CGST §74 — Demand of tax involving fraud / wilful misstatement / suppression

When tax has been short-paid or ITC wrongly availed by REASON OF FRAUD, wilful misstatement, or suppression of facts, officer issues SCN under §74 within 4 years 6 months; order within 5 YEARS. The mandatory penalty is 100% of tax, reduced to 15% if paid before SCN, 25% if within 30 days of SCN, and 50% if within 30 days of order.

Key points

• §74 applies where tax has not been paid OR short paid OR erroneously refunded OR ITC wrongly availed or utilised by reason of FRAUD or any WILFUL MISSTATEMENT or SUPPRESSION OF FACTS TO EVADE TAX.
• Heightened timeline: §74(10) — ORDER must be passed within FIVE YEARS from the due date for furnishing of annual return for the relevant financial year;
• SCN at least SIX MONTHS BEFORE the deadline (effective SCN window 4 years 6 months).
• Penalty STRUCTURE — graduated downward for voluntary compliance: (a) §74(5) — if person PAYS tax + interest + FIFTEEN PER CENT PENALTY BEFORE issue of SCN, no further proceedings;
• (b) §74(8) — if paid within 30 days of SCN with tax + interest + TWENTY-FIVE PER CENT PENALTY, SCN is closed;
• (c) §74(11) — if paid within 30 days of ORDER with tax + interest + FIFTY PER CENT PENALTY, no further recovery;
• (d) §74(1) full penalty = 100% of TAX evaded (mandatory;
• AO has no discretion).
• Note that 'suppression of facts' requires POSITIVE ACT — mere non-disclosure of an arguable claim or bona-fide dispute does NOT meet the threshold (Continental Foundation Joint Venture v CCE 2007 8 SCC 89).
• Department must specifically allege fraud / wilful mis-statement / suppression to invoke §74 — courts often demote §74 to §73 if the longer limitation cannot be justified.
• PROSECUTION under §132 separately possible if tax evasion ≥ ₹2 crore (cognisable / non-bailable for ≥ ₹5 crore).

Reference: §74 CGST Act 2017