SCN u/s.74

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A client has received a Show Cause Notice (SCN) under Section 74 of the CGST Act for the 2017-18 financial year, with a demand including tax, interest, and penalty. The discrepancy arose from double-entered purchase bills, leading to an excess ITC claim. The question is whether this difference, especially during the initial GST period, constitutes fraud or a wilful misstatement justifying Section 74 proceedings, or if it's a case where Section 73 proceedings were time-barred. The advice suggests responding to the notice, paying the disputed ITC with interest and penalty, as clear demarcation between Section 73 and 74 is lacking.

Mahabir Prasad Agarwal

Mahabir Prasad Agarwal (Querist)

07 December 2023 Sir, one of my client has received a SCN u/s.74 of CGST Act for FY 2017-18 with a demand of Rs. 1,71,000/- which comprises Tax Payable 57000/-, Interest 57,000/- & Penalty 57,000/- (approx.). Sir,as far as Tax liability is concerned, it is ok. The difference in ITC is due to few purchase bills double entered. Total ITC claimed by my client is approx. 13.11 lac, while as per GSTR 01 filed by suppliers is approx.12.54 lac. This difference of Rs. 57,000/-(which is approx.4.5 % of the allowed ITC) can be a ground for fraud or wilful statement to issue SCN u/s.74 ? The concerned period was Initial period of GST era and nothing was clear at that time.

RAJA P M

RAJA P M (Expert)

09 December 2023 Double entry is not as per above said excess percentage calculation.

CS Advocate Abhishek Goyal

CS Advocate Abhishek Goyal (Expert)

12 December 2023 See, in your case what i can make out is that section 74 proceedings have been initiated only because the time limit for issuance of SCN u/s 73 has already gone. So to save the leakage or revenue and ommission to issue SCN u/s 73 they have issued notice under section 74. But the problem is that you don't have the option to fight it out because there is no clear guidance for demarcation between sec 73 and 74. All you can do is to reply and pay the amount of wrongly claimed ITC with interest and applicable penalty.

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