For most businesses in India, late filing of GSTR-3B has long been treated as a procedural lapse. It costs late fees, it costs interest, and if the department gets serious, it may bring a notice under Section 73 of the CGST Act. The penalty under Section 73 is modest, ten percent of the tax not paid or ten thousand rupees, whichever is higher. The taxpayer is given the benefit of the doubt that the lapse was an ordinary default, not an attempt to evade tax.
A recent decision of the Andhra Pradesh High Court has begun to disturb that comfortable assumption. In Sriba Nirman Company versus Commissioner (Appeals), pronounced on 29 January 2025, the Court held that the failure to file monthly returns can amount to suppression of fact under Section 74 of the CGST Act, and that where wilfulness is established, the entire scheme of Section 74, with penalty of up to one hundred percent of the tax, becomes available to the department. The petitioner’s Special Leave Petition before the Supreme Court has since been dismissed, leaving the High Court ruling undisturbed and elevating it from a regional decision to one with serious all-India implications.
For a country in which lakhs of GSTR-3B returns are filed late every quarter, very often by businesses going through genuine cash crunches, the implications of this ruling deserve careful attention by every taxpayer and every advisor.
The facts the High Court was asked to decide on
Sriba Nirman Company is a partnership firm based in Andhra Pradesh, working as a subcontractor for Vijay Nirman Company Limited on infrastructure projects. Between July 2017 and March 2018, the firm raised nine invoices aggregating to about twenty crore ninety-two lakh rupees, including a GST liability of approximately three crore nineteen lakh rupees. The firm did not file its GSTR-3B returns for that period and did not deposit the GST. The reason offered, as stated in the affidavit before the Court, was that its principal client had not paid in full, and that the GST portal does not accept return filing without simultaneous payment of tax
On 31 July 2018, officers of the Directorate General of GST Intelligence inspected the firm’s premises. Between that date and 29 September 2018, the firm deposited the entire GST liability in four instalments and filed all the pending GSTR-3B returns. By the end of September 2018, the lapse had been corrected and the dues paid.
Despite this, a show cause notice was issued on 3 September 2020, almost two years after the payments were made, proposing to treat the lapse as falling within Section 74, that is, nonpayment by reason of fraud, wilful misstatement, or suppression of facts to evade tax, and to impose a penalty equivalent to the entire tax. The order was confirmed in adjudication and subsequently upheld by the Commissioner (Appeals). The firm then approached the High Court, asking that the penalty be set aside on the ground that mere late filing of returns could not, in law, be treated as evasion of tax
What the High Court actually held
The Court began by accepting the principle that every chartered accountant routinely argues from. Section 74 is not automatic. It can be invoked only where there is fraud, or wilful misstatement, or wilful suppression of facts, undertaken for the purpose of evading tax. The judgment cites the Supreme Court’s ruling in Uniworth Textiles, the Karnataka High Court’s reasoning in Adecco Flexione Workforce Solutions, and the Central Board of Indirect Taxes and Customs’ own Instruction No. 5 of 2023, all of which clearly state that mere non-payment of tax cannot be treated as evasion.
Had the Court stopped there, the matter would have been a routine taxpayer victory. It did not. The Court then turned to Explanation 2 to Section 74, which defines suppression as the nondeclaration of any fact or information that the taxpayer is required to declare in a return, statement, report, or other document under the Act. Reading this definition along with the obligation under Section 39 read with Rule 61 of the CGST Rules, which requires every registered person to file the GSTR-3B return by the twentieth day of the succeeding month, the Court took the view that non-filing of monthly returns squarely amounts to suppression of fact.
The petitioner’s argument that the suppression test should be measured only against the due date for the annual return under Section 44 was rejected. Monthly returns, the Court observed, are independent statutory obligations, the breach of which is itself a suppression.
Having reached that conclusion, the only remaining question was whether the suppression was wilful. Here the Court accepted the appellate authority’s reasoning. The petitioner had received some payments from its principal client during the relevant period and therefore had funds available which could have been used, at least in part, to discharge the GST liability. The decision to apply those funds elsewhere was treated as a wilful choice not to pay tax, and therefore as wilful suppression.
The petitioner had also argued that since the tax had been paid before the show cause notice was issued, the bar in Section 74(6) should apply and no notice should have been issued at all. The Court rejected this on a careful reading of the section. Section 74(6) protects the taxpayer only where, under Section 74(5), the taxpayer has paid the tax along with interest under Section 50 and a penalty equivalent to fifteen percent of such tax before the issuance of the notice. The petitioner had paid the tax before the notice but had paid interest only after the notice was issued and had not paid the fifteen percent penalty at all. The safe harbour was therefore unavailable. The writ petition was dismissed and, as has now been confirmed, the Supreme Court has declined to interfere
Why this ruling should worry every taxpayer with late returns
The first concern is conceptual. The Court’s reading of Explanation 2 effectively converts every non-filer of GSTR-3B into a person who has, at least technically, suppressed facts. That brings such a taxpayer through the doorway of Section 74. The only thing then standing between the taxpayer and a one hundred percent penalty is whether the adjudicating authority can be persuaded that the suppression was not wilful. The mens rea question becomes the entire fight.
The second concern is evidential. In Sriba Nirman, wilfulness was inferred from a single circumstance, namely that the taxpayer had received some money from his client during the period of default. That is a low evidentiary bar. Most businesses that delay GST payments do so while still receiving some inflows. Very few enterprises cease to receive any payment at all during a period of distress. If receipt of any client payment is enough to establish wilfulness, the wilfulness defence will be difficult to maintain in almost every realistic case of late filing. The third concern is procedural. Section 74(5) provides what looks, on the face of it, like a generous safe harbour.
The taxpayer who pays the tax, the interest under Section 50, and a fifteen percent penalty before the notice is issued cannot be proceeded against further. In practice, however, most taxpayers who pay belatedly pay only the tax. Some pay the interest. Almost none voluntarily pay the fifteen percent penalty, because at the time of payment they do not believe themselves to be in Section 74 territory at all. They believe they are correcting an ordinary lapse and that Section 73 is the worst they will face. Sriba Nirman now teaches that this belief is misplaced. If the department later forms the view that the lapse was wilful, the absence of the fifteen percent payment becomes the very door through which Section 74 enters.
Practical lessons for businesses and their advisors
The first practical lesson is that late filing of GSTR-3B can no longer be treated as a low-stakes lapse. It must be approached as a posture which, in adverse circumstances, can be elevated into a Section 74 proceeding with one hundred percent penalty exposure. The cost of delay is no longer just interest at eighteen percent and late fees. It is a contingent liability of the entire tax amount, which crystallises if the department forms a view of wilfulness
The second lesson concerns the conduct of an inspection or audit. Once the department has identified the lapse, the cleanest path to closure is to invoke Section 74(5) deliberately and in full. That means paying the tax, calculating and paying the interest under Section 50, and paying the fifteen percent penalty, and communicating all three payments in writing to the proper officer. Sriba Nirman is, in part, a story of partial compliance. The tax was paid, but the interest was paid late and the fifteen percent penalty was not paid at all. A taxpayer who closes all three doors is in a far stronger position to invoke the bar in Section 74(6) and to shut down the proceeding before it gathers momentum.
The third lesson is documentary. Where a taxpayer is genuinely unable to pay tax on time because of customer defaults, the firm should preserve every piece of correspondence, every ledger statement, and a clear reconciliation between client receipts and operational outflows for the relevant period. The wilfulness inquiry under Section 74 is fact-driven. Sriba Nirman lost partly because the appellate authority focused on receipts in isolation, without a corresponding picture of where those receipts actually went. A taxpayer who can demonstrate, on documentary record, that every rupee received was deployed in unavoidable operational outflows, in salaries, in statutory dues to other authorities, in keeping the business alive, has a far stronger answer to the inference of wilfulness.
The fourth lesson is for advisors. Chartered accountants and consultants advising clients in financial distress should now, as a matter of routine, walk the client through the Section 74 contingency at the time the lapse occurs, not afterwards. The conversation cannot be limited to filing the return and paying interest. It must include a clear-eyed assessment of whether, in the event of departmental escalation, the client’s books and records would support a defence of non-wilfulness, and whether the precautionary route under Section 74(5) is worth invoking even before any inspection takes place. In some cases, paying the additional fifteen percent up front is cheaper insurance than living under the contingent risk of one hundred percent.
A measured concluding view
Sriba Nirman is not, and should not be read as, a holding that every late filing automatically attracts Section 74. The judgment expressly affirms that mere non-payment is not evasion, and that wilfulness must still be demonstrated. But the judgment has shifted the centre of gravity. By treating non-filing of GSTR-3B as suppression, and by accepting circumstantial inference of wilfulness from the simple fact of partial client receipts, the Court has lowered the threshold at which Section 74 becomes a live possibility. With the Supreme Court declining to intervene, departments across the country will now have appellate cover to invoke Section 74 in late-filing cases with greater confidence than before, and other High Courts may well be persuaded to follow the same path.
For taxpayers, the safest response is not to test the boundary. It is to file on time wherever possible, to use Section 74(5) deliberately and in full whenever there has been a lapse, and to ensure that if wilfulness is ever alleged, the books and the correspondence speak in the taxpayer’s defence. The cost of building those defences in advance is small. The cost of building them in the middle of a Section 74 proceeding, with the spectre of one hundred percent penalty hanging over the file, is the entire tax
Section 74 was always meant to be a weapon reserved for the worst kind of taxpayer behaviour. The Sriba Nirman decision does not change that. But it does mean that a much wider class of taxpayers may now find themselves having to prove that they are not that kind of taxpayer. That is a battle better fought on paper prepared in calm than on paper prepared in panic.
Author Bio
