Exclusive | Industry flags GST Section 74 misuse, experts call for clarity on error vs evasion
India Inc is increasingly voicing concern over the “arbitrary and excessive” use of Section 74 of the Central Goods and Services Tax (CGST) Act—originally designed to punish willful tax evasion. Industry players and legal experts now allege that the provision, which allows the government to initiate proceedings in cases of fraud or suppression of facts, is being invoked routinely, even in situations that involve no intent to evade tax.
At the core of the worry is a growing trend: classification disputes, interpretation differences, or even clerical errors are being treated as fraudulent conduct by tax officers. This not only invites severe penalties but also inflicts reputational and financial damage on businesses, including small and mid-sized enterprises.
Section 74: From anti-fraud tool to broad enforcement lever?
Section 74 of the CGST Act, 2017, empowers authorities to recover tax dues where non-payment arises from fraud, willful misstatement, or suppression of facts. It allows for a penalty of up to 100% of the tax amount and has a limitation period of five years—longer than the three years under Section 73, which applies to genuine or non-fraudulent mistakes.
But what was intended to be a deterrent against deliberate evasion is now being seen as an enforcement shortcut.
“Section 74 was supposed to be used sparingly and judiciously. But now, nearly every case of tax mismatch or classification difference is being labeled as fraud,” said a senior tax head at a leading FMCG company. “This not only leads to inflated demands but forces businesses into prolonged and costly litigation.”
Experts warn of structural misuse
Abhishek A Rastogi, founder of Rastogi Chambers and a leading tax counsel who has argued hundreds of GST cases in courts, points to systemic misuse of the provision.
“Section 74 is now being used as a default, not an exception. Revenue authorities often invoke it to bypass the shorter timeline under Section 73,” he said.
“You cannot call every dispute fraud. Even a genuine difference in legal interpretation is being treated as suppression of facts. This erodes taxpayer confidence and violates the intent of the law.”
Rastogi notes that disputes involving classification or valuation—often revenue-neutral—are frequently escalated under Section 74, exposing businesses to criminalisation where none is warranted.
The timeline trap
One major reason behind the trend appears to be the extended five-year limitation under Section 74. Tax professionals say this creates an incentive for officers to stretch timelines or issue notices after deadlines under Section 73 have lapsed.
“This is weaponising timelines. Officers invoke Section 74 not because there is fraud, but because the three-year window under Section 73 has closed,” said a senior tax consultant advising infrastructure clients. “This amounts to a procedural workaround at the cost of legal integrity.”
