Section 74 GST Reply: A Practical Defence Strategy Based on 2025–26 High Court Rulings

Drafting a Section 74 GST Reply That Pre-Empts Adjudication: A Playbook From 2025-26 High Court Wins

Section 74 of the CGST Act empowers the tax authorities to invoke the extended limitation period and impose enhanced penalty where tax has been unpaid or short-paid on account of fraud, wilful misstatement, or suppression of facts. For years, departmental practice has treated the invocation of Section 74 as almost interchangeable with Section 73 — the extended-period cousin used simply where the routine period had expired. Through 2025 and into 2026, a coherent line of High Court decisions has firmly closed that door. The message from the writ courts is unambiguous: fraud must be alleged, particularised, and made out on the record. Absent that, the entire Section 74 proceeding falls.

For a Kolkata litigator drafting replies to Section 74 show cause notices, this line of judgments has transformed the strategic calculus. A well-drafted reply now aims not just at defending on merits, but at extinguishing the notice at the jurisdictional threshold.

The recent line — four judgments every practitioner should cite

• Reevan Creation v. State of Gujarat (Gujarat HC, January 2026) — invocation of Section 74 held unsustainable in the absence of any finding or material establishing fraud, wilful misstatement, or suppression of facts with intent to evade tax.
• Neeyamo Enterprise Solutions v. Commercial Tax Officer (Madras HC, 2025) — six orders under Section 74 set aside on the ground that neither the show cause notice nor the impugned orders charged the assessee with fraud, wilful misstatement, or suppression.
• Aerocom Cushions (P.) Ltd. v. Asst. Commissioner CGST, Nagpur (January 2026) — demand under Section 74 struck down because the SCN and adjudication order recorded no finding of fraud; also because the State GST authority acted beyond jurisdiction.
• Merino Industries Ltd. v. State of Uttar Pradesh (Allahabad HC, April 2025) — Section 74 order set aside because a personal hearing under Section 75(4) had been demanded and denied.

The consistent thread: Section 74 is not the department’s default route. It is a special provision with a jurisdictional prerequisite of alleged and demonstrated fraud, and a procedural prerequisite of personal hearing on demand.

The drafting framework — five layers of defence in the reply

1. Jurisdictional challenge first. Open the reply by establishing that the notice does not allege fraud, wilful misstatement, or suppression of facts with intent to evade tax. Quote the exact language of the notice — or its silence on this point. Cite Reevan Creation and Aerocom Cushions as the operative authority. This positions the entire adjudication as jurisdictionally defective.
2. Statutory demand for personal hearing under Section 75(4). Even where the notice offers a hearing, the reply should demand it in unambiguous terms and record the date, time, and place preference. Merino Industries makes clear that denial of a demanded hearing is fatal to the order.
3. Substantive defence on merits. Address each disputed line item with contemporaneous documentation — invoices, GSTR-1 and GSTR-3B reconciliation, e-way bills, bank statements evidencing payment, and (critically) evidence of the supplier’s tax deposit where ITC is disputed.
4. Alternative relief — request conversion or fresh notice under Section 73. If the department maintains that tax was short-paid but cannot demonstrate fraud, the appropriate route is Section 73, not Section 74. Requesting this in the alternative closes the department’s procedural escape.
5. Preservation of appellate rights and interim protection. Record that no coercive action should be taken pending disposal of the reply. Reserve the right to challenge any adverse order before the First Appellate Authority and, thereafter, the GSTAT.

Language templates that have worked in Bengal matters

For the jurisdictional challenge, I now open replies with a formulation broadly along these lines:

“The impugned show cause notice invokes Section 74 of the CGST Act. However, a plain reading of the notice discloses no allegation, particularisation, or supporting material to establish that the alleged tax non-payment arose from fraud, wilful misstatement, or suppression of facts with intent to evade tax. In the absence of such allegation and finding, the invocation of Section 74 is without jurisdiction, and the notice is liable to be set aside on this ground alone.”

Follow this with citations, factual particulars, and the reasoning specific to the case. Adjudicating authorities in Bengal are increasingly receptive to this framing where the judicial position is properly cited.

Timeline discipline

• Reply due date — respond within the statutorily permitted window; extension requests should be reasoned and documented.
• Personal hearing — attend with a written submission, not merely oral arguments. The written submission becomes the record for any subsequent appeal.
• Post-adjudication — if an adverse order is passed, file the appeal within three months to preserve GSTAT rights. Compute the pre-deposit correctly under Section 107.

When the department presses ahead despite a jurisdictional challenge

Where the adjudication proceeds despite a clean jurisdictional challenge, the appellate path is now materially shorter with the GSTAT Eastern Bench operational in Kolkata since May 2026. A well-preserved record — reply, personal hearing submission, and adjudication order — sets up an appeal on which the appellate authority (and eventually the GSTAT) is likely to grant relief following the line of judgments cited above.

Closing action list for Bengal practitioners

• When a Section 74 notice arrives, read it first for the fraud allegation, not for the tax computation.
• Demand personal hearing in writing, contemporaneously.
• Draft the reply in five layers — jurisdictional, procedural, substantive, alternative, and appellate.
• Preserve every step for the appellate record — pre-deposit computation depends on it.
• Cite Reevan Creation, Neeyamo, Aerocom, and Merino Industries as the working authorities.

Section 74 is now the most defensible category of GST notice from the taxpayer side — provided the reply is drafted to extinguish the notice at the jurisdictional threshold rather than merely defend on merits. The 2025-26 line of judgments has handed practitioners a template that, applied disciplined, converts many Section 74 proceedings into brief adjudications and eventual appellate wins.