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Reply to Intimation in Form GST DRC-01A u/s 74 CGST/MPGST Act, 2017 - Intimation dated 08/08/2026 - FY 2025-26

To,
The Deputy Commissioner, State Tax,
Circle-7, Indore,
Second Floor, Kar Bhawan, Station Road,
Indore-452001

From:
M/s Aarav Infra Services
GSTIN: 23ABCFA1234K1Z7

Subject: Reply to the intimation of tax ascertained as payable in Form GST DRC-01A (Enclosure) dated 08-08-2026, issued under Section 74 of the Madhya Pradesh / Central Goods and Services Tax Act, 2017 read with Rule 142(1A), for the tax period April 2025 to March 2026 (FY 2025-26)

Reference: Intimation dated 08-08-2026 proposing tax of Rs. 1,20,57,789, interest of Rs. 19,89,535 and penalty of Rs. 1,20,57,789

Respected Sir,

1. The assessee refers to the above intimation and submits its reply below. The reply follows the paragraph numbering of the intimation. [CA to confirm: date of receipt of the intimation and the due date for reply stated on the portal; if the due date has passed, add a request for condonation of delay with reason: CA to state reason for delay.]

A. Invocation of Section 74 for FY 2025-26: Denied

2. The intimation is issued "धारा-74 के अन्तर्गत" for the tax period April 2025 to March 2026. We submit that Section 74 has no application to this period. Section 74 governs determination of tax in cases involving fraud, wilful misstatement or suppression of facts. Sub-section (12) of Section 74, inserted by the Finance (No. 2) Act, 2024, confines the section to determination of tax for periods up to FY 2023-24. Section 73 governs determination of tax in cases other than fraud, wilful misstatement or suppression of facts, and Section 73(12) confines that section in the same way. For FY 2024-25 onwards, determination of tax, interest and penalty lies only under Section 74A, with its own conditions, time limits and graded penalty structure.

3. The intimation, and the proposal of penalty "equivalent to the tax" computed on that basis, therefore rests on a provision that does not govern FY 2025-26. An intimation under Rule 142(1A) is the statutory step preceding a show cause notice under the section it names. Where that section is itself inapplicable to the period, the intimation lacks legal foundation. The assessee requests that the present proceedings be dropped. Any further action, if at all considered necessary, may be taken only under the correct provision after due pre-notice intimation.

B. No fraud, wilful misstatement or suppression is alleged: Denied

4. Without prejudice to Ground A, the extended regime with a penalty equal to tax can be invoked only where tax is short paid or ITC is wrongly availed "by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax". This is the language of Section 74(1), quoted in the intimation itself. The same requirement governs the fraud limb of Section 74A(5)(ii).

5. The intimation does not record any such fact. Paragraph 1 states that the ITC is "प्रथमदृष्ट्या" (prima facie) not admissible and that verification is "अपेक्षित" on production of invoices, movement evidence, bilty, e-way bills, toll receipts and payment ledgers. Paragraph 2 likewise states the ITC is "प्रथमदृष्ट्या" ineligible and seeks verification. A request for verification is not a finding of fraud. The intimation records no statement of any person, no investigation report, no finding of collusion, circular trading or return of funds, and no finding about the assessee's knowledge.

6. Under the statutory scheme, the burden is on the Department to establish fraud, wilful misstatement or suppression on material. The assessee is not required to disprove fraud when none has been pleaded. The proposed penalty of Rs. 1,20,57,789 is therefore unsustainable on the face of the intimation. Without prejudice, any residual proposal can only proceed as a non-fraud determination, and the penalty for that is governed by Section 74A(5)(i).

C. Paragraph 1: ITC on inward supplies from six suppliers: Denied; the Department's material is put to strict proof

7. The intimation disputes ITC of Rs. 60,23,329.46 CGST and Rs. 60,23,329.46 SGST on a taxable value of Rs. 6,69,25,882.91 from Neelkanth Suppliers, R K Enterprises, Om Sai Traders, Shivam Agency, Mahalaxmi Traders and Brightpath Advisory Private Limited. The heading describes these as "बोगस इनवर्ड सप्लाई". The body, however, identifies only one condition as being in question: actual receipt of goods under Section 16(2)(b).

8. The assessee denies that the ITC is inadmissible. We submit that the assessee availed the credit on tax invoices issued by registered suppliers. [CA to confirm: physical receipt and business use for each of the five goods suppliers, and receipt of services from Brightpath Advisory Private Limited, backed by invoices, e-way bills, transport and payment records.] The conditions of Section 16(2) are statutory: (a) possession of a tax invoice, (b) receipt of the goods or services, (c) tax charged having been actually paid to the Government subject to Section 41, and (d) furnishing of the return under Section 39. The intimation makes no finding that any supplier failed to report the invoices under Section 37 or failed to pay tax, and makes no finding under clauses (a), (c) or (d).

9. The description "bogus" is not supported by any material disclosed in the intimation. The assessee cannot meaningfully answer an allegation whose basis is withheld. The assessee therefore requests copies of the investigation or verification reports, registration cancellation orders, supplier-side return data and any statements relied on for describing these supplies as bogus, so that it may respond to them.

10. As regards Brightpath Advisory Private Limited, the supply is one of services. E-way bills, bilty and toll receipts have no application to services. Receipt of services under Section 16(2)(b) is shown by the engagement, the work done and payment. [CA to confirm: agreement or work order, deliverables and payment trail available for this supplier.]

11. [CA to confirm: that invoices, e-way bills, bilty, toll receipts and payment ledgers exist for each of the five goods suppliers, and the Brightpath Advisory Private Limited agreement, deliverables and payment trail; and whether these records are being produced with this reply or at the personal hearing.] The assessee requests an opportunity to produce the relevant records for verification before any show cause notice is contemplated.

D. Paragraph 2: ITC of Rs. 4,646.63 CGST, Rs. 4,646.63 SGST and Rs. 1,837.48 IGST: Denied, subject to item-wise verification

12. The intimation treats these purchases, from e-commerce, retail, electronics and airline suppliers, as not in furtherance of business, and refers to Section 17(5). We submit that Section 16(1) allows credit on supplies used or intended to be used in the course or furtherance of business. The intimation does not identify which clause of Section 17(5) is said to apply to any invoice. Mere suspicion based on the identity of the supplier does not bring an invoice within Section 17(5).

13. [CA to confirm: item-wise business use of the purchases listed in paragraph 2 of the intimation, and for the Skyline Airways invoices, the purpose of travel and the traveller.] Without prejudice, if on verification any item is found to lack business nexus, the assessee is willing to reverse the credit on that item with applicable interest, so that the dispute on this paragraph is narrowed.

E. Interest computation: Denied

14. Interest of Rs. 19,89,535 is computed from 01-10-2025, described in the intimation as the middle of the year, up to 31-08-2026. We submit that Section 50(3) levies interest on input tax credit wrongly availed and utilised, from the date of utilisation. A notional mid-year date is not a basis known to the section. Any interest, if at all payable, must be computed month-wise from the electronic credit ledger maintained under Section 49, with regard to actual utilisation and the balance available in the ledger in each month. The computation is disputed.

F. Paragraphs 3 to 8: Requisitions for information

15. Paragraphs 3 to 8 call for work orders and bills of quantity with the corresponding GSTR-3B liability, HSN-wise stock details, the split of purchases with and without e-way bills with the reverse charge position, the income tax return, Form 26AS and bank statements, audited financial statements, and expense, other income and creditor ledgers. These paragraphs raise no quantified allegation and the demand in the intimation is not computed on them. Any show cause notice must be confined to the grounds in this intimation, consistent with Section 75(7).

16. Paragraph 3 (work contracts): The assessee undertakes work as a works contractor, as noted in the intimation. [CA to confirm: whether the work order and BOQ statement with reconciliation to GSTR-3B is being produced with this reply.]

17. Paragraph 4 (stock): [CA to confirm: HSN and rate-wise opening stock, inward, outward and closing stock statement, and mode of production.]

18. Paragraph 5 (e-way bill and reverse charge): [CA to confirm: RCM position under Section 9(3) and 9(4) for the year, and the statement of purchases with and without e-way bills.]

19. Paragraph 6 (ITR, 26AS, bank statements): We submit, with respect, that the income tax return and Form 26AS are records under the Income-tax Act and do not determine liability under the GST law. The due date for filing the income tax return for FY 2025-26 had not arrived on the date of the intimation. [CA to confirm: whether the ITR has since been filed, and production of bank statements.]

20. Paragraphs 7 and 8 (financial statements and ledgers): The audit of accounts for FY 2025-26 was not due for completion on 08-08-2026. [CA to confirm: whether provisional financial statements and the ledgers called for are being produced, with liberty to file audited statements on finalisation.] The assessee is cooperating with the requisitions and any delay in finalised statements arises from statutory timelines, not from any withholding of information.

Prayer

In view of the above, the assessee humbly prays that:

1. The intimation dated 08-08-2026 issued under Section 74 for FY 2025-26 be withdrawn and the proceedings dropped, Section 74 being inapplicable to the period by reason of Section 74(12);
2. Without prejudice, the proposal of penalty equal to tax be dropped, no fraud, wilful misstatement or suppression having been alleged or shown;
3. The ITC on the six suppliers in paragraph 1 be accepted on verification of the assessee's records;
4. The ITC in paragraph 2 be accepted, or restricted only to items found on verification to lack business nexus;
5. Copies of all material relied on for describing the inward supplies as bogus be supplied before any show cause notice is issued;
6. Interest, if any, be recomputed on actual utilisation under Section 50(3);
7. A personal hearing be granted before any further action.

The assessee reserves the right to make further submissions on receipt of the material requested.

Yours faithfully,

For M/s Aarav Infra Services

Signature: TO BE PROVIDED BY CA
Authorised Representative
(For CA's review and signature)
Place: Indore
Date: TO BE PROVIDED BY CA

Annexures: None filed with this draft. [CA to list only documents actually uploaded with the reply.]