On 16 September, the Jammu & Kashmir and Ladakh High Court stayed a show cause notice issued under Section 74(1) of the Jammu and Kashmir Goods and Services Tax Act, 2017, where the petitioner challenged the invocation of the provision in the absence of foundational facts of fraud, wilful misstatement or suppression of facts with intent to evade tax.

A Division Bench of Justices Sanjeev Kumar and Shahzad Azeem issued notice to the respondents and stayed the effect and operation of the notice, which demanded around Rs. 3.88 crore in tax from Uflex Limited for the financial year 2020-21. The judges observed:

“In the meanwhile, subject to objections from the other side and till next date of hearing, there shall be stay of the effect and operation of the show cause notice.”

Uflex, which manufactures flexible packaging material at Bari Brahmana, was subjected to a GST audit under Section 65 of the JKGST Act for 2020-21. The Final Audit Report in FORM GST ADT-02 recorded a short payment of Rs. 34,52,75,971 under 11 audit observations.

The department thereafter issued a show cause notice in FORM GST DRC-01 under Section 73 on the same 11 observations. The Assessing Authority confirmed tax of only Rs. 6,936 against the amount originally proposed. It left Rs. 3,94,14,687.40 relating to two observations undecided, citing the impending limitation under Section 73, and carried those two issues into proceedings under Section 74.

On the same date, the department issued an intimation in Part A of FORM GST DRC-01A under Section 74, confined to the two observations. Uflex filed its reply.

The impugned show cause notice was subsequently issued under Section 74(1), demanding tax of Rs. 3,88,66,474.60, interest of Rs. 4,08,09,796 and an equivalent penalty of Rs. 3,88,66,474.60.

Uflex, through counsel Saurabh Gupta, Abid Khan and Rohit Gupta, contended that the notice disclosed no foundational facts of fraud, wilful misstatement or suppression of facts with intent to evade tax, which it submitted were jurisdictional preconditions for invoking Section 74.

The company relied on CBIC Instruction No. 05/2023-GST dated 13 December 2023, which states that Section 74(1) can be invoked only where there is material evidence of fraud, wilful misstatement or suppression of facts to evade tax, and that such evidence should form part of the show cause notice.

It further contended that, except for one issue, the tax demanded in the impugned notice was identical to the Rs. 3,94,14,687.40 quantified in the DRC-01A dated 27 February 2025. It submitted that the difference of Rs. 5,48,212.80 arose after the department accepted and dropped an issue concerning movement of goods between premises covered by the same GSTIN.

The company also contended that the notice was issued only six days before the expiry of the outer limit under Section 74(2) on 31 August 2026. It submitted that the invocation of Section 74 was not based on discovery of fraud but resulted from the officer's inability to complete the reconciliation within the period prescribed under Section 73.

Moreover, it argued that the notice recorded concluded findings against it before inviting its reply, thereby violating the principles of natural justice. It also contended that the proceedings amounted to a colourable exercise of power, as the department was attempting to achieve under Section 74 what could not be done under Section 73 after 28 February 2025.

Accordingly, the High Court issued notice to the respondents, returnable within four weeks, and directed that requisites for service be filed within one week. The matter has been listed for 30 November 2026, with the stay continuing until the next date of hearing, subject to objections from the respondents.

For the Petitioner: Mr. Saurabh Gupta, Advocate Mr. Abid Khan, Advocate Mr. Rohit Gupta, Advocate

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Case Title :  Uflex Ltd. v. UT of J&K and OthersCase Number :  WP (C) No. 2950/2026CITATION :  2026 LLBiz HC(JAM) 31