The untold story behind section 73 of the CGST Act, 2017.

A good tax professional who is conversant with GST provisions shall be in a position to fix the problem in the minimum possible time when an issue is brought to his notice. In a like manner, a tax professional, who is not in a position to fix where the problem is may spoil the case resulting in a severe damage to the taxpayer for the one and only fault on the taxpayer part in selecting that tax professional. This is a real story of a small retailer which is only a proprietary concern situated in a small town in Tamil Nadu at Vaniyambadi. The relevant period is 2017-18 and the core issue is that the taxpayer has availed more ITC in GSTR 3B than in GSTR 2.

The trouble started on 28/06/2023 when ASMT 10 was issued. Subsequently, DRC 01A was issued on 20/09/2023, the last date for issuance of the Show Cause Notice under section 73 being 30/09/2023. The simple reason that there is a difference between two GST returns need not result either in non payment of GST or excess availment of ITC unless the returns are duly reconciled and the differences are fully figured out. As 2017-18 happens to be the first year of GST and as the GSTR 2 was not reflecting Taxes paid under RCM as well as IGST paid on imports etc. during that point of time, the taxpayer who was not fully conversant with the above background could not explain the differences appropriately but represented vide reply dated 29/10/2023 that the SCN was issued beyond the time limit available for issuance of SCN under section 73. The issue was debatable one as on that date as the issue was before various high courts due to extension of time by GST Notifications due to Covid 19.

Since the taxpayer has already taken the stand that section 73 is wrongly invoked and also due the fact that the order in original could not be passed as on 31/12/2023, the GST officials issued a fresh SCN under Section 74 in DRC 01 on 06/12/2023. The same SCN was adjudicated on 03/02/2025 wherein a demand of Rs.11,84,332 was confirmed along with applicable interest as well as equal penalty as Section 74 has been invoked. The background of the taxpayer reflects that this demand amount of GST, interest as well as penalty put together may be higher than even the profit earned by that firm during 2017-18.

The taxpayer preferred a writ before the Madras High Court and the Court has ruled in favor of Revenue on 08/06/2026 due to the reasons that the taxpayer has not properly explained the differences and also accepted the arguments of the respondent that '15. The learned Government Advocate for the Respondent would submit that since the Petitioner failed to respond to the intimation in Form GST DRC-01A, there is a suppression within the meaning of Explanation-2 to Section 74 of the respective GST Enactments. Therefore, it is submitted that no case is made out for interfering with the Impugned Order confirming the demand under Section 74 of the respective GST Enactments'.

The story ends here as the writ has been dismissed and the taxpayer has been given an opportunity to go for first appeal within 30 days which reads as '25. Therefore, this Writ Petition is liable to be dismissed and it is accordingly dismissed. However, liberty is granted to the Petitioner to work out the remedy on merits before the Appellate Commissioner. The Petitioner shall file an appeal within a period of 30 days from the date of receipt of a copy of this order. In which case, the Appellate Commissioner shall entertain and dispose the appeal on merits subject to the Petitioner complying with the requirements of Section 107 of the respective GST Enactments'.

The untold story of section 73: The sections 73, 74 as well as 74A are mutually exclusive and accordingly, only the most appropriate one has to be applied as per the following table.

The word fraud is to be understood as the presence or otherwise of any one of the three elements which are 1) fraud 2) wilful -misstatement 3) suppression of facts. In case any one or more of the three elements are present, section 74 could be invoked giving two more years time for passing the final adjudication order with high penalty.

In the above case as it was not demonstrated before the high court that none of the above elements were present in that case and as the differences were not properly explained, the High Court has held that invoking of section 74 was correct.

Tvl. Power Lead Electricals, Represented by its Proprietrix J. Hemalatha Versus The Deputy State Tax Officer-2, Vaniyambadi Circle. - 2026 (6) TMI 753 - MADRAS HIGH COURT refers.

The more appropriate remedy now to the taxpayer lies in second appeal by immediately filing the first appeal. As the OIA may not be in taxpayer favor, second appeal under section 112 may be filed within three months from the date of OIA by referring to CBIC instructions dated 13/12/2023 and furnishing full facts on the differences between the two returns. As GSTAT is the highest fact finding authority and the High Court has only dismissed the writs without going to the facts of the case, the taxpayer may get substantial relief provided the case is built up strongly.

Tax professionals who are accepting the invocation of section 74 may kindly help the taxpayers by vehemently arguing on the non applicability of section 74 as it is the responsibility of the GST department to prove the applicability of Section 74 as clearly brought out from CBIC Instructions 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. The above aspects may be kept in consideration while investigating such cases and issuing show cause notices.