CA Writes Against Misuse of Section 74 Powers by Delhi CGST Offices

On 4th May 2025, a letter was written by Rakesh Garg, who is an author, chartered accountant and also an advocate to the chairman of the Central Board of Indirect Taxes and Customs. He has been an author for over 25 years of sales tax, VAT, service tax, and GST books. He was an advocate and previously a Chartered Accountant for 40 years.

The letter was written to draw attention to the serious misuse of Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, by the Audit Departments under the Delhi CGST Commissionerate. Books on Sales Tax, VAT, Service Tax, and GST have been authored by him for more than 25 years and are widely referred to by tax professionals and department officials. Assistance was also provided by him to the Delhi Government in drafting provisions of the Delhi VAT Act, 2004.

Section 74 has been found to be invoked at will and mechanically by audit officials, even without the existence of any fraud. Correct questions are not being asked, and no reason whatever is being offered. This results in bona fide taxpayers being erroneously labelled as committing “fraud” with very harmful effects. Such effects range from loss of reputation, credit scoring, denied banking facilities, breaking of business arrangements, and heavy emotional strain.

Under the CGST Act, the choice of issuing show cause notices under Section 73 or Section 74 is available based on the type of case. Whereas Section 74 is intended for fraud or intent to avoid tax cases, Section 73 is to be applied in all other cases. A new Section 74A has been added with retrospective effect from 1st November 2024, wherein the disposal of both categories of cases is simplified, although the differentiation between fraudulent and non-fraudulent matters is retained. Nevertheless, Section 74 is still relied on wholly.

Many cases are being brought to my notice in the course of my professional and training work, where notices under Section 74 are being served without any examination of facts. While strict action must be taken in actual fraud cases, the same approach should not be used in routine tax disputes. If Section 74 is used casually, the safeguards provided by law and the principles of natural justice are violated.

Refer to the letter for complete information