CA Certificate Ignored: Why Section 74 GST Demand Was Set Aside
In a key ruling, a High Court quashed GST proceedings under Section 74 for being mechanical and non-application of mind. The taxpayer had submitted a Chartered Accountant’s certificate to justify input tax credit (ITC), but the department issued demand without verifying the documents—violating principles of natural justice.
What is Section 74 of CGST Act?
Section 74 deals with cases of fraudulent ITC claims or tax evasion with intent. If proven, it allows the department to impose penalty equal to tax. But the law also mandates a proper opportunity for defence and evidence consideration before finalising the demand.
Case Highlights: Why the Court Intervened
- The department did not refute or investigate the certificate.
- Instead, it passed an order under Section 74, imposing tax, interest, and penalty.
- The Court held this was a mechanical approach, lacking proper reasoning or enquiry.
Why This Judgment Matters
- Reinforces that CA certificate is admissible evidence, not mere formality.
- GST officers must provide detailed justification when rejecting a taxpayer’s documents.
Key Legal Takeaways
| Issue | Court’s Finding |
|---|---|
| CA Certificate Submitted | Must be considered seriously and investigated |
| Mechanical Order Passed | Violates principles of natural justice |
| No Cross-examination | Weakens the department’s case |
| ITC Based on Genuine Dealings | Officer must verify facts, not assume fraud |
| Penalty Imposed Automatically | Unjust without proof of intent or evasion |
Expert Tip for Taxpayers
Always document your transactions well—purchase invoices, e-way bills, payment proofs, and Chartered Accountant certificates. If wrongly accused under Section 74, such evidence strengthens your case before appellate authorities or courts.
When Can CA Certificate Help in GST Cases?
CA certification can be crucial in disputes involving:
- ITC reversal under Section 74
- Allegations of fake invoices
- Mismatch between GSTR-2A and books
- Denial of refund claims
- Supplier default cases
Make sure your certificate explicitly mentions:
- Invoice details
- Goods movement proof
- Payment confirmation
- Tax paid status of the supplier
Real Case Reference
This legal reasoning aligns with rulings such as:
- M/s Sahil Enterprises v. State of U.P. (2023)
- M/s D.Y. Beathel Enterprises v. State Tax Officer (Madras HC)
Final Word
Section 74 demands cannot be sustained without genuine application of mind. If you’re facing such notices, don’t ignore them—respond with proper documentation.
Need help responding to GST demands or drafting replies under Section 74?
Let Efiletax experts review your case, draft replies, and protect your rights.
FAQs
Q1. Is a CA certificate enough to defend against GST notices?
Not always—but it adds significant weight when backed by genuine records. Courts consider it a credible document.
Q2. Can I ignore a Section 74 notice if I have done nothing wrong?
No. You must respond with evidence. Ignoring it can lead to an ex parte penalty.
Q3. Can I challenge a Section 74 order in court?
Yes. If natural justice is denied or evidence is ignored, you can appeal to HC.
Summary
GST demand under Section 74 was struck down for mechanically ignoring a CA certificate submitted by the taxpayer. The court held that such evidence must be properly considered, reinforcing the importance of natural justice and non-arbitrary tax proceedings.