India

GST Officers Must Show Intent to Evade Tax Before Applying Fraud Provisions

By PTI

New Delhi – The Central Board of Indirect Taxes and Customs (CBIC) has issued a circular stating that GST field officers must prove a taxpayer’s intent to evade taxes before invoking the CGST Act provisions on ‘fraud, wilful‑misstatement, or suppression of facts’ to raise tax demand. The circular clarifies that sections 74(1) and 74A(5)(ii) cannot be applied solely on the basis of non‑payment of GST without specific evidence of fraud or wilful misstatement. It also notes that these provisions will not be applied in scrutiny cases where a discrepancy is merely noticed, as scrutiny is meant to examine records rather than presume fraud. The CBIC says the provisions may be invoked only when investigations reveal material evidence of such conduct, which must be clearly set out in the show‑cause notice (SCN). The directive follows decisions from the 57th GST Council meeting on October 8, which decided to scrap tax officers’ arrest powers and raise the prosecution threshold to ₹5 crore from ₹1 crore. The legal changes require parliamentary approval and will take effect on April 1 next year, while administrative changes are being implemented through circulars. The CBIC referred to Supreme Court and High Court judgments, emphasizing that SCNs must specifically disclose the basis for invoking the fraud provisions. Section 74(1) and 74A(5)(ii) allow determination of tax liability where a taxpayer commits fraud, wilful misstatement, or suppression of facts to evade tax. ‘Suppression’ is defined as failure to declare required facts or information in a return or other document. Penalties under these sections range from 15 % to 100 % of the tax amount, depending on payment timing relative to the SCN. The CBIC reiterated that the phrase ‘fraud or wilful misstatement or suppression of facts’ inherently includes intent to evade tax and that suppression or misstatement must be deliberate; mere omission does not constitute suppression unless intentional.