Section 74 proceedings held unsustainable due to mechanical approach despite taxpayer furnishing CA certificate
The Madras High Court recently ruled in JIT Auto Comp v. Assistant Commissioner that proceedings initiated under Section 74 of the CGST Act, 2017, against JIT Auto Comp were unsustainable. This decision, from July 08, 2025, found that the Assistant Commissioner acted mechanically by disregarding the Chartered Accountant’s certificate submitted by the taxpayer. JIT Auto Comp had faced allegations of GSTR-2A and GSTR-3B mismatches. Initially, they couldn’t provide a supplier’s CA certificate due to the supplier’s liquidation, but later furnished their own CA certificate confirming the transactions and GST compliance. Despite this, the tax officer proceeded under Section 74, which requires a finding of fraud or willful misstatement, without addressing the evidence. The High Court emphasized that in the absence of such findings, the case should have been handled under Section 73. Consequently, the court set aside the order and remanded the matter for re-adjudication under Section 73, conditional on JIT Auto Comp depositing the disputed tax of ₹81,12,876/-. This ruling clarifies the distinction between Sections 73 and 74, asserting that the latter’s stringent provisions are only applicable when deliberate evasion is established.
Facts:
The JIT Auto Comp (“the Petitioner”) received a show cause notice under Section 74 of the CGST Act, 2017, alleging mismatch in GSTR-2A and GSTR-3B returns.
Initially unable to furnish a certificate from the supplier’s CA due to the supplier’s liquidation, the Petitioner later submitted a certificate from its own Chartered Accountant, confirming supply of goods, receipt, payment, and GST compliance.
Despite this, the Proper Officer proceeded to pass an order under Section 74, ignoring the CA certificate and Petitioner’s detailed response.
The Petitioner approached the Hon’ble High Court, offering to deposit the entire disputed tax of ₹81,12,876/- for reconsideration under Section 73 instead.
Issue:
Whether initiation of proceedings under Section 74 without a finding of fraud, and ignoring available evidence (CA certificate), was sustainable in law?
Held:
The Hon’ble Madras High Court in W.P. No. 16474 of 2024, held as under:
- Observed that, there was no dispute regarding the supplier being in liquidation and that the Petitioner did eventually submit a valid CA certificate substantiating its claim.
- Noted that, the Proper Officer failed to render any findings or even refer to the CA certificate, indicating a mechanical approach to adjudication.
- Held that, the proceedings under Section 74, which presuppose fraud or wilful misstatement, were not justified, and the matter was more appropriately covered under Section 73.
- Further, the impugned order dated March 18, 2024 was set aside, and the matter was remanded for fresh adjudication under Section 73, conditional upon Petitioner depositing the disputed tax within two weeks.
Our Comments:
In this case, the Court reiterated the important legal distinction between Section 73 and Section 74 of the CGST Act. It clarified that proceedings under Section 74 can only be initiated when there is a clear allegation of fraud, suppression of facts, or wilful misstatement on the part of the taxpayer. If no such allegation is made or established, invoking Section 74 is not legally valid and such action would be considered beyond the authority of law (ultra vires). Therefore, in the absence of any finding of fraud or suppression, the proceedings ought to have been initiated under Section 73 instead.
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