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The Madras High Court has quashed a show cause notice issued under Section 76 of the CGST Act, 2017 wherein the Department had not considered the payment made by the assessee through the other registration in the same State.
The assessee had two verticals, one for trading and another for transmission. The trading vertical had bifurcated the transmission component embedded in the sale of gas and discharged GST under a separate registration pertaining to the transmission vertical, which raised invoices on the trading vertical. The former, in turn, while supplying gas to customers, recovered the said GST component through reimbursement, in addition to other charges.
There was no discrepancy between the total tax collected from customers and the total tax remitted to the Government by the transmission vertical.
The Revenue department had submitted that the trading and transmission verticals were distinct persons and that the transactions between the two thus could not be treated as internal transactions of the same entity.
Setting aside the SCN, the Court noted that the payment was not claimed through another distinct entity registered in another State, but through one in the same State. According to the Court decision in GAIL (India) Ltd. v. Additional Commissioner [2026 VIL 372 MAD], Department cannot justify invoking Section 76 despite honest and accurate payment, merely because the establishment is a distinct person in the same State.
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