Section 74 – Determination of tax in fraud / suppression cases
Section 74 of CGST Act, 2017 – Determination of Tax Not Paid or Short Paid (Fraud, Wilful Misstatement or Suppression)
Updated on: February 2026 (as applicable till date)
Prepared by: Yours Tax Consultant
1. Objective of Section 74
Section 74 provides the mechanism for determination and recovery of tax where non-payment or short-payment of tax, wrong refund or wrongful availment of ITC has occurred by reason of fraud, wilful misstatement or suppression of facts with intent to evade tax.
This section applies only in cases involving mens rea (intent).
2. When Section 74 Applies
Section 74 is invoked in cases such as:
- Issuance of fake or bogus invoices
- Claim of ITC without actual supply
- Suppression of taxable turnover
- Collection of tax without payment to Government
- Deliberate misclassification or undervaluation
Genuine mistakes or interpretational issues are excluded.
3. Statutory Provision – Section 74 (Overview)
Where it appears to the proper officer that tax has not been paid or short paid, or ITC has been wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts, he shall issue a notice requiring the person to show cause why tax, interest and penalty should not be paid.
4. Voluntary Payment Before Show Cause Notice
Section 74(5):
A person may, before service of notice,
pay:
- Tax
- Interest
- 15% penalty
and inform the proper officer.
On such payment, no SCN shall be issued.
5. Issue of Show Cause Notice (SCN)
Section 74(1):
If voluntary payment is not made,
the proper officer shall issue
a Show Cause Notice.
Time limit for issuing SCN:
- At least 6 months prior to the time limit for passing the order
6. Time Limit for Passing Order
Section 74(10):
The order must be passed within:
- 5 years from the due date for furnishing annual return for the relevant financial year
Extended limitation reflects seriousness of fraud cases.
7. Penalty Structure under Section 74
| Stage of Payment | Penalty |
|---|---|
| Before SCN | 15% of tax |
| Within 30 days of SCN | 25% of tax |
| Within 30 days of order | 50% of tax |
| After 30 days of order | 100% of tax |
8. Opportunity of Being Heard
Despite seriousness of allegations, the taxpayer is entitled to:
- Detailed SCN with specific allegations
- Opportunity of personal hearing
- Reasoned and speaking order
Absence of these vitiates proceedings.
9. Burden of Proof
In Section 74 proceedings:
- Burden of proving fraud lies on department
- Intent to evade tax must be clearly established
- Mere omission or negligence is insufficient
10. Section 73 vs Section 74 (Key Differences)
| Section 73 | Section 74 |
|---|---|
| No fraud | Fraud / suppression |
| 3 years limitation | 5 years limitation |
| Penalty up to 10% | Penalty up to 100% |
11. Judicial Principles
Courts have consistently held that:
- Suppression must be deliberate
- Extended limitation is not automatic
- Wrong invocation of Section 74 is fatal
Many demands are quashed due to incorrect application of Section 74.
12. Related Rules & Forms
- Rule 142 – Notice and order
- FORM GST DRC-01 – SCN
- FORM GST DRC-03 – Voluntary payment
- FORM GST DRC-07 – Summary of order
13. Professional Insight
Section 74 is the harshest civil provision under GST. Its invocation must be backed by clear evidence of intent. Taxpayers should challenge incorrect allegations early, as misclassification under Section 74 can multiply liability exponentially.
Disclaimer: This article is prepared based on the CGST Act, CGST Rules, notifications and prevailing legal position as applicable till date. Fraud allegations require strict proof and adherence to principles of natural justice.
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