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CRITICAL SEVERITYSection 74 • CGST Act, 2017

GST Notice Under Section 74 (Fraud)

Section 74 applies when tax is not paid due to fraud, wilful misstatement, or suppression of facts. This is the most serious GST proceeding with 100% penalty and possible prosecution.

Quick Answer

Section 74 is for fraud/suppression cases. If the department alleges intentional tax evasion, penalty is 100% of tax. This is extremely serious and requires immediate professional legal help.

⏰ Deadline: 30 days💰 Penalty: 100% of tax

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What is Section 74 Notice?

Section 74 of CGST Act deals with determination of tax not paid, short paid, erroneously refunded, or ITC wrongly availed — where FRAUD, SUPPRESSION, or WILFUL MISSTATEMENT is alleged.

Key features of Section 74: - Time limit: 5 years from the due date of annual return (longer than Section 73) - Penalty: 100% of tax amount (can be reduced to 15% or 25% if paid early) - Interest: 24% per annum (higher than Section 73's 18%) - Prosecution possible under Section 132 for amounts above ₹5 crores

Reduction of penalty: - Section 74(5): Pay tax + interest + 15% penalty BEFORE SCN → no further action - Section 74(6): Pay within 30 days of SCN → penalty reduces to 25% - Section 74(11): Pay within 30 days of order → reduced penalty of 50%

Common triggers for Section 74: - Fake invoices / circular trading - Claiming ITC on non-existent suppliers - Suppressing sales/turnover deliberately - Using multiple GSTINs for fraudulent claims

Why You Received Section 74 Notice

  • •Fake invoice generation without actual supply
  • •Claiming ITC from non-existent or bogus suppliers
  • •Deliberate suppression of taxable turnover
  • •Wilful misstatement in returns
  • •Fraudulent refund claims
  • •Circular trading to generate fake ITC

How to Respond to Section 74 Notice — Step by Step

  1. 1IMMEDIATELY engage a qualified GST advocate or senior CA
  2. 2Do NOT ignore — this is the most serious GST allegation
  3. 3Verify if the fraud allegation is justified or a wrong invocation
  4. 4If wrongly invoked, challenge the conversion from Section 73 to 74
  5. 5Consider paying under Section 74(5) if amount is manageable
  6. 6Prepare detailed reply challenging the fraud allegation
  7. 7Request personal hearing
  8. 8Document all genuine business transactions to counter allegations

Documents Required for Section 74 Reply

  • 📄Complete supply chain documentation
  • 📄Proof of actual receipt of goods/services
  • 📄Transport documents, e-way bills, weighbridge slips
  • 📄Bank statements showing genuine payments
  • 📄Communication records with suppliers
  • 📄GST returns and audit reports
  • 📄Legal opinion from advocate

Expert Tips for Section 74 Reply

✅Challenge the 'fraud' or 'suppression' allegation — this is key
✅If fraud is not proven, demand conversion to Section 73 (lower penalty)
✅Show complete audit trail of genuine transactions
✅Cite case laws where Section 74 was converted to Section 73
✅Never admit fraud without legal advice
✅Request cross-examination of department witnesses

Frequently Asked Questions About Section 74

What is Section 74 of CGST Act?

▼
Section 74 deals with cases where GST is not paid due to fraud, suppression, or wilful misstatement. The penalty is 100% of tax, time limit is 5 years, and prosecution is possible for amounts exceeding ₹5 crores.

How to reduce penalty under Section 74?

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Pay tax + interest + 15% penalty BEFORE the SCN to close the matter. After SCN, pay within 30 days with 25% penalty. After order, pay within 30 days with 50% penalty. The earlier you pay, the lower the penalty.

Can Section 74 lead to arrest?

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Yes. Under Section 132 of CGST Act, if the tax amount involved exceeds ₹5 crores and fraud is established, it's a cognizable and non-bailable offence with imprisonment up to 5 years.

How to challenge wrong invocation of Section 74?

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Argue that the case falls under Section 73 (genuine error, not fraud). Cite case laws where courts have held that mere non-payment without intent does not constitute suppression. The burden of proving fraud is on the department.

Related GST Notices

DRC-01high

GST Show Cause Notice (DRC-01)

DRC-07critical

GST Demand Order (DRC-07)

Section 73high

GST Notice Under Section 73

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