Filing GSTR-1 While Skipping GSTR-3B Strips the Protection of Section 73 and Triggers Section 74 Rather Than the Non-Filer Assessment of Section 62
Introduction:
In a landmark development that redefines the contours of tax evasion under the Goods and Services Tax (GST) regime, the Supreme Court of India in Sriba Nirman Company Vs Commissioner (Appeals) has affirmed a ruling by the Andhra Pradesh High Court which held that the prolonged and consistent failure to file GSTR-3B returns and remit GST, despite raising tax invoices and receiving payments, constitutes “wilful suppression” under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act). The case of M/s Sriba Nirman Company v. The Commissioner (Appeals), Guntur, has established a stringent precedent, effectively dismantling the commonly used defence of financial hardship and signalling a new era of strict compliance. This article analyses the factual matrix, the judicial reasoning, and the far-reaching implications of this critical judgment for taxpayers and tax professionals across India.
Factual Background of the Case:
The assessee, M/s Sriba Nirman Company, a partnership firm engaged as a works contractor for a government-related entity, found itself at the centre of this pivotal litigation. During the period from July 2017 to March 2020, the firm raised taxable invoices amounting to approximately ₹20.92 crore, which included a GST component. Despite raising these invoices and receiving substantial payments from its sole client, the firm failed to file its mandatory monthly GSTR-3B returns and consequently did not remit the collected GST to the government exchequer for the entire period.
When confronted by the tax authorities, the firm’s primary defence was that delayed and incomplete payments from its client had resulted in severe financial hardship, leaving it with “no money” to discharge its tax liability. The Department, however, was not convinced by this explanation. It chose to invoke the stringent provisions of Section 74 of the CGST Act, which deals with tax non-payment due to fraud, wilful misstatement, or suppression of facts, rather than the more lenient Section 73, which applies to non-fraudulent cases. The Department contended that the act of collecting tax, receiving payments, and deliberately staying outside the statutory return filing mechanism amounted to a suppression of facts with a clear intent to evade tax. The adjudicating authority confirmed the tax demand along with a 100% penalty, an order that was subsequently upheld by the Commissioner (Appeals).
The Andhra Pradesh High Court’s Definitive Ruling:
Aggrieved by the appellate order, the assessee filed Writ Petition No. 25826 of 2023 before the Hon’ble High Court of Andhra Pradesh. The core argument of the petitioner was that the default was unintentional and born out of a genuine financial crunch, and therefore, did not warrant the invocation of Section 74.
The High Court, in its judgment dated 29-01-2025, meticulously dismantled the petitioner’s arguments. The Court observed that the liability to pay GST arises at the time of supply and the issuance of a tax invoice, and is not contingent upon the receipt of consideration from the client. The Court held that the prolonged non-filing of returns was not a mere technical lapse but a deliberate act of concealment. By not filing GSTR-3B returns, the assessee effectively suppressed the entire chain of transactions from the knowledge of the tax department, thereby preventing any assessment of its true liability. The Court reasoned that when a taxpayer collects tax from its customers, it holds that amount in trust for the government, and any diversion of such funds for business operations or to manage cash flow is impermissible and demonstrates a clear intent to evade payment. The plea of financial difficulty was firmly rejected as an invalid defence against the statutory obligation to file returns and remit tax. The High Court concluded that the combination of raising invoices, receiving payments, and a sustained failure to file returns for years was sufficient to establish “suppression of facts with an intent to evade tax,” thus justifying the invocation of Section 74 and the imposition of a 100% penalty Sriba Nirman Company vs The Commissioner Appeals.
Affirmation by the Supreme Court of India:
The assessee challenged the High Court’s order before the Supreme Court of India via Special Leave Petition (Civil) No. 14270 of 2025. In a brief but conclusive order dated 16-05-2025, the Division Bench comprising J.B. Pardiwala and R. Mahadevan, JJ., dismissed the SLP, finding “no good reason to interfere” with the well-reasoned judgment of the High Court. A subsequent review petition filed by the assessee was also dismissed, lending finality to the matter.
The Supreme Court’s refusal to interfere has elevated the Andhra Pradesh High Court’s ruling to a position of immense persuasive authority nationwide. It effectively serves as a judicial endorsement of the principle that chronic non-filing and non-payment can, by themselves, be construed as wilful suppression, attracting the harshest penalties under the GST law.
Implications: The Narrowing Gap Between Section 73 and Section 74
The Sriba Nirman case significantly narrows the perceived gap between Section 73 and Section 74 of the CGST Act. Previously, many practitioners considered Section 74 to be reserved for egregious cases of fraud, such as the use of fake invoices, creation of benami entities, or clandestine removal of goods. This judgment expands its ambit to include persistent compliance failures by otherwise legitimate businesses.
When these three factors are present over a prolonged period, the Department is now on solid legal ground to infer an intent to evade and proceed under Section 74. The judgment serves as a stern warning that the “cash flow problem” argument is an extremely weak shield against allegations of suppression.
[WRITER’S PERSPECTIVE: DELIBERATE EVASION AND THE INAPPLICABILITY OF SECTION 62]
From a critical legal standpoint, this case unequivocally falls under the purview of Section 74 of the CGST Act, primarily due to the demonstrable fraudulent intent, wilful suppression of facts, and a deliberate act to evade tax. The petitioner’s consistent filing of GSTR-1 returns on time, coupled with the carrying forward of input tax credit to his recipients, clearly indicates an acknowledgment of tax liability and the collection of corresponding amounts from his customers. However, the subsequent failure to discharge this collected tax liability through the filing of GSTR-3B and remittance to the government constitutes a deliberate and calculated act of evasion. The very act of collecting tax from customers, representing it as GST, and then withholding it from the exchequer, while simultaneously passing on the benefit of input tax credit to recipients, is a clear indicator of malafide intent.
Furthermore, the petitioner’s assertion of a financial crunch as a defence was demonstrably false. Evidence from his bank accounts revealed that he had received full payment from his customer, thereby negating any claim of financial hardship. This misrepresentation to the court further solidifies the argument for wilful suppression and fraudulent intent, making the application of Section 74 entirely appropriate and Section 73, which deals with non-fraudulent cases, wholly inapplicable.
It is also crucial to address the inapplicability of the non-filer assessment procedure under Section 62 of the CGST Act in this specific scenario. Section 62 is designed for situations where a registered person fails to furnish any return. In this case, the taxpayer had consistently filed his GSTR-1 returns for three continuous years. While he failed to discharge his tax liability by not filing GSTR-3B, the continuous filing of GSTR-1 means he cannot be classified as a complete non-filer for the purpose of Section 62. Section 62 empowers the assessing officer to assess tax liability based on available material only when no return whatsoever has been furnished. Since GSTR-1s were filed, the department had information regarding his outward supplies, and thus, the conditions for invoking Section 62 were not met. This further underscores that the department’s decision to proceed under Section 74, focusing on the intent behind the non-payment despite filing GSTR-1 and collecting tax, was the correct legal recourse.
Conclusion:
The Sriba Nirman case is a watershed moment in GST jurisprudence. It establishes that wilful suppression is not limited to active fraud but can be inferred from a pattern of passive non-compliance, especially when coupled with the filing of GSTR-1 and collection of tax. The judgment reinforces that the GST framework is built on self-assessment and voluntary compliance, and any attempt to remain outside this system while continuing business operations and collecting tax will be met with the most stringent penal consequences. For businesses and professionals, the message is unequivocal: filing returns and remitting tax are non-negotiable statutory duties, and excuses related to cash flow or client defaults will no longer serve as a viable defence against the charge of tax evasion, particularly when there is evidence of deliberate intent and misrepresentation. This precedent is now a core tenet of GST compliance and must be integrated into all advisory and internal training frameworks.
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