GST officers must establish intent to evade tax

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The changes in GST law would require Parliament's nod and will be effective from April 1 next year, while the changes in administrative functioning are being done through issuance of circulars

By PTI

Updated - October 27, 2026 at 03:42 PM. | New Delhi

GST field officers will now have to prove the intent of a taxpayer to evade taxes before invoking the stringent GST law provision relating to 'fraud, wilful-misstatement, or suppression of facts' for raising tax demand, the Central Board of Indirect Taxes and Customs (CBIC) has said.

In a circular, the CBIC said section 74(1) or section 74A(5)(ii) of the CGST Act cannot be invoked merely on the ground of non-payment of GST without "specific evidence" of fraud or wilful-misstatement or suppression of facts with intent to evade tax.

These provisions would also not be applied in scrutiny cases solely because a discrepancy has been noticed, as scrutiny proceedings are conducted to examine the records and ascertain the nature of the issue and not to automatically presume fraud, it said.

"Accordingly, these provisions may be invoked only where the investigation discloses material evidence of such conduct, which must also be clearly set out in the SCN (show cause notice)," the CBIC said.

The circular follows the decisions taken at the 57th GST Council meeting held on October 8 that decided on several changes to decriminalise the GST law and rules. The Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising state ministers, decided to scrap arrest powers of tax officers, while raising prosecution threshold to ₹5 crore from ₹1 crore.

The changes in GST law would require Parliament's nod and will be effective from April 1 next year, while the changes in administrative functioning are being done through issuance of circulars.

Referring to judgements by the Supreme Court and High Courts, the CBIC said show cause notices should specifically disclose the basis for invoking the provisions relating to tax demand on grounds of fraud, wilful-misstatement, or suppression of facts.

Section 74(1) or Section 74A(5)(ii) of the CGST Act provides for determination of tax liability where there is fraud or wilful misstatement or suppression of facts committed by the taxpayer to evade tax. 'Suppression' is defined as non-declaration of facts or information required to be furnished in a return, or any other document, or failure to furnish information specifically called for.

Penalties under this Section range from 15 to 100 per cent of the tax amount, depending on payment timing relative to the SCN.

The phrase 'fraud or wilful misstatement or suppression of facts' inherently includes the element of intent to evade tax.

The suppression or misstatement must be deliberate and aimed at avoiding or reducing tax liability, mere omission to furnish correct information does not amount to suppression unless it is intentional, it added.

"The power to invoke fraud, wilful-misstatement, or suppression of facts for demand is conditional, hinging on proof of intent to evade tax, which is required to be clearly established in the SCN along with evidence," the CBIC said.

Published on October 27, 2026

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