Section 74 of CGST Act: GST Demand in Cases of Fraud, Wilful Misstatement or Suppression
Section 74 of the Central Goods and Services Tax Act, 2017 governs determination of tax not paid or short paid, erroneous refunds, and input tax credit wrongly availed or utilised where fraud, wilful misstatement or suppression of facts to evade tax is alleged. Following the Finance (No. 2) Act, 2024, section 74 is confined to periods up to Financial Year 2023-24.
Meaning and scope of Section 74
The provision is a fraud-based demand provision. It is attracted where the alleged non-payment or short payment of tax, erroneous refund, or wrongful availment or utilisation of input tax credit is connected with fraud, wilful misstatement or suppression of facts to evade tax. The allegation therefore has consequences not only for demand and interest but also for the higher penalty structure prescribed by section 74.
The expression "suppression" was earlier defined in Explanation 2 to section 74. The Finance (No. 2) Act, 2024 omitted that Explanation with effect from 1 November 2024 while simultaneously restricting section 74 to periods up to FY 2023-24 and introducing section 74A for FY 2024-25 onward.
Section 74 and Section 74A: which provision applies?
| Tax period | Relevant demand provision | Basic position |
|---|---|---|
| Up to FY 2023-24 | Section 73 or Section 74, depending on the statutory basis of the case | Section 74 remains the fraud / wilful misstatement / suppression provision for these periods. |
| FY 2024-25 onward | Section 74A | A unified determination provision applies, with penalty consequences depending on the circumstances specified in section 74A. |
Payment stages and reduced penalty under Section 74
Section 74 provides statutory opportunities to conclude proceedings at specified stages. Before service of notice, payment of tax and interest together with a penalty of fifteen per cent of tax may prevent notice for the amount so paid. Within thirty days of the notice, payment of tax, interest and twenty-five per cent penalty can conclude proceedings in respect of the notice. After an order, payment within thirty days with fifty per cent penalty can similarly conclude proceedings in accordance with the section.
Text and structure of Section 74
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, the proper officer shall serve notice on the person chargeable with tax, requiring that person to show cause why the amount specified in the notice should not be paid along with interest under section 50 and a penalty equivalent to the tax specified in the notice.
(2) The proper officer shall issue the notice under sub-section (1) at least six months before the time limit specified in sub-section (10) for issuance of the order.
(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement containing details of tax not paid or short paid, erroneous refund, or input tax credit wrongly availed or utilised for periods other than those covered by that notice.
(4) Service of a statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the statutory condition concerning the grounds relied upon.
(5) Before service of notice under sub-section (1), the person chargeable with tax may pay the tax, interest under section 50 and a penalty equal to fifteen per cent of such tax, on the basis of self-ascertainment or ascertainment by the proper officer, and inform the proper officer in writing.
(6) On receipt of the information under sub-section (5), the proper officer shall not serve notice under sub-section (1) in respect of the tax so paid or the penalty payable under the Act or rules.
(7) If the proper officer considers the amount paid under sub-section (5) to be short of the amount actually payable, notice may be issued under sub-section (1) for the shortfall.
(8) If the person pays the tax, interest under section 50 and a penalty equal to twenty-five per cent of the tax within thirty days of issue of the notice, all proceedings in respect of that notice shall be deemed concluded, subject to the Act.
(9) After considering the representation, if any, the proper officer shall determine the tax, interest and penalty due and issue an order.
(10) The order under sub-section (9) is to be issued within five years from the due date for furnishing the annual return for the financial year to which the tax or input tax credit relates, or within five years from the date of the erroneous refund, as applicable.
(11) If the person served with an order under sub-section (9) pays the tax, interest and a penalty equal to fifty per cent of the tax within thirty days of communication of the order, all proceedings in respect of the notice shall be deemed concluded, subject to the Act.
(12) The provisions of section 74 apply to determination of tax pertaining to the period up to Financial Year 2023-24.
Explanation 1. For section 73 and section 74, the expression "all proceedings in respect of the said notice" does not include proceedings under section 132. Where notice in the same proceedings is issued to the main person liable to pay tax and to other persons, and proceedings against the main person are concluded under section 73 or section 74, proceedings against persons liable to penalty under the provisions specified in the Act are deemed concluded as provided by law.
Important connected provisions
Section 74 should be read with section 50 on interest, section 75 on general provisions for determination of tax, the applicable demand and recovery rules, and the appeal provisions of the CGST Act. Where prosecution issues arise, section 74 proceedings do not by themselves close proceedings under section 132 because Explanation 1 expressly excludes section 132 from the expression "all proceedings in respect of the said notice".
Practical points for a Section 74 notice
A taxpayer should identify the financial year involved, verify whether section 74 is the correct provision for that period, examine the factual basis for the allegation of fraud, wilful misstatement or suppression, reconcile the tax and input tax credit computation, check limitation, and review whether any statutory payment option is commercially and legally appropriate. The notice and adjudication must also be considered together with section 75 and the relevant CGST Rules.
Updated: 15 September 2026. This page is a general legal information resource and should be read with the current Act, rules, notifications, circulars and applicable judicial decisions.