TaxTMI 
TaxTMI 
TaxTMI 
It is most common in many tax laws to have the concept of limitation period as well as the extended period of limitation for raising the tax demand. Sections 73 and 74 of the CGST Act are beautifully drafted to clearly make the distinction on when to use 73 and 74. Despite this clear and unambiguous legal position, Section 74 was mostly invoked in a wrong manner during 01/07/2017 till 12/12/2023, which forced the CBIC to issue an instruction to field formation across the country on 13/12/2023.
Para 3.3 of the above instruction throws light on how and when to invoke section 74 which is reproduced 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 tax payer. Section 74(1) cannot be invoked merely on account on non-payment of GST, without specific element of fraud or wilful misstatement 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 facts to evade tax on the part of the tax payer, 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.
It is really unfortunate that even after 23 months from the date of issuance of the above instructions, awareness is less on the above instructions amongst the taxpayers as well as the tax professionals which prompts the filed formation to deliberately apply 74 in a routine manner even in cases where the tax official is aware that the section 74 is not applicable in the respective cases as per CBIC instructions.
An analysis of several decisions of the High Courts reveal that in almost all the cases, where the reference of the instructions dated 13/12/2023 are brought to the knowledge of the High Court by the legal professional representing the taxpayer, the order is set aside or quashed. It is because, it has become a fashion amongst the tax officials to wrongly invoke section 74 of the CGST Act in all cases simply to maximise the penalty and to cover a larger period in the demand and the High Courts appreciate this position and mostly sets aside the orders passed under section 74.
This fact is very clear from the recent order dated 11/11/2025 of the Madras High Court in the case of Neeyamo Enterprises Solutions Private Limited where the High Court has clearly and strongly held that section 74 can not be applied routinely as a matter of convenience by the tax officials as reported in Neeyamo Enterprise Solutions Private Limited Rep. by its Manager-Finance (Statutory & Compliance), Ms. Archana K Versus The Commercial Tax Officer, Office of the Joint Commissioner (State Tax) (Intelligence), Madurai - 2025 (11) TMI 847 - MADRAS HIGH COURT.
The High Court has analysed the case in depth and makes it very clear that application of section 74 was upheld only in a very few cases where the dealing tax professional failed to bring the instructions dated 13/12/2023 to the knowledge of the High Court.
It is High Time that CBIC must come very strongly on wrong invocation of section 74 up to the period ending on 31/03/2024.
The approach of the tax officials in disregarding the instructions dated 13/12/2023 was understood even by the legislature, which prompted the introduction of a new Section 74A in place of 73 and 74 with effect from 01/04/2024.
It is appealed to all tax payers as well as tax professionals to invariably enclose a copy of CBIC Instructions dated 13/12/2023 while representing the cases wherever the demand is raised under Section 74.
It is appealed to all tax officials to be conscious in applying section 74 in the most appropriate manner so as to avoid the orders passed under section 74 being quashed subsequently by a higher court/ Tribunal.
It is appealed to the CBIC to come out with strong instructions on applicability of Section 74 as the field formations have not taken the instructions dated 13/12/2023 in to consideration at all.
It is concluded by stating that mere non payment of GST or lesser payment of GST or merely availing the ineligible ITC is NOT sufficient to invoke section 74, where it happened due to interpretation issues. Unless and until it is factually established that there was an intention to evade the payment of GST by the taxpayer, Section 74 is not applicable.
