TaxTMI 
TaxTMI 
TaxTMI 
1. 30/09/2025 happens to be the last date for issuing the Show Cause Notice for the financial year 2019-20 under section 74 of the CGST Act. Audits/Investigations are happening in full swing across India to cover many cases under section 74 to ensure the meeting of the deadline. However, over enthusiastic officers fail to note that section 74 has to be applied in an appropriate manner where there are reasons to believe that the taxpayer intends to evade tax and the same has to form part of the SCN being issued under section 74.
2. As aggrieved taxpayers on whom section 74 notices are issued knock the doors of high courts as well as Supreme Court, in order to minimise the cases reaching higher courts on wrong application of section 74, CBIC has issued Instructions on 13/12/2023 itself which was circulated to all tax officials across India against reference number 05/2023-GST including State officials to follow the instructions.
3. The operative portion is as below.
“3.3 From the perusal of wording of section 74(1) of CGST Act, it is evident that section 74(1) can be invoked only in cases where there is a fraud or wilful mis- statement or suppression of facts to evade tax on the part of the said taxpayer. Section 74(1) cannot be invoked merely on account of non-payment of GST, without specific element of fraud or wilful mis-statement or suppression of facts to evade tax. Therefore, only in the cases where the investigation indicates that there is material evidence of fraud or wilful mis- statement or suppression of fact to evade tax on the part of the taxpayer, provisions of section 74(1) of CGST Act may be invoked for issuance of show cause notice, and such evidence should also be made a part of the show cause notice.”
4. Despite the clear instructions as above from the CBIC itself, field formations in gross violation of these instructions, issue several show cause notices under Section 74 as otherwise the financial years 2019-20 as well as 2020-21 could not be covered.
5. The Allahabad High Court passed orders on 29/08/2025 reported in M/s Khurja Scrap Trading Company Versus Additional Commissioner Grade-2 (Appeal) & Another - 2025 (9) TMI 53 - ALLAHABAD HIGH COURT on section 74 and crucial para 6 reads as below
“6. He further submits that the proceedings under section 74 of the GST Act can only be initiated if there is a fraud or mis-statement or suppression of fact with a view to evade tax, which is mentioned in the circular dated 13.12.2023. In support of his submissions, he has placed reliance on the judgement of the Apex Court in M/s SURAJ IMPEX (INDIA) PVT. LTD. Versus UNION OF INDIA & ORS. - 2025 (5) TMI 1695 - Supreme Court as well as the judgement of this Court in Commissioner, Sales Tax, UP., Lucknow Versus Agrawal Rolling Mills - 2003 (4) TMI 550 - ALLAHABAD HIGH COURT and submits that though the said circular dated 13.12.2023 has been issued subsequently, but the benefit of circular has to be accorded to the petitioner”.
6. The case pertains to denial of ITC on the ground that the registration of the selling dealer was cancelled subsequently. Despite the fact that the taxpayer has submitted all relevant documents pertaining the genuineness of the transactions that took place when the registration of the selling dealer was valid and transactions are reflected in GSTR -1, 2 as well as 3 and payment was also made to supplier, both the adjudication officer as well as first appellate authority confirmed reversal of ITC which was initiated under section 74.
7. The Allahabad High Court relying on CBIC instruction dated 13/12/2023 set aside both the orders of the lower authorities and remanded the matter for fresh consideration.
8. Officers invoking Section 74 may exercise caution before invoking to ensure that the same is invoked only with a proper justification. This saves them from the orders being passed by them are not quashed subsequently by GSTAT/ High Court.
9. Tax Professionals while handling cases under section 74 may refer CBIC instructions to the tax authorities as they are binding on the tax officials.