Facts of the Case:

In this case, the petitioner had undertaken a highway project under an agreement dated 08.12.2010. The work was completed in October 2020. Subsequently, the petitioner received ₹36.47 crore towards price adjustments relating to the works. The bills were prepared by Assam PWD, approved by the Ministry of Road Transport & Highways and paid to the petitioner.

The petitioner disclosed the price-adjustment receipts in its audited financial statements and GST filings but, on the bona fide understanding that such receipts relating to a pre-GST contract were not taxable, treated the amount as exempt in its annual GST return. During investigation, the petitioner paid ₹30 lakh and stated that the estimated GST liability was ₹82.07 lakh. The DGGI thereafter issued an SCN dated 04.08.2024 under Section 74(1) demanding GST of ₹4,37,73,372 for July 2017 to March 2023, along with interest and penalty.

Issue:

Whether Section 74(1) could be invoked merely on the basis of non-payment/incorrect self-assessment of GST, without establishing fraud, wilful misstatement or suppression of facts with intent to evade tax, where the receipt in question had already been disclosed in the petitioner’s financial statements and GST filings.

Held That:

The Gauhati High Court quashed the Section 74(1) SCN, holding that the statutory preconditions for invoking Section 74 were not satisfied. The Court observed that Section 74 requires the non-payment or short-payment of tax to be by reason of fraud, wilful misstatement or suppression of facts with intent to evade tax. Mere omission or incorrect declaration, without a deliberate attempt to evade tax, cannot constitute wilful suppression.

The Court found that the petitioner had disclosed the receipt of price-adjustment amounts in its audited balance sheet, income-tax filings and annual GST return and had also declared the receipt before the GST authorities. The petitioner had treated the amount as exempt based on its understanding that the price adjustment related to a pre-GST agreement. Further, the Assam PWD and Ministry had themselves not included GST in the relevant price-adjustment bills. In these circumstances, the Court held that the record did not establish any deliberate suppression or mens rea to evade tax.

Relying upon the principles laid down by the Supreme Court in Pushpam Pharmaceuticals, Anand Nishikawa, Continental Foundation, Chemphar Drugs, Cosmic Dye Chemical and Uniworth Textiles, the Court reiterated that mere non-payment or incorrect declaration does not automatically amount to suppression; something positive and deliberate indicating an intention to evade tax is required for invoking the extended period under Section 74.

The Court accordingly held that the conditions precedent for exercise of jurisdiction under Section 74(1) were absent and that issuance of the SCN was without jurisdiction.

Case Name: M/S Bhagya Kalita Versus Union of India dated 09.09.2026

Citation No. 2026 Taxo.online 2996