Section 74 invoked and SCN issued for payment of Tax under IGST instead of CGST & SGST

[Venkata K]

Dear Expert

Tax authority has issued SCN under section 74 for payment of Tax under IGST instead of CGST and SGST for the transaction pertaining to FY 2018-19.  Whether payment of tax in wrong head is fraud and will full misstatement and can we contest the issue. 

 

[Sadanand Bulbule]

Issuing notice under Section 74 without an element of fraud or suppression of facts with an intent to evade tax manifest on records is unsustainable and unjustifiable. The essential onus lies on the authority to prove the fact of evasion of tax, if any.

You can ask for the incriminating material that has caused the issuance of such SCN. Mere payment of tax under wrong head is never an attempt to evade tax, much less fraudulently.

Normally the authorities resort to such backdoor entry to have the advantage of extended time period. But this is highly unacceptable under the  law and  by the judicial courts as well. You can contest it on merits. Law is well settled on this issue in favour of taxpayers.

[Venkata K]

Dear Sir 

Thanks for your reply. further I could trace out this instruction no 05/2023 GST dated 13th December 2023 and its gist is quoted below : 

Quote 

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 misstatement 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. 

Unquote 

This instruction is line with your view and I hope is binding on all Tax authorities of Central and State.  

[Sadanand Bulbule]

Yes Sir. The essence of adjudication is the authority should be prudent, proactive, judicious and above all self-disciplined. But seldom. 

[Sadanand Bulbule]

2025 (7) TMI 545 - KARNATAKA HIGH COURT - SHRI. BASAVARAJ V. SAJJAN VERSUS THE DEPUTY DIRECTOR OFFICE OF THE ADDITIONAL DIRECTOR GENERAL

Short payment of GST - works contract services - returns filed by the petitioner was not accepted and proceedings were initiated under Section 74 of CGST / KGST Act - wilful suppression of facts - HELD THAT:- Section 73 of the CGST / KGST Act is in respect of determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful-misstatement or suppression of facts. Section 74 proceedings are initiated for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful-misstatement or suppression of facts.

The authorities concerned has come to the conclusion that if there is any due from PWD to the petitioner, it is for the petitioner to recover and it cannot be a ground for non payment of GST and for that reasons the impugned order has been passed. It is submitted under the circumstances, petitioner cannot be treated as being guilty of suppression of facts and it is prayed that the amount determined by the authorities concerned have already been paid by the petitioner and if any amount is still due he would pay the same. But his only prayer is that the impugned order should be treated as an order under Section 73 of the Act and not 74.

It has to be held that there was short payment by the petitioner in respect of payments towards GST, but there was no suppression of facts. Under the said circumstances, it is opined that it is appropriate to treat the impugned order at Annexure-C1 to the writ petition as an order passed under Section 73 of the CGST / KGST and not under Section 74 of the CGST / KGST Act.

Petition disposed off.

[Shilpi Jain]

When the law itself in section 77 of CGST and 19 of IGST provides that there is no interest on this error, no penalty should be levied. Additionally to note that taxpayer does not get anything out of this wrong payment of tax. So there can be no suppression/fraud, etc. for invocation of extended period

AI Summary

Taxpayer cannot face Section 74 proceedings for paying IGST instead of CGST/SGST without fraud evidence A taxpayer received a show cause notice under Section 74 of GST law for paying tax under IGST instead of CGST and SGST for transactions in FY 2018-19. Legal experts clarified that Section 74 requires proof of fraud, willful misstatement, or suppression of facts to evade tax. Mere payment under wrong tax head does not constitute fraud or tax evasion. The discussion referenced Instruction No. 05/2023 GST stating Section 74 cannot be invoked without specific evidence of fraud. A Karnataka High Court case was cited where proceedings were converted from Section 74 to Section 73 as no suppression of facts was found. Experts noted that since taxpayers gain no benefit from wrong tax head payments and GST law provides no interest on such errors, no fraud can be established, making the extended limitation period under Section 74 inappropriate.