Mere non payment of GST liability apparent in DRC-01 not justified invoking Section 74

Mere non payment of GST liability apparent in DRC-01 would not justify invoking provisions of Section 74 of the Act – High Court 

In a recent judgment, Hon’ble Allahabad High Court has held that mere non payment of GST liability apparent in DRC-01 would not justify invoking provisions of Section 74 of the Act without allegation of fraud, wilful-misstatement or suppression of facts to evade tax.

ABCAUS Case Law Citation:
4439 (2025) (03) abcaus.in HC

In the instant case a writ petition was filed by the petitioner against the order passed by GST Authorities under Section 74 of State Goods and Services Tax Act, 2017 (the Act), for the raising a demand towards interest and penalty.

The petitioner was issued a show cause notice under Section 74 of the Act inter alia indicating that though in GST DRC-01 a tax liability was declared, however, no tax was deposited and that notice under Section 61 of the Act was issued, however, no explanation was submitted.

Pursuant to the said notice, the petitioner deposited the said tax liability through DRC-03. Thereafter, the impugned order had been issued demanding the amount of interest and penalty.

Before the Hon’ble High Court the Petitioner contended that a bare look at the notice would reveal that none of the ingredients of Section 74 of the Act have been alleged as there had been no fraud or wilful misstatement or suppression of facts on the part of the petitioner inasmuch as liability was clearly reflected and had been accepted by the Department and, therefore, notice under Section 74 of the Act could not have been issued and once the notice itself is without jurisdiction, passing of the order demanding interest and penalty cannot be sustained.

On the other hand, the Revenue support the order impugned with the submissions that though through GST DRC-01 tax liability was apparent, deliberately, the same was not deposited by the petitioner and, therefore, issuance of the notice under Section 74 of the Act and raising the demand of interest and penalty was justified.

The Hon’ble High Court observed that a bare look at the show cause notice u/s 74 revealed that only indication made was that for the period in question, there was a difference between GST DRC-01 and GST-3B and that no response to notice under Section 61 of the Act was given and, therefore, the petitioner must deposit a sum as tax along with interest and penalty. The petitioner deposited the tax, whereafter the order impugned under Section 74 of the Act had been passed demanding interest and penalty.

The Hon’ble High Court further observed that section 74 of the Act can be invoked 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’. However, neither the show cause notice alleged the ingredients of Section 74 of the Act pertaining to suppression etc. nor the order passed under Section 74 of the Act made any reference to the said ingredient of Section 74.

The Hon’ble High Court stated that for invoking Section 74 of the Act, the allegations pertaining to suppression etc. are sine qua non in absence thereof, the jurisdiction under Section 74 of the Act itself cannot be invoked by the authorities.

In view of above, the Hon’ble High Court held that there was no doubt that the order impugned demanding interest and penalty from the petitioner invoking provisions of Section 74 of the Act could not have been invoked.

Consequently, the petition was allowed and the order impugned passed under section 74(2) of the Act was quashed and set aside.

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