In Thekrubizolie And Anr Vs Union of India And 3 Ors, the Gauhati High Court invalidated GST proceedings initiated under Section 74 of the CGST Act due to absence of specific allegations of fraud, wilful misstatement, or suppression of facts. The taxpayer had received a DRC-01A intimation and later a show cause notice demanding tax, interest, and penalty, but the notice failed to disclose any basis for invoking Section 74. The department proceeded to pass a demand order without granting a proper hearing. The Court held that a valid show cause notice must clearly state allegations and provide an opportunity for defence, and that Section 74 cannot be invoked mechanically. It further ruled that lack of proper notice and hearing vitiates the entire proceedings, irrespective of alternate appellate remedies. Consequently, both the notice and demand order were quashed, with liberty granted to the department to initiate fresh proceedings in accordance with law.
Let me tell you a story that I’m sure many business owners will relate to.
A taxpayer in Nagaland runs his business like any of your clients would files returns, handles compliance, deals with the usual GST chaos. One day, he gets a notice from the department.
Nothing unusual so far.
But then things start getting interesting.
It Started With a “Friendly” Intimation
First came a DRC-01A basically the department saying:
“We think you owe tax, interest, and penalty. You may want to pay up.”
The taxpayer asked for some time (which is normal), but somewhere along the line, pressure built up. Eventually, he paid only the 15% penalty and that too under protest.
Now if you’re a practitioner, you already know this usually means the matter is far from over.
Then Came the Show Cause Notice… Or Was It?
The department followed up with a notice under Section 74 of CGST Act.
Now pause here.
Section 74 is not routine. It’s serious. It’s meant for cases involving:
- Fraud
- Wilful misstatement
- Suppression of facts
In simple words it’s used when the department is alleging intent to evade tax.
But when the taxpayer read the notice, something felt off.
There was no mention of fraud.
No allegation. No explanation. Nothing.
Just a line saying:
“You paid only 15% penalty. Pay the remaining tax and interest, or we’ll pass an order.”
That’s not really a show cause notice… that’s more like a payment reminder with a threat attached.
No Reply… and Straight to Demand Order
The taxpayer didn’t reply to this notice (which, honestly, happens quite often in practice).
And then, as expected, the department passed an order and issued DRC-07:
“Pay the remaining dues.”
No hearing. No detailed reasoning. Just a straightforward demand.
Now Comes the Twist High Court Steps In
Almost a year later, the taxpayer approached the Gauhati High Court.
And this is where things turned.
Court Asked a Very Simple Question
“If you are invoking Section 74… where is the fraud?”
That’s it.
That one question shook the entire case.
Why This Became a Big Deal
The Court explained something very practical :
1. You Can’t Use Section 74 Casually
If the department wants to use Section 74, they must clearly say:
- What was suppressed
- How fraud happened
- Where the intent to evade tax lies
If they don’t do this?
The entire notice becomes defective.
2. A Show Cause Notice Must Actually “Show Cause”
Think about it logically.
If I send you a message saying:
“Pay ₹10 lakh or I’ll take action”
Without telling you why…
How are you supposed to defend yourself?
That’s exactly what the Court pointed out.
3. Hearing Is Not Optional
Under Section 75 of CGST Act, if the department is going to pass an adverse order, they must give a proper opportunity of hearing.
Here?
- No real hearing
- No proper reasoning in the order
That didn’t go down well with the Court.
4. “You Should Have Filed Appeal” Didn’t Work
The department argued:
“Why come to High Court? You had appeal option.”
But the Court basically said:
“If the foundation itself is faulty, we don’t need to send the taxpayer to appeal.”
Entire Case Collapsed
The Court:
Cancelled the show cause notices
Cancelled the demand orders
Allowed the department to start again
What This Means in Real Life
Let’s bring this home with a simple example.
Say your client:
- Claimed ITC wrongly due to a mismatch
- No fraud, just a mistake
Now if the department issues notice under Section 74 without alleging fraud
You already have a strong ground to challenge it.
My Personal Take on this
Honestly, this is something we see a lot in practice.
- Section 74 is used mechanically
- Notices are vague
- Orders are passed in a hurry
But this judgment is a good reminder:
GST is not just about collecting tax. It’s about following due process.
And if the process is not followed, even a valid demand can fall apart.
“In GST, a weak notice can kill a strong case.”
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