Good Bye Section 74 of the CGST Act 2017 and welcome Section 74A.

This is the most appropriate time to discuss this topic as we recently got favorable orders from the Supreme Court in two cases which is followed by High Court orders on improper invocation of 74. The legislature applied mind and already put an end to Section 73 as well as 74 as the applicability is only for the period up to 31/03/2024. As on 01/10/2026, the possible show cause notices under section 73 is only for one financial year 2023-24 as the deadline for show cause notice for 73 remains as 30/09/2027. However, we may not be surprised to receive plenty of show cause notices by improper invocation of Section 74 for all the three financial years 2021-22, 2022-23 as well as 2023-24. The year 2023-24 is covered under 73 as well and accordingly, this write up has more impact on the first two financial years 2021-22 as well as 2022-23.

Why 74?. The legislature had an intention to distinguish between fraud cases as well as not fraud cases. There are only two advantages to revenue on 74. One is a larger period of limitation for issuing the SCN which was 21 months more as compared with 73. The second advantage is possibility to collect higher penalty under section 74. But there was a catch. The burden to prove that there was suppression or wilful-misstatement or fraud was on the Revenue. This is abundantly clear from CBIC Instructions dated 13/12/2023 which reads as " 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".

It is highly unfortunate that though the above instructions are binding on all officials across India irrespective of as to whether they are State or Central officials, the notices under section 74 started to increase after 13/12/2023. Having realised that there is no control with the Central Government on this matter, mainly due to the fact that the authorities belonging to various State could not distinguish between Fraud and Non Fraud cases, felt it easier to do away with this distinguishment at SCN Stage. Accordingly, Section 74A born on 16/08/2024 through Finance (Number 2) Act, 2024.

74 Vs 74A: The period for issuing SCN up to 54 months has come down to 42 which is a gain to taxpayers. However, the earlier limitation of 33 months for non-fraud cases has gone up by nine months, as now time limit for issuing SCN remains same for both fraud as well as non-fraud cases. It may be incidentally noticed that the distinguishment between fraud and non-fraud cases is still available under 74A. The only difference in 74A is that at the time of adjudicating the matter, penalty shall be higher for fraud cases. To put it differently, as the GST officials miserably failed to make the required distinguishment at the stage before issuing the SCN, this activity is now postponed to adjudication stage. Hence, once it is established that there was an intention to evade payment of GST or to avail ineligible ITC, 74A provides for maximum penalty of 100% as earlier.

Why this write up now?: The GST officials have time till 30/06/2027 to cover the financial year 2021-22 and up to 30/06/2028 to cover the financial year 2022-23. As of now it seems that there is no mechanism to caution the officers invoking section 74 improperly and as such, we may get several SCN during 01/10/2026 till 30/06/2029 ( SCN for financial year 2023-24 under 74 possible during 01/07/2028 till 30/06/2029), the taxpayers as well as tax professionals stand to gain through this article.

As and when any taxpayers gets a SCN by invoking section 74 up to 30/06/2029 as above, the first objection should be on improper invocation of section 74. This can be verified with the following documents.

Conclusion: Tax officials: Kindly think it not simply twice but at least thrice to ensure that invocation of section 74 is possible before deciding such invocation till 30/06/2029 as above.

Taxpayers as well as tax professionals: The Supreme Court has drastically narrowed down the scope for invocation of section 74 in the month of August 2026. This shall be followed by several high courts in due course. It is certain that by the time the taxpayer receives the next SCN by improper invocation of Section 74, all the articles on section 74 covered in taxtmi.com may be referred to ensure that SCN itself is quashed and set aside by the competent authority at a later date.

The purpose of above series shall be achieved when invocation of 74 is reduced from now onwards as well as all cases where 74 is improperly invoked, justice is available to the taxpayer by way of refence of above documents.