From Non-Filing to Wilful Suppression - Section 74 of the CGST Act after Sriba Nirman Company Supreme Court Judgement

1. Introduction

Section 74 of the CGST Act represents the most stringent recovery and penalty provision under GST, applicable where tax is not paid by reason of fraud, wilful misstatement, or suppression of facts to evade tax. While courts have consistently emphasised the requirement of mens rea, ambiguity persisted on whether mere non-filing of monthly returns, followed by belated payment, could still attract Section 74.

The Sriba Nirman Company litigation decisively resolves this ambiguity. By affirming the Andhra Pradesh High Court’s judgment and rejecting both the Special Leave Petition and the Review Petition, the Supreme Court has effectively settled the law on the interplay between monthly compliance, suppression of facts, and voluntary payment under Section 74.

2. Factual Background

The petitioner, a partnership firm engaged as a sub-contractor in EPC projects, failed to file monthly GST returns (GSTR-3B) and to discharge output tax for the period July 2017 to March 2018. Although the entire tax liability was paid prior to the issuance of the show cause notice (SCN), along with interest under Section 50 but the mandatory 15% penalty contemplated under Section 74(5), it was not paid at that stage.

The Department invoked Section 74, alleging wilful suppression of facts. The adjudicating authority and the appellate authority upheld the 100% penalty. The Andhra Pradesh High Court dismissed the writ petition, and the Supreme Court declined to interfere, including at the review stage.

3. Statutory Scheme: Sections 73 and 74 in Contrast

The CGST Act draws a clear distinction between ordinary defaults and aggravated defaults:

Explanation 2 to Section 74 expands the meaning of “suppression” to include non-declaration of information required to be furnished in returns, a provision that assumed central importance in the present case.

4. Issues for Judicial Determination

The courts were required to consider:

1. Whether non-filing of monthly GST returns constitutes “suppression of facts” within the meaning of Section 74.
2. Whether payment of tax prior to issuance of SCN bars invocation of Section 74.
3. Whether financial hardship or delayed receipt from customers negates the element of mens rea.
4. The scope and operation of Section 74(5) as a pre-SCN voluntary compliance mechanism.

5. Reasoning of the Andhra Pradesh High Court

The High Court held that:

• Non-payment of tax by itself does not automatically attract Section 74; however, non-filing of mandatory monthly returns amounts to suppression of facts within Explanation 2.
• For Section 74 to apply, suppression must be wilful and with intent to evade tax, which may be inferred from conduct.
• The taxpayer had received partial payments from the principal contractor and could not establish the impossibility of compliance.
• Payment of tax alone does not attract the statutory immunity under Section 74(6); tax, interest, and 15% penalty must all be paid prior to SCN to bar further proceedings.

6. Affirmation by the Supreme Court

The Supreme Court, while dismissing the SLP and the Review Petition, found no reason to interfere with the High Court’s conclusions. Though brief, the orders confer finality on the interpretation that prolonged non-filing of returns, coupled with non-payment, can amount to wilful suppression justifying Section 74 proceedings.

7. Section 74 as a Conditional Amnesty

The decision underscores that Section 74 also functions as a structured settlement mechanism, provided its conditions are strictly fulfilled:

Failure to comply in toto at the relevant stage deprives the taxpayer of the statutory benefit.

8. Implications for GST Compliance and Litigation

The ruling carries significant implications:

1. Monthly compliance is fundamental—annual return timelines do not cure monthly defaults.
2. Wilful suppression may be inferred from sustained non-filing, even absent fictitious invoicing.
3. Section 74(5) requires strict, not substantial, compliance.
4. Commercial cash-flow constraints or client defaults are irrelevant to statutory liability.
5. Post-facto regularisation offers limited protection once investigation is initiated.

9. Conclusion

The Sriba Nirman Company decision represents a watershed in GST penalty jurisprudence. By affirming that non-filing of monthly returns can constitute wilful suppression when accompanied by culpable conduct, the courts have reinforced the GST framework as one of time-bound, self-assessed compliance.

For taxpayers, the judgment is a cautionary reminder that eventual payment is no substitute for timely compliance. For practitioners, it establishes a settled benchmark on advising clients where defaults have already occurred, and on the narrow window available for penalty mitigation under Section 74.

References

• M/s. Sriba Nirman Company Versus The Commissioner (Appeals), Guntur, Central Tax & Customs, Visakhapatnam., The Joint Commissioner of Cntral Tax, Visakhapatnam, The Joint Cirector, Directorate General of GST Intelligence, The Assistant Commissioner (ST), Aryapuram Circle - 2025 (1) TMI 1518 - ANDHRA PRADESH HIGH COURT
• M/s. SRIBA NIRMAN COMPANY Versus THE COMMISSIONER (APPEALS), GUNTUR, CENTRAL TAX AND CUSTOMS & ORS. - 2025 (5) TMI 1274 - SC Order
• M/s. Sriba Nirman Company Versus The Commissioner (Appeals), Guntur, Central Tax and Customs & Ors. - 2025 (11) TMI 1792 - SC Order

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By: CA. Chitresh Gupta

Mobile: 99103 67918

https://www.linkedin.com/in/ca-chitresh-gupta-22795920/