The distinction between Section 73 and Section 74 of the CGST Act, 2017 continues to be one of the most debated areas in GST litigation. While Section 73 deals with tax demands without fraud or suppression, Section 74 is triggered only when tax has not been paid due to fraud, wilful misstatement, or suppression of facts with intent to evade tax.
The Honourable High Court (Andhra Pradesh) in M/s. Sriba Nirman Company v. Commissioner (Appeals) (W.P.No.25826 of 2023) recently examined whether non-filing of GST returns and delayed payment of tax can justify invocation of Section 74. The judgment offers important clarity on the meaning of “wilful suppression” and the circumstances in which penalty proceedings under Section 74 can be sustained.
The petitioner, M/s. Sriba Nirman Company, was a works contractor executing infrastructure projects as a sub-contractor. During the period July 2017 to March 2018, the company raised invoices aggregating about ₹20.92 crore, which included GST of around ₹3.19 crore.
However, the taxpayer failed to File GSTR-3B returns within the prescribed time and pay the corresponding GST liability. According to the petitioner, the delay occurred because the principal contractor had not released payments, resulting in cash-flow constraints.
In July 2018, the Directorate General of GST Intelligence (DGGI) inspected the business premises. Following this inspection, the taxpayer paid the entire tax liability and filed the pending GST returns.
Despite this, the department issued a Show Cause Notice under Section 74, proposing tax demand, interest and penalty 100% of the tax. The adjudicating authority confirmed the penalty, and the appellate authority upheld it, leading the taxpayer to approach the Honourable High Court.
The Honourable High Court dismissed the writ petition on the following grounds:
1. The petitioner failed to file monthly returns and did not pay tax for a prolonged period.
2. The explanation of non-payment due to delayed client payments was not sufficient to negate wilful suppression.
3. Consequently, penalty under Section 74 was justified.
Important Points from the Judgement:
1. Non-payment alone does not trigger Section 74 the authorities must demonstrate fraud, wilful misstatement, or intentional suppression.
2. Failure to file GSTR-3B returns may be treated as suppression under certain circumstances which makes monthly compliance essential.
3. Delayed payments from clients may not absolve taxpayers from GST obligations.
Conclusion
According to Explanation 2 to Section 74, non-declaration of facts or information which a taxable person is required to declare in the return, statement, report, or any other document furnished under the Act is considered suppression.
Even if a taxpayer files the monthly return in GSTR-1 declaring outward supplies, failure to file GSTR-3B implies that the taxpayer has not officially declared the final tax liability, the input tax credit (ITC) utilized, and the tax paid to the Government.
Where a taxpayer declares sales in GSTR-1 but deliberately avoids filing GSTR-3B and fails to pay the tax amount collected from the recipient of supplies, whether due to cash flow issues or any other reason, such conduct may be viewed as wilful suppression of tax liability.
The term “suppression” in Section 74 must be read as wilful or deliberate for the purpose of evading tax. By not filing GSTR-3B, the taxpayer fails to furnish information they are legally required to provide, which may fall within the scope of suppression as defined in Explanation 2.
Hence, taxpayers are required to file their regular monthly returns on time and make the necessary tax payments to the Government. Otherwise, they may be required to demonstrate to the authorities that there was no wilful or deliberate suppression.
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