Section 74 of the CGST Act applies to tax not paid, short paid or wrongly refunded due to fraud, wilful misstatement or suppression of facts, and carries a penalty of up to 100% of the tax. The department can reach back five years from the due date of the annual return, but must establish the fraudulent intent.
The ingredients the department must prove
Section 74 is not a default route — it requires fraud, wilful misstatement, or suppression of facts with intent to evade tax. The burden is on the department. Settled jurisprudence (the Pushpam Pharmaceuticals and Continental Foundation line from the central-excise era) holds that 'suppression' means a deliberate, positive act of withholding, not a mere omission, mismatch or interpretation difference.
Penalty and the payment windows
| When tax + interest is paid | Penalty |
|---|---|
| Before the SCN | 15% of tax |
| Within 30 days of the SCN | 25% of tax |
| Within 30 days of the order | 50% of tax |
| Otherwise (in the order) | 100% of tax |
These graded reductions reward early closure even in a Section 74 case.
Time limit
The order under Section 74 must be passed within five years from the due date of the annual return for the financial year (versus three years under Section 73). For periods from FY 2024-25, the unified Section 74A framework applies. Verify which limitation governs your period.
Defending a Section 74 notice
- Attack the jurisdiction: show full disclosure in returns, negating suppression, to push the case into Section 73 limits or out of time.
- Address each allegation with documents and reconciliations.
- Consider the 15%/25% windows where part of the demand is conceded.
- Always seek a personal hearing under Section 75(4).
Key takeaways
- Section 74 needs proven fraud/suppression, not a mere default.
- Penalty up to 100%, with 15%/25%/50% early-payment reliefs.
- Five-year time limit (vs three years under Section 73).
- Disproving suppression is the strongest jurisdictional defence.