Clarification by Minsitry of Finance on applicablity of Section 74 of the CGST Act,2017

[Sunil Ahuja]

For applying the provision of Section 74 of the CGST Act, 2017 while raising the GST demands there should be presence / evidence of fraud, or any wilful-misstatement or suppression of facts by the Taxpayer with malafide intention to to evade tax. Without proving presence of such elements, the issuance of demands by invoking extended period is incorrect  The same has been explained / clarified at  Para 3.3 of Instruction No 05/2023 -GST dated 13.12.2023 (Subject : Judgment of the Hon’ble Supreme Court in the case of Northern Operating Systems Private Limited (NOS). [C.C.,C.E. & S.T. – BANGALORE (ADJUDICATION) ETC. VERSUS M/S NORTHERN OPERATING SYSTEMS PVT LTD. - 2022 (5) TMI 967 - SUPREME COURT] issued by Principal Commissioner (GST), GST Policy Wing, Department of Revenue, Ministry of Finance, Government of India. The said Para is reproduced as under - 

3.3      From the perusal of wording of section 74(1) of CGST Act, it is evident that  section 74(1) can be invoked only in cases where there is a fraud or wilful mis-statement or  suppression of facts to evade tax on the part of the said Taxpayer. section 74(1) cannot be  invoked merely on account of non-payment of GST, without specific element of fraud or  wilful mis-statement or suppression of facts to evade tax. Therefore, only in the cases  where the investigation indicates that there is material evidence of fraud or wilful mis-statement or suppression of fact to evade tax on the part of the Taxpayer, provisions of  section 74(1) of CGST Act may be invoked for issuance of show cause notice, and such  evidence should also be made a part of the show cause notice.       

The said instruction has brought clarity on the matter of proper application of the said Section. The Taxpayers may refer this beneficial Instruction while contesting the demands issued by invoking the said Section. 

Discussions to this article

[Sadanand Bulbule]

Dear Sir

Despite referring the above mentioned Government clarification coupled with bundle of relevant binding judicial rulings of the Hon'ble Apex Court, the authorities are simply ignoring them and concluding the adjudications under Section 74 as per their own terms. Consequently the honest taxpayers are needlessly suffering huge liability.