GST and Fraud Proceedings Applicability to Statutory Authorities

The Goods and Services Tax (GST) was introduced in India in 2017. It was introduced as a unified tax regime designed to simplify compliance and to promote transparency. Even after a decade of its enactment, it is still in the process of being implemented through litigation.

One of the most important issues that is still under judicial scrutiny is whether statutory authorities and public sector undertakings (PSUs) can be subjected to fraud-based proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act).

The recent writ petition of the Jaipur Development Authority (JDA) before the Rajasthan High Court has brought this question into the spotlight.

The case primarily challenges the levy of GST on statutory receipts and contests the jurisdiction of tax authorities to invoke Section 74 against a statutory body. The High Court has admitted the petition and stayed the operation of the impugned notice, setting the stage for a landmark adjudication in April 2026.

Section 74 of the CGST Act: The Core Issue

Section 74 provides for tax authorities to initiate proceedings where tax has been short-paid, not paid, or wrongly availed due to fraud, willful misstatement, or suppression of facts. It is a penal provision. It contains tax liability along with interest and penalties equivalent to the tax amount. In those cases, SCNs must be issued within five years, and orders within five years and six months from the same reference point.

Statutory authorities are government-created entities functioning under legislative mandates, often with transparent accounting and oversight. The controversy arises when such provisions are applied to the same. Critics argue that accusing such bodies of fraud against another statutory authority undermines the principle of governance and accountability.

The Jaipur Development Authority Case

In the case in hand, the Petitioner is Jaipur Development Authority, a statutory body responsible for urban planning and development and the respondent is the Additional Commissioner, CGST Audit. The argument by the petitioner was that a statutory authority cannot be alleged to have committed fraud against another statutory authority. Rajasthan High Court admitted the petition and stayed the effect of the Section 74 notice until final adjudication.

This case is significant because it raises the broader question: Can statutory receipts, such as fees, charges, or levies collected by authorities, be treated as taxable supplies under GST, and if so, can fraud provisions apply?

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Wider Legal and Policy Debate

1. Applicability of GST to Statutory Receipts

Statutory authorities often collect charges like development fees, approval charges, or license fees. Whether these constitute “supply” under GST has been debated since its establishment. Some argue that such receipts are sovereign functions and cannot be considered as commercial transactions.

2. Fraud Allegations Against PSUs and Authorities

Legal experts caution against indiscriminate use of Section 74 against PSUs. As one commentary notes, “Stop waving the Section 74 sword at PSUs”, highlighting that fraud provisions were meant for deliberate evasion, not routine compliance disputes.

3. Judicial Trends

Courts have increasingly scrutinised the misuse of penal provisions. For instance, the Supreme Court clarified in 2025 that parallel proceedings under GST must be carefully limited to avoid taxpayer harassment in the case of M/S Armour Security (India) Ltd. vs Commissioner, CGST, Delhi East Commissionerate & Anr

To allege "suppression" by a PSU is, in substance, to claim the State is conspiring against itself. Courts and tribunals have repeatedly signalled this contradiction:

• In disputes involving Steel Authority of India Ltd., the judiciary has been wary of imputing suppression to PSUs absent compelling evidence of intent.
• Oil India Ltd. matters have emphasised that intent to evade cannot be presumed merely because a demand arose; if records are audited and positions are disclosed, intent is missing.
• In cases concerning Hindustan Aeronautics Ltd., tribunals have called the routine invocation of extended limitation against PSUs a logical absurdity where facts were in the department's grasp.

Expert Views

Tax Professionals argue that Section 74 should be reserved for clear cases of fraud, not applied mechanically. Policy Analysts stress that governance transparency in PSUs makes fraud allegations illogical. Judicial Observers note that the Rajasthan High Court’s stay signals judicial discomfort with extending penal provisions to statutory authorities.

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Risks and Challenges

Limiting Section 74’s scope may reduce enforcement leverage for tax authorities, and also, statutory authorities may face uncertainty until a clear judicial precedent is established. Also, Courts must balance revenue interests with principles of fairness and governance.

The Jaipur Development Authority’s challenge has opened a crucial debate on the limits of GST’s penal provisions. The High Court’s final adjudication is in April 2026. If the court rules in favour of JDA, it is likely to restrict the use of Section 74 against statutory authorities. Until then, the case serves as a reminder of the evolving nature of GST litigation and the need for careful statutory interpretation to ensure that India’s “one nation, one tax” framework remains both fair and effective.

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