Facts of the Case

Sriba Nirman Company, a partnership firm executing infrastructure Engineering Procurement Construction contracts, worked as a sub-contractor for M/s Vijay Nirman Company Ltd. during July 2017 to March 2018. It raised nine invoices aggregating Rs.20,92,02,422 (inclusive of GST of Rs.3,19,12,234) in March 2018 but was unable to pay GST or file GSTR-3B returns in time, as payments received from the principal contractor were insufficient and the GST portal did not permit filing returns without accompanying tax payment. On 31.07.2018, DGGI officers inspected the petitioner's premises and recorded statements; the petitioner thereafter deposited Rs.3,36,51,468 in four instalments between 31.07.2018 and 29.09.2018 and filed all pending GSTR-3B returns by 29.09.2018. Despite this, show cause notices dated 21.08.2020 and 03.09.2020 were issued demanding the tax (already paid), interest, and penalty under Section 122(1) read with Section 74(1) of the CGST Act. The demand was confirmed on 24.12.2021, and the appeal against it was dismissed on 26.07.2022, upholding the penalty; a further recovery notice under Section 79 followed on 19.08.2023.

Issues Involved

  1. Whether Section 74(1) of the CGST Act, which requires fraud, wilful misstatement or suppression of facts to evade tax, could be invoked merely on the ground of delayed payment of tax.
  2. Whether Section 74 could be invoked where the tax had already been paid nearly two years before the show cause notice was issued.
  3. Whether the limitation for compliance ran from the annual return due date under Section 44, rather than the monthly return/payment obligations under Sections 37 to 39.

Petitioner's Arguments

  • Mere non-payment of tax until the DGGI inspection cannot, by itself, amount to fraud, wilful misstatement or suppression of facts to evade tax, relying on CCE v. Adecco Flexione Workforce Solutions, CCE Visakhapatnam v. Tirupathi Fuels, Uniworth Textiles v. CCE, and CBIC Instruction No. 5/2023 (issued pursuant to the Supreme Court's directions in Northern Operating Systems).
  • Since the entire tax had been paid by September 2018 — nearly two years before the show cause notice dated 03.09.2020 — the jurisdictional facts required to invoke Section 74 were absent.
  • The last date for filing annual returns and paying dues was 07.02.2022 under Section 44; the question of non-payment could arise only after that date.

Respondent's Arguments

  • Sections 37 to 39 of the CGST Act, read with the applicable Rules, require registered dealers to file monthly returns and pay tax due by the 20th of the succeeding month; the petitioner's continuing failure to do so, despite receiving payments from its principal contractor, amounted to suppression of facts and evasion of tax, independent of the annual return timeline.

Court Order/Findings

  • The Court distinguished the excise/service tax precedents relied upon by the petitioner, noting that those turned on specific statutory bars (Section 73(3)/78 of the Finance Act/Central Excise law) precluding penalty where tax and interest were paid before notice; the CGST Act's Sections 73 and 74 contain no equivalent absolute bar.
  • The Court agreed, in principle, with CBIC Instruction No. 5/2023 that Section 74(1) cannot be invoked merely for non-payment of GST without specific evidence of fraud, wilful misstatement or suppression to evade tax, and that suppression under Explanation 2 must be wilful/deliberate suppression with intent to evade tax.
  • However, the immunity under Section 74(5)/(6) — which bars issuance of a notice where tax, interest and 15% penalty are all paid before notice — was held not to apply here, since the petitioner paid interest only after the notice and never paid the 15% penalty; the contention that the notice itself was barred was accordingly rejected.
  • The Court rejected the argument that only the Section 44 annual-return timeline mattered, holding that the independent monthly filing and payment obligations under Sections 37 to 39 stood undiminished, and continuing default there could itself amount to suppression.
  • On facts, since the petitioner had received sufficient payments from Vijay Nirman Company yet failed to remit the tax collected until confronted by the DGGI inspection, the Court upheld the finding of wilful suppression and affirmed the penalty under Section 74(1), dismissing the writ petition along with the connected penalties as natural corollaries.

Important Clarification

  • Section 74(1) of the CGST Act requires positive evidence of fraud, wilful misstatement, or wilful suppression of facts with intent to evade tax; mere delay in payment, standing alone, is not automatically treated as such (per CBIC Instruction No. 5/2023).
  • The pre-notice immunity under Section 74(5)/(6) is strictly conditional on payment of the full tax, interest under Section 50, and 15% penalty before issuance of notice — partial compliance (tax alone, or tax with belated interest) does not bar issuance of a Section 74(1) notice.
  • Filing of the annual return within the Section 44 timeline does not cure a continuing default of the independent monthly return and payment obligations under Sections 37 to 39; sustained non-filing despite the availability of funds can itself constitute wilful suppression justifying invocation of Section 74.

Sections Involved

  • Section 37, Central Goods and Services Tax Act, 2017 — furnishing of monthly outward supply details.
  • Sections 38 and 39, Central Goods and Services Tax Act, 2017 — monthly return filing requirements.
  • Section 44, Central Goods and Services Tax Act, 2017 — annual return.
  • Section 50, Central Goods and Services Tax Act, 2017 — interest on delayed payment of tax.
  • Section 73, Central Goods and Services Tax Act, 2017 — determination of tax not involving fraud/suppression.
  • Section 74, Central Goods and Services Tax Act, 2017 — determination of tax involving fraud, wilful misstatement or suppression of facts, the central provision at issue.
  • Section 79, Central Goods and Services Tax Act, 2017 — recovery of tax.
  • Section 122, Central Goods and Services Tax Act, 2017 — penalty for certain offences.
  • Section 125, Central Goods and Services Tax Act, 2017 — general penalty.
  • Section 47, Central Goods and Services Tax Act, 2017 — late fee for delayed filing.

Decision – In Favour of

The writ petition was dismissed in favour of the Department. The Court upheld the penalty imposed under Section 74(1) of the CGST Act, along with the connected penalties, holding that the petitioner's sustained non-filing of monthly returns despite receiving funds from its principal contractor amounted to wilful suppression of facts to evade tax.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Andhra Pradesh at Amaravati
  • Case No.: Writ Petition No. 25826/2023
  • CNR: Not available
  • Coram: Hon'ble Sri Justice R. Raghunandan Rao and Hon'ble Sri Justice Harinath N.
  • Decision Date: 29.01.2025
  • Disposal Nature: Dismissed - penalty under Section 74(1) CGST Act for non-filing of returns/non-payment of tax upheld

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