The Gujarat State Tax Appellate Tribunal held that a tax demand under Section 74 of the CGST Act cannot stand if the department fails to prove fraud, suppression, or wilful misstatement.
GSSTAT: Demand Under Section 74 Fails If Fraud Not Established
The Gujarat State Tax Appellate Tribunal (GSTAT) has quashed a tax demand raised under Section 74 of the CGST Act, 2017, ruling that such proceedings are unsustainable once the department concedes or the facts reveal the absence of fraud, wilful misstatement, suppression, or collusion.
The appellate authority noted that Section 74 proceedings are penal in nature and carry consequences such as higher penalties and extended limitation periods. The initiation of such proceedings requires a specific finding on the 'reason to believe' that the taxpayer engaged in deliberate evasion. In this case, the adjudicating authority itself found no evidence of fraudulent intent or concealment, yet proceeded to confirm the demand—prompting the tribunal’s intervention.
"When the foundational requirement of fraud or suppression is not met, the demand under Section 74 must collapse, and the matter, if at all, can proceed only under Section 73,"the tribunal held. It emphasized the mandatory nature of the jurisdictional requirement under Section 74(2), which cannot be bypassed even if tax is admittedly payable.
This decision clarifies a critical distinction between demand proceedings under Sections 73 (without fraud) and 74 (with fraud). Practitioners should scrutinize the notice and order for specific findings on mens rea and ensure that proceedings wrongly initiated under Section 74 are challenged at the earliest stage.
