Proceedings under section 74 of CGST Act'17

[Sudipta Dey]

Sir, if one taxpayer has reconciled his turnover with balance sheet PL ACCOUNT and GSTR-9/9C and declared the Short-payment made by the taxpayer in the GSTR-9, but not paid the GST along with interest and penalty, can on a later date proceedings under section 74 of CGST Act'17 be initiated against them on such Short-payment of tax?

[Rajat Gupta]

proceedings under S. 74 can only be initiated on the pretext of 'fraud, wilful-misstatement or suppression of facts'. The proper officer has to establish any one of these elements by the taxpayer. Any self-declared liability cannot be covered under Section 74. There has to be an explicit act by the taxpayer to evade the liability which justifies the intention to evade tax.

[Sadanand Bulbule]

The foundational and fundamental onus lies on the adjudicating authority to initiate proceedings under Section 74 of the Act. However many authorities are not at all bothered to place on records the essential material facts. In most of the cases, they take shelter under the canopy of "suppression of facts" to have the advantage of extended time limit. But there should be mala fide intent to evade tax by way of suppression of facts. Short payment of tax due to bona fide error falls under Section 73.

[YAGAY andSUN]

Yes, proceedings under Section 74 of the CGST Act, 2017 can be initiated against the taxpayer even if the short payment of tax has been declared in GSTR-9 but the corresponding tax liability along with applicable interest and penalty has not been discharged.

Legal Analysis:

1. Applicability of Section 74:  Section 74 of the CGST Act applies where tax has not been paid or has been short-paid or input tax credit has been wrongly availed or utilized, by reason of fraud or willful misstatement or suppression of facts to evade tax.

Therefore, if the short payment is attributable to fraud, willful misstatement, or suppression, the department is empowered to invoke Section 74 proceedings regardless of self-declaration in GSTR-9.

2. Effect of Disclosure in GSTR-9:  While voluntary disclosure in GSTR-9 may indicate transparency and could be used in the assessee’s defense to negate the element of intent to evade, mere disclosure without payment does not extinguish the department's right to initiate proceedings under Section 74.

In fact, the Supreme Court in various decisions has held that mere admission of liability without actual payment does not bar the Revenue from initiating penal proceedings under the relevant statutory provisions.

3. No Immunity Without Payment:  As per Section 74(5), the taxpayer may avail the benefit of reduced penalty (15%) by paying the tax along with interest before the issuance of show cause notice (SCN).

However, this benefit is contingent on actual payment.

If the taxpayer:

Admits the liability in GSTR-9 but Fails to pay the admitted tax and interest, then:

The department can still initiate proceedings under Section 74, and

The benefit of reduced penalty will not be available post the SCN.

 

4. Time Limit for Issuing SCN under Section 74:  As per Section 74(1), the proper officer must issue the SCN at least six months prior to the time limit prescribed under Section 74(10). The maximum time limit for issuance of the order is five years from the due date of furnishing the annual return for the relevant financial year.

Conclusion:

Yes, even though the taxpayer has declared the short payment in GSTR-9, failure to pay the corresponding tax, interest, and penalty enables the department to lawfully initiate proceedings under Section 74 of the CGST Act, 2017, especially if the short payment involves elements of fraud, suppression, or willful misstatement.

The declaration in GSTR-9 may mitigate penalty exposure to some extent, but it does not preclude the initiation of proceedings unless payment is made within the timelines and in the manner prescribed under Section 74(5).

*** 

[KASTURI SETHI]

In this case, Section 73 is applicable and not Section 74. If Section 74 is invoked, the burden of proof is cast upon the department to prove the elements of mens  rea with an intent to evade tax. If the department fails to discharge the burden of proof regarding mens rea, the SCN and the Adjudication Order both can be set aside.

2024 (8) TMI 840 - ALLAHABAD HIGH COURT M/S. AMPLUS KN ONE POWER PRIVATE LIMITED VERSUS ASSISTANT COMMISSIONER STATE TAX AND ANOTHER

[Alkesh Jani]

Shri,

Please clarify the reason for non-payment of tax, declared in GSTR-9? When such short payment was detected by the department i.e. during Audit or scrutiny?

Thanks

[Shilpi Jain]

Section 74 should not be invoked.

AI Summary

Taxpayer's Self-Declared Short Tax Payment May Trigger Enforcement Actions Under Section 74 of CGST Act A taxpayer declared short tax payment in GSTR-9 but did not pay the corresponding tax, interest, and penalty. Legal experts discussed whether proceedings under Section 74 of CGST Act can be initiated. Consensus suggests that if the short payment involves fraud, willful misstatement, or suppression of facts, the tax department can initiate proceedings, despite self-declaration, especially if tax remains unpaid.