Section 74 of the Central Goods and Services Tax (CGST) Act governs the issuance of Show Cause Notices (SCNs) in cases involving tax evasion or special circumstances that justify the extended time for adjudication. The provision is triggered when the revenue authorities believe that there has been fraud, willful misstatement, or suppression of facts to evade tax. This section allows the department to initiate proceedings with a five-year limitation period, unlike Section 73, which applies to cases not involving such special circumstances and has a three-year time limit. Understanding the anatomy and implications of SCNs under Section 74 is essential for both taxpayers and legal professionals involved in GST litigation or compliance.
Jurisdiction and Importance of Proper Notice
A notice under Section 74 is not just a procedural formality; it establishes the jurisdiction of the revenue authorities to raise a demand in cases of alleged tax evasion. If the allegations pertain to special circumstances, issuing a notice under Section 73 instead of Section 74 is not only incorrect but also contradicts the basis of the demand. A taxpayer can challenge the validity of the notice on these grounds, as Section 75(2) does not allow conversion of a Section 73 notice into one under Section 74. However, it does permit the converse—that if a notice under Section 74 is later found to lack the special circumstances necessary to invoke the section, it will be treated as one under Section 73. The legal implications of this limitation are significant in tax adjudication and appeals. The adjudicating authority and appellate authority are also restricted from enhancing the tax liability beyond what was proposed in the original notice, as per Section 75(7) and the second proviso to Section 107(11), respectively.
Timelines Limitations Under Section 74
The limitation period under Section 74 is five years from the relevant date. This contrasts with Section 73, which provides three years for issuing notices. The extended limitation under Section 74 applies only when fraud, willful misstatement, or suppression of facts is alleged. The timelines under Section 74(2) for issuing the notice and Section 74(10) for completing adjudication are as follows: for non-payment or short payment of tax, or wrongful availing or utilization of input tax credit, the notice must be issued within 54 months from the due date of the annual return for the financial year in question. The final adjudication order must be passed within 60 months. In cases of erroneous refunds, the timeline starts from the date of refund sanction, with similar intervals. Notably, there has been no extension of these dates under Section 168A for the financial year 2017-18.
Applicability of Rule 142(1) and SOD Classification
The procedural requirements for issuing a notice under Section 74, as laid out in Rule 142(1), are the same as those for a notice under Section 73. When a Statement of Demand (SOD) is issued under Section 74(3) for a subsequent tax period following an earlier notice under Section 74(1), the law deems such SOD to be a demand under Section 73. This legal fiction under Section 74(4) ensures that reliefs available under Section 73(8) and 73(11) apply to such demands. It is crucial for taxpayers and professionals not to overlook this distinction, especially when the adjudication orders for both the original notice and the subsequent SOD are issued within the same proceedings.
Role and Exceptions of Pre-Notice Consultation
Pre-notice consultations serve as an opportunity for the taxpayer to respond before formal proceedings are initiated. Though Section 74(5) and Rule 142(1A) envisage such consultations, a shift in language from “shall communicate” to “may communicate” in the rules (effective from 15 October 2020) has made this step discretionary. Nonetheless, this does not override the statutory requirement under Section 74(5), particularly when it involves concessional penalties upon voluntary payment. Certain circumstances may justify skipping pre-notice consultation, such as when the taxpayer is untraceable after committing a punishable offence under Section 132, or when the refund granted is under appeal and the department proceeds with recovery by issuing a notice. In these cases, pre-notice consultations would serve no meaningful purpose and may be justifiably bypassed.
Strategic Use and Risks of Pre-Notice Penalty Payment
Revenue authorities often insist that taxpayers discharge liability under Section 74(5) through Form GST DRC-03, along with a 15 percent penalty. This practice, however, can be misleading if not supported by the prior issuance of Form GST DRC-1A. If payment is made without such pre-notice communication, the department may later issue a formal notice under Section 74(7), arguing that the payment lacks legal finality due to the absence of penalty discharge. This practice undermines the safeguards intended in Section 74(6), which permits the conclusion of proceedings if conditions are satisfied. Moreover, taxpayers may fall into a trap if they fail to challenge the validity of such proceedings or rely solely on their honest intentions to secure relief. In such cases, Section 75(2) might offer some protection if the special circumstances alleged are later found to be unsustainable.
Post-Notice Opportunity and Associated Penalty
If a taxpayer chooses not to respond to the pre-notice consultation, or if the revenue proceeds directly to issuing a notice under Section 74(1), there still remains a window of opportunity for resolution. Under Section 74(8), the taxpayer can conclude the matter within 30 days of the notice by paying the tax, applicable interest, and a 25 percent penalty. This provision allows the taxpayer to avoid prolonged litigation and higher penalties. The penalties at various stages are demarcated under the law. During the pre-notice consultation stage, the penalty is limited to 15 percent, while after the issuance of notice but before adjudication, it rises to 25 percent. Once an adjudication order is passed, the penalty becomes 50 percent. This framework reflects the legislature’s intent to encourage early settlement and avoid lengthy disputes. It also raises questions about judicial flexibility in modifying these statutory penalty rates. While these rates may not be binding on courts due to the separation of powers, they are binding on revenue authorities and serve as a cap on what may be demanded.
Legal Basis for Post-Adjudication Penalty
Post-adjudication penalties under Section 74 take a different turn from those under Section 73. Section 74 is specifically designed for cases where special circumstances, such as fraud or willful misstatement,n,t are alleged. In such cases, the penalty framework laid down in Section 122(2)(b) becomes relevant. When an adjudicating authority passes an order under Section 74(9), it must confirm that such special circumstances exist. Upon confirmation, the taxpayer is allowed to pay 50 percent of the penalty determined in the order within 30 days to conclude proceedings, as per Section 74(11). This 50 percent penalty is not a reduction from what is adjudicated but a fixed percentage of the demand. For example, if the adjudicated penalty is 100, then payment of 50 concludes the proceedings. However, if the adjudicated amount is only 40, the taxpayer is not eligible for this relief. The proper officer must make an independent determination of the penalty within the statutory range and not under any external influence. The final penalty must be based on facts and the nature of the alleged violation.
Distinction Between Tax Collection and Tax Evasion
One of the central issues in Section 74 proceedings is determining whether the taxpayer collected tax and failed to pay it or simply failed to pay it without collection. The latter carries different implications. If the tax was not collected from customers, the taxpayer may be eligible for cum-tax computation under Rule 35, and the revenue must bear the burden of proving deliberate evasion. The absence of benefit to the taxpayer supports a defense of bona fide belief in the non-taxability of the transaction. This defense gains strength if the taxpayer’s interpretation is later upheld by a judicial authority. The burden on the revenue becomes even higher when the taxpayer has made full disclosures and acted transparently. Courts have consistently held that adopting a favorable interpretation, even if later overturned, is not inherently mala fide. A well-reasoned view, even if incorrect, does not qualify as willful misstatement or suppression. Therefore, not every case of non-payment of tax qualifies as evasion. Only when the taxpayer’s actions are recklessly erroneous, implausible, or intentionally deceptive can extended limitation and penalties be justified under Section 74.
Judicial Responsibility of Adjudicating Authority
The Adjudicating Authority under GST must act in a quasi-judicial capacity. This means the authority must independently assess the facts and circumstances of each case before deciding the quantum of penalty. There is no fixed obligation to impose the maximum penalty of 100 percent of the tax demand. Instead, the authority must apply its mind and arrive at a reasoned conclusion regarding the appropriate penalty within the range provided by law. For example, where the taxpayer has disclosed most facts in their returns but made an interpretational error, the penalty may not warrant the maximum slab. Similarly, where the revenue fails to substantiate the presence of deliberate suppression or misrepresentation, it would be improper to impose the severest penalty. The distinction between technical errors and willful evasion must be made in adjudication. Importantly, the adjudicating authority should not impose penalties mechanically or act under direction or influence from enforcement teams. The authority’s discretion must be exercised within the statutory framework and based on established legal principles.
Payment Timelines and Finality of Proceedings
The taxpayer must be cautious in calculating the 30-day timeline for availing the benefit of the reduced penalty under Section 74(11). The date is calculated from the communication of the adjudication order, not from the date the order was uploaded or signed. Payment must be made against the proper demand using the correct forms. A mere deposit into the Electronic Cash Ledger (ECL) does not suffice. The deposited amount must be appropriated against the liability through a valid challan to complete the payment process. Delayed or misclassified payments may result in the taxpayer losing the opportunity to conclude proceedings with reduced penalty. Therefore, precision in compliance at this stage is critical. The order passed by the adjudicating authority becomes final only if no appeal is filed within the prescribed period or if the matter is closed by accepting the reduced penalty offer. If the taxpayer disputes the adjudication, the matter may proceed to appeal, where fresh findings and new facts may emerge, potentially altering the penalty exposure.
Assessment of Evasion and Its Implications
The term evasion implies intentional non-compliance with the tax law. It is not enough for the revenue to assert that the tax was unpaid or short-paid. The revenue must demonstrate that the taxpayer had the intent to avoid tax liability. This could include examples such as raising invoices without supplying goods, inflating input tax credit without eligible purchases, or collecting tax from customers without depositing it. However, in cases where tax has not been collected from customers and the taxpayer has not gained financially from the alleged evasion, proving intent becomes more complex. In such situations, the benefit of cum-tax under Rule 35 becomes applicable. The taxpayer may argue that the value collected included tx, and thus the demand must be recomputed accordingly. Moreover, the absence of tax collection suggests that there was no benefit to the taxpayer, thereby weakening the case for imposition of f penalty under Section 74. This highlights the need for detailed factual analysis before invoking the special provisions under this section.
Legal Recognition of Bona Fide Interpretation
GST law, like many tax statutes, acknowledges the possibility of honest mistakes or interpretational errors. A taxpayer may adopt a view that is subsequently rejected by the tax department or even by the courts. However, this does not automatically imply mala fide intent or suppression of facts. Courts have consistently held that a bona fide interpretation, even if incorrect, cannot be equated with evasion. The fact that multiple interpretations existed or that the law was unsettled at the time adds credibility to the taxpayer’s defense. An example of this is the Supreme Court’s decision in the case of ocean freight under the reverse charge mechanism, where the taxpayer’s interpretation was eventually upheld. Demands raised under Section 74 in such cases cannot stand, as they lack the foundational element of intent. This judicial guidance serves as a safeguard against excessive penalization of taxpayers who operate transparently and in good faith. It also reinforces the importance of maintaining adequate documentation and disclosures, as these factors strengthen the taxpayer’s claim of bona fide belief.
Interpretation of Judicial Precedents
The reference to judicial precedents, including high court and supreme court rulings, is vital in defending against notices issued under Section 74. If a taxpayer has taken a position supported by an existing high court judgment, even if under appeal, it lends legal credibility to the adopted view. Revenue authorities must exercise caution before labeling such positions as fraudulent or evasive. For example, reliance on the High Court’s ruling in the Safari Retreats case for claiming input tax credit on construction services, though later questioned in appeal, cannot automatically attract the provisions of Section 74. In such cases, the taxpayer’s position is not only plausible but also grounded in judicial reasoning. Mischaracterizing such interpretations as willful misstatements defeats the purpose of fair adjudication. Courts have stressed that being wrong in law is not the same as being dishonest. Therefore, invoking Section 74 without considering the supporting jurisprudence can render the notice invalid. Taxpayers must compile and cite relevant precedents in their defense to demonstrate the legitimacy of their tax position.
Principle That Ignorance Is Not Always Mala Fide
The principle that ignorance of the law is no excuse has been a long-standing rule. However, in the context of GST and Section 74, this principle is nuanced. Not every instance of incorrect tax treatment stems from deliberate evasion. There may be scenarios where the taxpayer’s interpretation is flawed, but not fraudulent. The application of the Bolam test of reasonableness, borrowed from medical negligence cases, can also be helpful in tax disputes. This test examines whether the conduct of the taxpayer aligns with that of a reasonable and prudent person. If the interpretation, though incorrect, is one that a reasonable taxpayer could have adopted, then it fails to satisfy the criteria of willful misstatement. This argument can be strengthened if the taxpayer had sought legal advice or based their position on industry practices. Courts may take a lenient view when such efforts to comply are visible, even if the outcome is a tax shortfall. This reinforces the idea that being incorrect does not amount to being culpable under Section 74.
Judicial View on Wild or Reckless Interpretations
There is a difference between a bona fide error and a wild or reckless interpretation of tax law. While the former may be excused, the latter may justify invoking Section 74. If the taxpayer takes a position that is clearly outside the bounds of any legal rationale, the department is likely to establish that there was an intent to evade tax. For example, claiming input tax credit on purchases unrelated to business activities or using fake invoices to inflate credit are not errors of judgment but acts of fraud. In such cases, the revenue can substantiate the presence of willful suppression and fraud. The penalties under Section 74 are applicable in full, and taxpayers may find it difficult to argue against their imposition. However, even in such cases, the department must establish the fraudulent conduct with documentary evidence. Presumptions, assumptions, or generalizations will not suffice. Taxpayers must be given a reasonable opportunity to respond to allegations, and the final decision must be supported by a detailed speaking order.
Use of Section 74 in Unsettled Areas of Law
Section 74 should not be invoked in areas where the law remains unsettled or under litigation. In such cases, issuing a demand under Section 74 presumes a level of clarity and certainty that does not exist. The revenue should issue the notice under Section 73 and maintain the demand in the call-book until judicial clarity emerges. This approach respects the taxpayer’s right to adopt a legally arguable position and avoids penalizing them for ambiguity in law. If the department chooses to issue a notice under Section 74 in such a scenario, it may face legal challenges based on a lack of jurisdiction or the absence of special circumstances. For instance, before the Supreme Court’s decision in the Mohit Minerals case, the applicability of reverse charge on ocean freight was under debate. Taxpayers who did not pay this tax based on their legal interpretation cannot be faulted for evasion. Section 74 notices in such situations are likely to be struck down in judicial review. A measured and rational approach by revenue authorities ensures better compliance and reduces litigation.
Burden of Proof in Allegations of Evasion
The burden of proof in cases involving allegations of tax evasion lies squarely with the department. The mere issuance of a notice does not shift the burden to the taxpayer. The department must prove that there was a conscious and deliberate attempt to evade tax. This involves demonstrating specific actions or omissions that reflect intent, such as suppression of sales, use of fake invoices, or non-declaration of income. If the notice lacks such evidence, it cannot be sustained under Section 74. Courts have repeatedly emphasized that allegations of fraud or suppression must be based on cogent evidence and not on conjecture. This ensures that the power under Section 74 is exercised judiciously and not as a tool of coercion. Taxpayers must be allowed a reasonable opportunity to contest the allegations, produce documents, and explain their conduct. The final order must reflect an unbiased assessment of facts and law, failing which it is liable to be quashed by appellate or constitutional courts.
Impact on Taxpayer Rights and Duties
The issuance of a Show Cause Notice under Section 74 significantly affects the rights and duties of a taxpayer. Once a notice is served, the taxpayer is obligated to respond and has the right to be heard before any adjudication takes place. This ensures that principles of natural justice are upheld, and it prevents the arbitrary imposition of penalties or demands for tax. However, the process also imposes responsibilities on the taxpayer, such as providing relevant documentation, justifications, and explanations for the alleged tax evasion or discrepancies.
Failure to respond to an SCN may lead to ex parte orders, where the adjudicating authority decides the case in the absence of the taxpayer’s representation. This could result in the imposition of heavy taxes, interest, and penalties. It is, therefore, imperative for taxpayers to treat SCNs with due seriousness and respond within the prescribed time frame.
Burden of Proof in Proceedings
Under Section 74, the burden of proof typically lies with the department to establish that the non-payment or short payment of tax or wrongful input tax credit was due to fraud, willful misstatement, or suppression of facts. This requirement makes it essential for the department to substantiate its claims through documentary evidence and logical reasoning.
However, once the department makes a prima facie case, the burden may shift to the taxpayer to refute the allegations or to provide counter-evidence. Courts have consistently held that mere omission or error in returns does not amount to fraud or suppression unless it is backed by intent to evade tax. Therefore, the tax authorities must exercise due diligence while drafting the SCN and must not use it as a tool for revenue collection without solid grounds.
Presumption and Interpretation
In interpreting Section 74, courts often emphasize the need to strictly construe penal provisions. The rule of strict interpretation applies to cases involving penalties and prosecution, where ambiguity should favor the assessee. The law does not presume guilt; instead, it places the responsibility on the department to prove wrongdoing.
Any presumption drawn must be based on facts and supported by cogent evidence. The phrase “suppression of facts” cannot be interpreted broadly to include every omission. It has to be a deliberate act aimed at avoiding tax liability. This judicial approach ensures that taxpayers are not penalized for genuine mistakes or unintentional errors.
Audit and Investigation as Triggers
Audit and investigation are often the primary sources leading to the issuance of SCNs under Section 74. During audits conducted under Section 65 or 66, discrepancies in returns, books of accounts, and tax payments may surface. If the audit findings suggest deliberate suppression or misstatement, they may become the basis for initiating proceedings under Section 74.
Similarly, investigations by anti-evasion wings, intelligence units, or enforcement directorates may unearth instances of tax evasion, fake invoicing, or wrongful availment of input tax credit. The findings from such investigations, including statements recorded under oath, seized documents, and forensic audits, may be cited in the SCN as evidence of fraud or suppression.
The authorities must distinguish between errors detected during routine audits and those that involve mala fide intent. Issuing SCNs under Section 74 for every minor discrepancy may dilute the severity and intended purpose of the provision.
Use of Electronic Notices and Digital Evidence
With the implementation of the Goods and Services Tax Network (GSTN), much of the communication between taxpayers and tax authorities takes place electronically. SCNs under Section 74 can be served through the common GST portal. Digital service of notices is considered valid under the GST law, and it includes delivery via email or electronic communication through the taxpayer’s registered account.
Digital evidence, such as electronic invoices, email trails, audit logs, and ERP system data, is increasingly being relied upon to support the charges mentioned in SCNs. We enhance transparency and accountability, but also require taxpayers to maintain robust digital records and backups to defend themselves effectively.
The digitization of notices also helps in tracking timelines, acknowledgments, and responses, reducing the chances of disputes over whether the notice was served or received.
Role of Legal Representation
Responding to an SCN under Section 74 requires not only a factual rebuttal but also a sound legal understanding. Taxpayers often engage tax consultants, chartered accountants, or legal practitioners to draft replies and represent them during personal hearings. The legal representative ensures that the reply is well-structured, supported by legal precedents, and addresses each point raised in the SCN.
Legal representation becomes particularly important in complex cases involving large sums, cross-border transactions, related-party dealings, or intricate input tax credit chains. An effective representation can make a significant difference in the outcome of the adjudication, potentially reducing or eliminating the tax liability and associated penalties.
Opportunity for Personal Hearing
One of the most important rights granted to a taxpayer under Section 74 is the opportunity for a personal hearing before the adjudicating authority passes an order. This hearing is not a mere formality; it is a platform where the taxpayer or their authorized representative can present oral arguments, submit additional documents, and clarify doubts raised by the authority.
The principles of natural justice require that this opportunity be meaningful. The authority must provide sufficient time, maintain neutrality, and give due consideration to the submissions made during the hearing. Denial of a personal hearing, unless waived by the taxpayer, could render the proceedings invalid and subject to appeal.
Content of the Adjudication Order
After considering the reply to the SCN and submissions made during the hearing, the adjudicating authority issues a final order under Section 74. This order must be well-reasoned and must address all the contentions raised by the taxpayer. It should include:
- Background and facts of the case
- Summary of the allegations made in the SCN
- Analysis of evidence presented by both parties
- Legal provisions relied upon
- Findings and reasons for conclusions
- Computation of tax, interest, and penalty, if applicable
The order must be issued within five years from the due date for filing the annual return for the relevant financial year. Delay beyond this period renders the proceedings time-barred.
Appeal and Further Remedies
If the taxpayer is aggrieved by the order passed under Section 74, they may file an appeal before the appellate authority under Section 107 of the CGST Act. The appeal must be filed within three months from the date of communication of the order, along with the payment of 10 percent of the disputed tax amount as a pre-deposit.
If unsatisfied with the outcome at the appellate level, the taxpayer may further appeal to the Appellate Tribunal, and subsequently to the High Court and Supreme Court, depending on the nature and complexity of the issues involved.
Each appellate stage allows a fresh review of facts, legal interpretation, and procedural compliance. Hence, taxpayers must maintain detailed records of all submissions, notices, and correspondence from the very beginning of the proceedings.
Distinction Between Section 73 and Section 74
While both Sections 73 and 74 of the CGST Act deal with tax demands, their scope and implications differ substantially. Section 73 applies to cases where there is non-payment or short payment of tax without any fraud, willful misstatement, or suppression of facts. In such cases, the penalty is restricted to 10 percent of the tax or Rs. 10,000, whichever is higher.
Section 74, on the other hand, deals with intentional evasion. The penalties under this section are much steeper, going up to 100 percent of the tax amount. Additionally, the longer limitation period of five years under Section 74 gives the department more time to detect and act on such cases.
Therefore, choosing the correct section for initiating proceedings is crucial. Issuing an SCN under Section 74 when the circumstances fit, Section 73 may not withstand judicial scrutiny.
Common Grounds for Challenge
Taxpayers often challenge SCNs and final orders under Section 74 on various grounds, including:
- Lack of jurisdiction of the issuing officer
- Failure to establish mens rea (intent to evade tax)
- Non-application of mind by the adjudicating authority
- Lack of documentary evidence
- Improper service of notice
- Violation of principles of natural justice
- Time-barred issuance of notice
Courts have quashed SCNs and adjudication orders where these procedural or substantive deficiencies were established. Hence, both tax authorities and taxpayers must adhere strictly to the legal framework.
Judicial Trends and Interpretations
Indian courts have consistently interpreted Section 74 to protect taxpayers from arbitrary action. They have ruled that mere differences in interpretation or clerical errors cannot be treated as fraud or suppression. Some landmark judgments emphasize the need for clear evidence of intent to evade tax before invoking Section 74.
For instance, courts have held that failure to file returns, incorrect classification of goods, or a mismatch in GSTR-2A and 3B alone do not establish fraud unless supported by corroborative evidence. This trend reflects a balanced approach that upholds the tax administration’s power while safeguarding taxpayer rights.
Reopening of Proceedings Under Section 74
In tax administration, finality of assessment is a crucial principle, but the law does provide for reopening of proceedings in certain circumstances. Under the CGST Act, Section 74 allows tax authorities to reopen previously concluded assessments if it is later found that tax was not paid or was short paid due to fraud, willful misstatement, or suppression of facts. However, this reopening must be carried out within the prescribed time limit of five years from the due date of the annual return for the financial year to which the short payment or non-payment relates. If an order under Section 74 has already been passed, any reopening requires fresh material evidence or facts not considered earlier. The assessee must be given a fresh opportunity of hearing before a revised order is passed.
Appeal Provisions Against Section 74 Orders
A taxpayer aggrieved by an order passed under Section 74 has the right to appeal under Section 107 of the CGST Act. The appeal must be filed within three months from the date of communication of the order. A pre-deposit of 10% of the disputed tax amount is mandatory for admission of the appeal. In case of recovery proceedings initiated under Section 79, the taxpayer can also seek a stay on recovery from the appellate authority. The appellate authority is empowered to confirm, modify, or annul the lower authority’s order. Further appeal can be made to the Appellate Tribunal and subsequently to the High Court and Supreme Court on questions of law. Taxpayers need to analyze the merits of the order carefully and seek legal advice before pursuing appellate remedies.
Judicial Pronouncements and Clarifications
Over the years, several courts and tribunals have interpreted Section 74, clarifying its scope and applicability. Courts have consistently held that issuance of a proper Show Cause Notice (SCN) is a pre-condition before invoking Section 74. In the case of Canon India Pvt. Ltd. vs. Commissioner of Customs, the Supreme Court emphasized that jurisdictional errors or procedural lapses render the SCN void. Similarly, courts have ruled that mere non-payment or short-payment of tax is insufficient to invoke Section 74 unless the element of fraud or suppression is established. The burden of proving fraudulent intent lies with the tax department, and vague or generalized allegations are not sufficient. Circulars and instructions issued by CBIC also clarify procedural aspects, such as the format of SCNs, guidelines for issuance, and timelines for adjudication.
Safeguards for Taxpayers
To protect their interests, taxpayers should ensure that their records are accurate and up-to-date, especially regarding invoices, returns, and input tax credits. In case of receipt of a notice under Section 74, prompt legal consultation should be sought. A well-drafted reply to the SCN, backed by documentary evidence and legal arguments, can significantly influence the outcome. It is also advisable to maintain audit trails, internal controls, and documentation of communication with vendors and customers to prevent allegations of suppression or willful misstatement. Taxpayers can also explore the option of Advance Rulings and seek clarifications from the tax department to avoid disputes. Staying updated on legal developments and ensuring timely compliance with GST provisions are key preventive measures.
Comparative Analysis With Section 73
While both Sections 73 and 74 deal with non-payment or short payment of tax, the distinguishing factor lies in the presence or absence of fraudulent intent. Section 73 covers cases where the shortfall in tax is due to genuine errors, oversight, or misinterpretation of law, whereas Section 74 deals with deliberate evasion. The penalties under Section 74 are more stringent, with a minimum penalty of 15% and up to 100% of the tax amount. The procedural requirements, such as the issuance of SCN, opportunity of hearing, and timelines, are similar in both sections, but the burden of proof is higher in cases under Section 74. Taxpayers facing proceedings under Section 74 should carefully evaluate whether the case involves fraud or suppression, and challenge the invocation of the section if not justified.
Conclusion
Section 74 of the CGST Act is a powerful tool in the hands of tax authorities to deter tax evasion and ensure compliance. However, its invocation must be backed by solid evidence and due process. The requirement of issuing a detailed Show Cause Notice and granting an opportunity of hearing ensures that natural justice is upheld. Taxpayers, on their part, should be vigilant in maintaining compliance and addressing notices promptly and effectively. Legal remedies in the form of appeals and judicial review provide a robust framework for redressal. A balanced approach by both the administration and taxpayers can go a long way in minimizing disputes and ensuring a fair and efficient tax system.