When the tax officer knocks, the law treats that knock differently depending on why they’re knocking. Two provisions i.e., Section 73 and Section 74 of CGST Act, may look similar on the surface: both deal with recovering tax that was not paid or was wrongly taken as ITC, or refunds given in error. But they operate in very different worlds of fact and consequence. In plain English: Section 73 is the “honest mistake” provision; Section 74 is the “bad intent” (fraud/wilful misstatement/suppression) provision. Where you stand under one or the other affects limitation periods, penalties, evidentiary burden, and the risk of criminal consequences.
Let’s explain away the practical and legal differences between the two, how authorities decide which provision to invoke, what courts expect before Section 74 can be used, and practical tips if you receive an SCN.
What does each section say?
Section 73 of CGST Act applies where the tax was not paid, short paid, erroneously refunded, or ITC wrongly availed but not because of fraud, wilful misstatement, or suppression of facts. This is the default route for mistakes, omissions or clerical errors, think mismatch in invoices, classification mistakes, or input credit taken by honest error.
Section 74 of CGST Act is narrower and harsher. It applies only where there is fraud, wilful misstatement, or suppression of facts with intent to evade tax. That is a higher threshold. If the Department can show those ingredients, Section 74 opens up an extended period for assessment and typically attracts heavier penalties. In practice, it’s the tool used where the authority alleges deliberate wrongdoing.
Limitation: time limits you must watch
A huge practical distinction is the limitation period. For ordinary mistakes under Section 73 of CGST Act, the time limits are shorter. Meaning that the Department cannot go back indefinitely. For cases where the facts fit Section 74 of CGST Act (i.e., fraud/wilful misstatement/suppression) the law permits investigation beyond the shorter limitation, allowing tax officers to reach back further in time.
Because taxpayers often rely on limitation as a shield, the Department has sometimes been tempted to switch the heading i.e., when the window under Section 73 of CGST Act has closed, it may invoke Section 74 of CGST Act to keep the matter alive. That shift is legally sensitive: Section 74 of CGST Act cannot be applied by mere form; the record must demonstrate actual fraud, deliberate concealment or wilful wrongdoing, not just that the time under Section 73 expired.
Burden of proof: who must show what?
In Section 73 cases, the Department establishes that tax is due and quantifies the shortfall; the taxpayer can then explain the discrepancy, submit records, and, where a mistake is established, ask for penalty mitigation if there’s no mens rea.
In Section 74 of CGST Act matters, the Department shoulders an additional burden: it must show more than just an error. It must point to conduct that amounts to fraud, a wilful misstatement, or an active suppression of facts. Courts insist that invocation of Section 74 cannot be a mere label, there must be tangible material demonstrating the requisite mindset or conduct. If the record does not sustain these allegations, courts have frequently held that the proceeding should be treated under Section 73 or dropped.
Why courts check Section 74 carefully
Judges and tribunals guard against the Department converting limitation problems into fraud allegations by labelling every old irregularity as “suppression”. The reason is twofold: first, Section 74 of CGST Act exposes the taxpayer to heavier penalties and extended periods; second, the stigma of “fraud” affects business reputations and can lead to prosecution.
As a result, courts repeatedly require that the Department produce substantive materials like documents, patterns of behaviour, forged invoices, or demonstrated concealment before permitting the use of Section 74 of CGST Act. Vague allegations, or a mere arithmetic mismatch, will not suffice.
Practical difference in procedure and consequences
If the officer proceeds under Section 73, you face a demand for tax, interest, and possibly penalty, but limitation protections and the opportunity to explain are tighter. Penalties are typically lower unless the facts show culpable conduct. Under Section 74 of CGST Act, the authority may:
- Reach back for a longer period (overcoming ordinary limitation).
- Impose higher penalties.
- Rely on a narrative of deliberate evasion which, if shown, can lead to more severe legal consequences.
Therefore, the label matters hugely. It’s not just semantics: it changes your legal exposure and the remedies available to you.
How the Department decides which section to use and what to challenge
Tax authorities generally start by scrutinizing records, returns, GSTR reconciliations, invoices and supplier filings. If they find pain points like missing invoices, difference between GSTR-2A/2B and your GSTR-3B, suspiciously structured supplier chains, or invoices from unregistered entities they may initially raise queries under Section 61/Rule 99 (scrutiny). If explanations are inadequate, an ASMT-10 or DRC-01A may issue; later a formal SCN will name the section. As a taxpayer, your crucial points of attack are:
- Ask for the material: demand the documents, working papers or data relied upon by the officer to allege “suppression” or “fraud.” Courts expect the Department to disclose the basis of its charge.
- Demand facts, not labels: where the SCN merely quotes Section 74 of CGST Act without describing the factual matrix evidencing fraud/wilful misstatement, challenge notice as not based or prima facie material.
- Limitation check: if the request is for a time period excluded under Section 73, insist that the officer point to certain, contemporaneous facts of suppression warranting Section 74 of CGST Act.
- Provide a thorough response by providing documentation (bank statements, invoices, and correspondence) to dispel any suspicion of concealment. Claims of wilful misconduct are frequently refuted by an open, well-organised record trail.
- Seek personal hearing and reasoned orders: procedural protections matter. If hearings are denied or orders are non-speaking, raise those as separate grounds.
Practical examples: what courts expect to see
Courts will look for patterns such as repeated usage of fictitious suppliers, deliberate omission of turnover, forged invoices, or concerted supplier-recipient schemes. One-off human errors, mismatches caused by late supplier uploads, or classification disagreements are not typically “fraud.” When the Department cannot produce evidence beyond numerical mismatches or typographical errors, courts have been reluctant to allow Section 74 of CGST Act to be used.
What to do if you receive an SCN invoking Section 74 of CGST Act
First, treat it seriously but calmly. Immediate steps:
- Get legal help: this is not the time to improvise. An experienced GST counsel will help frame the response and collect supporting docs.
- Ask for the material: insist on the Department producing the relied-upon documents and the basis for alleging fraud.
- File a detailed reply: show records, reconciliation, system logs, contracts and any evidence of good faith.
- Seek an adjournment: present a reasoned request for time to collate records; courts expect authorities to grant hearings and to record reasons for refusals.
- Challenge the invocation of Section 74: if the SCN lacks factual foundation, that is a strong legal point, an overreach that courts will scrutinize.
Final word: Substance over form
Section 74 of CGST Act is a powerful provision but it is not a catch-all. The law, supported by judicial practice, requires the Department to prove substance, not merely append a harsh label after the ordinary limitation runs out. For taxpayers, clarity, documentation and prompt legal response are the best defences. For authorities, the duty is to build a fact-based case before invoking the heavier artillery; without real evidence of fraud or suppression, Section 74 of CGST Act should not and will not stand in the court of law.
In short, if you get an SCN: read it closely, insist on the facts, and remember substance matters more than the scary heading on the notice.
Author Details-Apoorva Lamba (3rd Year Student Madhav Mahavidyalya, Jiwaji University, Gwalior)
Link to similar articles: https://jpassociates.co.in/section-75-of-cgst-act/
