance of using designated appellate mechanisms for resolving complex GST disputes.
Order Date – 15 April 2026
Parties: GAIL (India) Ltd. vs Additional Commissioner of GST & Central Excise
Facts –
- GAIL (India) Ltd., a PSU, operated through two verticals—trading and transmission—with separate GST registrations, where transmission services attracted GST but gas sale attracted VAT.
- GAIL internally split transactions: the transmission vertical paid GST, while the trading vertical recovered this cost from customers as reimbursement along with sale price.
- The department alleged that GST collected from customers was not properly remitted by the trading vertical and issued a show cause notice under Section 76 demanding ₹14.63 crore with penalty.
- GAIL argued that the entire tax collected was already paid to the Government through the transmission vertical and there was no revenue loss or evasion.
Issue –
- Whether Section 76 applies when GST collected from customers is already remitted to the Government, albeit through another registration of the same entity?
Order –
- The Court noted that Section 76 applies only when tax is collected and not remitted, but here, records clearly showed that the entire GST component collected from customers had been paid to the Government. Thus, the foundational requirement for invoking Section 76 itself was missing.
- It observed that although separate GST registrations are treated as distinct persons, this technical distinction cannot justify invoking Section 76 when there is actual and complete tax payment without any retention.
- The Court emphasized that Section 76 is not meant to create double taxation, and ignoring the fact of tax payment merely because it was routed through another vertical is legally unsustainable.
- It further held that since the issue involved pure interpretation of law and long pendency (5+ years), relegating the matter back to adjudication would be unjustified, especially when facts were already clear on record.
