Audit under 65 for multiple years and three scn sent for one FAR

[rajat solanki]

we had audit under 65 and audit authorities issued audit discrepancy then issued far without considering the points. The Taxpayer submitted the reply vide email dated 02.01.2025 to Audit Enquiry. However, the taxpayer failed to provide satisfactory explanation with proper documentation.

then they issued 3 notices under 74 form 2018-2023 and sent them just via email first they had issued an SCN with supdt power and reply was submitted physically in the same we responded that DRC-01 or DRC-01A was not given and in the meantime we recd 2 more notices of multiple years of ac power then upon finding reply they uploaded 2 notice online and served DRC-01 but not DRC-01A and third notice is not yet uploaded online

we had asked for clubbing of all notice as circular 31 point 8 but they have not considered the same all SCN had various points like GSTR-3B and GSTR-2A, import, post sale discount, RCM on nr, merchant export, 180 days, SEZ sale, 17(5), sale of jewellery and many point have are wrong can be treated in 73 and all Showing suppression stating if audit had not been done these would have not come up thus suppressed but the same were provided by us before audit starting itself and no fraud was alleged and no mens rea but still 74 issued what can we do to show its illegality

we had objected 74 is illegal and multiple years SCN cannot be issued and each year has to given separately with its case law to save from 160(2)

what can be done at this juncture when order is not issued or just wait for appeal and should one approach high court directly what else should done other than this ?

what would happen if shifted to 73 under appeal and Circular 185 only 21-22 and 22-23 were within time of 73

will these has to be issued again and others be dropped?

what precaution should one maintain?

[Sadanand Bulbule]

Effect of shifting from Section 74 to Section 73:

Audit observations by themselves cannot consitute fraud, suppression, or wilful misstatement. Hence Section 74 is not applicable unless there is incontrovertible evidence to do so and such evidence is shared to the taxpayer for rebuttal.

In this regard, CBIC Circular No. 185/17/2022 dated 27/12/2022 clarifies that in absence of fraud, suppression, wilful misstatement, only Section 73 applies. And the courts are in favour of taxpayers on this ground.

When shifted to Section 73 under Section 75[2], demand will be restricted to 3 years instead of 5, and penalty is minimal (10%).

[Pinnacle Tax Advisor]

Since the audit period spans multiple financial years, separate  DRC-01A/DRC-01 forms may be issued year-wise or a single DRC-01/01A may also be issued. The issuance of a Show Cause Notice (SCN) under  Section 73 or 74 depends on the nature of the discrepancy. If there is suppression of facts or willful misstatement, the notice must be issued under  Section 74 only.

If details were submitted only after receiving the audit notice from the authority, such submission cannot be treated as voluntary disclosure. In cases involving suppression or fraud, the department will invariably invoke  Section 74.

However, if the relevant information was already disclosed in returns or through any other form prior to the issuance of any notice, then an SCN u/s 74 should not be issued. If you wish to challenge the applicability of  Section 74, you may approach the court.

To invoke  Section 74 and the extended limitation period, the authority must provide proper justification. Merely stating that the error would not have been detected without initiating the audit is not a valid justification.

Furthermore, before issuing DRC-01, the department must first issue  DRC-01A. If  DRC-01A was not issued, this procedural lapse can be raised as a ground in appeal.

[Sadanand Bulbule]

"Calling this fraud under Section 74 is like calling a shadow a thief--pure imagination, assumption, zero substsance". It collapses like a house of cards.

That is exactly how Section 75[2] read with CBIC Circular No. 185/17/2022 comes into play to protect the taxpayer.

[KASTURI SETHI]

When every transaction is recorded in the books of account and GST returns, Section 74 cannot be invoked. It will not sustain. You can easily trace out High Court judgments in your favour.

Since SCNs have been issued, you will have to file reply to the SCN along with documentary evidence within stipulated period. Compliance is a must. It will make you legally strong.

Contest your case in the adjudication proceedings rather than filing writ petition with High Court. direct.

First exhaust departmental channels.

[KASTURI SETHI]

Read the following case laws word for word :-

(i) Reply not considered. FAR quashed------A.P. High Court 2024 (1) TMI 1140 A.P. H.C. Order dated 4.1.2024 Party : PBL Transport Corporation (P) Ltd.

(ii) Improper FAR. SCN quashed.-----A.P. High Court 2023 (12) TMI 1166-A.P.H.C. Order dated 21.11.2023

(iii) SCN cannot be issued---------2024 (2) TMI-14-CESTAT Allahabad Order dated 30.01.24

(iv) Challenge to SCN dismissed. It is a pre-mature judicial intervention. No violation of jurisdiction. Problem can be solved in adjudication----------Calcutta High Court 2024 (12) TMI 831 Order dated 13.12.2024

[Sadanand Bulbule]

I conclude my posts as under: 

Section 74 of the CGST Act, 2017 is not a mysterious potion, nor does it conceal any hidden alchemy. The Legislature has crafted it with precision, anchoring its operation strictly on demonstrable circumstances — fraud, wilful misstatement, or suppression of facts with intent to evade tax. These are the essential pillars; without them, the edifice of Section 74 cannot stand.

There is, therefore, no “secret recipe” in this provision. It does not permit conjecture, presumption, or departmental creativity. Its invocation must be rooted in hard evidence and objective satisfaction of the statutory conditions. To employ Section 74 in the absence of these ingredients is not only legally unsustainable but also an affront to the rule of law and principles of natural justice.

Courts have consistently reminded that provisions imposing extended limitation or penal consequences are to be construed strictly and narrowly. Section 74 is no exception. It is a carefully measured remedy for deliberate evasion, not a catch-all tool for every shortfall or procedural lapse.

Thus, in true legal parlance: Section 74 has no clandestine formula; its application begins and ends with what the statute openly declares

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir,

1) DRC-01A :

DRC-1A is introduced under Rule 142(1A) to facilitate early dispute resolution and also time gap to the taxpayers to pay dues before litigation. Skipping this step deprives taxpayers of a statutory benefit. However, it is not made mandatory.

The first version of Rule ‘shall’ was modified by using the word ‘may’ before service of notice issue… This provision was amended to Rule 142(1A) as under. 

“2[(1A) The 3[proper officer may], before service of Notice to the person chargeable with tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74 10[or sub-section (1) of section 74A], as the case may be, 4[communicate] the details of any tax, interest and penalty as ascertained by the said officer, in Part A” 

So, it “may” and not “shall”.  So, the meaning is that it is optional for the proper officers.

Some Proper Officers issue  “SCN- DRC-01” directly, mostly due to the time factor. However, the taxpayer can request that “intimation” be issued first to get their time to prepare for compliance with the tax liability. But the time limit is as desired by the Proper Officer. However, it can be challenged.

2) SCN for Multiple years: It can be issued for multiple years.

There were several judgments held by the many HCs, as a single SCN for multiple years is not permissible.  Contrary to this, 

the Hon’ble Delhi High Court in Ambika Traders Through Proprietor Gaurav Gupta Versus Additional Commissioner, Adjudication DGGSTI, CGST Delhi North. - 2025 (8) TMI 315 - DELHI HIGH COURT held on certain grounds that a consolidated SCN for multiple years is permissible.

3) Findings of Audit Report.- The query states that the Taxpayer has not properly replied to the Audit Observations with documents. If the returns are not filed or not declared, all information about transactions carried out in a particular month or year may be treated by the Proper Officer as a fit case for Section 74. 

 The remedy to change the Sec. into 73 is to place the facts before the proper officer that there was no suppression or fraudulent activities in their business. The CBIC Circular referred to Sl. No. 1 by Sri Bulbule Sir can help you.

There were incidents of changing the case from sec. 74 to 73 after realising the fact.

[Shilpi Jain]

Issuing order is presently time bound. So the department would be issuing the order. Based on how the order is given you can then decide whether to file an appeal or approach the HC.

AI Summary

Section 74 applicability limited to demonstrable fraud; absence of suppression shifts assessment to Section 73 with reduced penalties. The document explains that invocation of fraud-based assessment requires objective evidence of fraud, willful misstatement or suppression; absent such proof the case should be treated under regular assessment provisions with shorter limitation and lighter penalty. It highlights procedural prerequisites including the optional DRC-01A intimation before demand, challenges to multi-year consolidated SCNs, and the need to file substantive replies with documentary proof while exhausting departmental remedies before approaching higher courts.