No Incriminating Evidence: GSTAT Quashes Section 74 Action Against Bengal Supplier, Bars 2017-18 Action And Remands Later Years Under Section 73

An audit of Bengal Spare Parts Supply for FY 2017–18 to 2019–20 identified alleged tax short-payments and other discrepancies. A show-cause notice was issued under Section 74(1) of the CGST Act, and the adjudicating authority confirmed the demand, interest and penalty, except for one issue concerning reversal of tax on discounts.

The appellant had paid ₹19,14,473 before the notice, leaving ₹32,512 in unpaid tax, which it admitted before the first appellate authority.

The appellant challenged the invocation of Section 74, seeking treatment of the notice as one under Section 73, including to pursue relief under Section 128A. The first appellate authority found Section 74 inapplicable for FY 2017–18 but upheld it for FY 2018–19 and 2019–20, reasoning that the relevant accounts were not available to the department before audit. The appellant appealed that determination to the GSTAT.

Section 74 of the CGST Act requires more than a tax mismatch or short-payment: the notice must disclose foundational facts supporting fraud, wilful misrepresentation or suppression; merely reciting those terms is insufficient.

The Tribunal relied on M/s Tata Steel Limited v. Union of India (decision dated 25.08.2026, as cited in the judgment), which stated that the proper officer must be satisfied of the requisite fraudulent or suppressive conduct and that the supporting facts must be evident from the notice.

Section 75(2) provides that where an appellate authority or tribunal holds that a notice under Section 74 is unsustainable because the charge of fraud or suppression is not established, the notice is to be treated as one issued under Section 73(1).

The Tribunal also referred to CBIC Instruction No. 5/2023-GST in observing that action under Section 74 requires definite evidential support forming part of the show-cause notice.

The Tribunal found that the first appellate authority had treated the absence of the appellant’s accounts from the department’s records for FY 2018–19 and 2019–20 as sufficient to apply Section 74, while accepting that Section 74 was not applicable for FY 2017–18.

But the discrepancies were derived from documents prepared and produced by the taxpayer, and the department identified no separate incriminating documents or reports supporting wilful non-disclosure.

The appellant also explained that it was not required to file GSTR-9C with its profit and loss account because of the turnover-based exemption, and the respondent did not dispute that explanation in its cross-objection.

The Tribunal held that the failure to pay tax voluntarily before audit did not, by itself, establish wilful suppression, and concluded that the reasoning for rejecting Section 74 in FY 2017–18 applied equally to FY 2018–19 and 2019–20.

It held that the revenue was precluded from taking action for FY 2017–18 because the matter was time-barred.

For FY 2018–19 and 2019–20, it set aside the first appellate authority’s order and remanded the matter to the proper officer to determine the tax payable afresh, treating the notice as issued under Section 73(1) pursuant to Section 75(2).

The proper officer was directed to issue notice, provide an adequate hearing and preferably complete the exercise within three months of communication of the order. The appellant may apply for relief under Section 128A, which the revenue must consider in accordance with law.

The appeal was disposed of accordingly.