Detailed Insight of Section 74A of CGST Act, 2017| Common Provisions for Fraud and Non-Fraud Cases Under GST Law

So Far, provisions related to the issuance of show cause notice, determination of tax not paid, short paid, wrongly claimed ITC and erroneous refund are given in the following sections:

1. Section 73: Where tax is short paid or not paid for any reason other than fraud or any willful misstatement of facts or suppression of facts;
2. Section 74: Where tax is short paid or not paid for any reason of fraud or any willful misstatement of facts or suppression of facts;

Under both sections, separate time limits and penalty provisions are provided. 

However, to streamline the assessment proceedings for cases of fraud and other than fraud, in line with recommendations of the GST Council in the 53rd GST Council meeting, the Union Budget has proposed to introduce new Section 74A in Central Goods and Service Tax Act, 2017 which shall replace the Section 73 and Section 74 from FY 2024-25 onwards.

Therefore, as per the proposal, Till FY 2023-24, a Show Cause Notice shall be issued under Section 73 or 74 depending on the facts of the case. However, from FY 2024-25 onwards, SCN shall be issued under Section 74A.

This article elaborates on the provisions of Section 74A.

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1. Issuance of Show Cause Notice under Section 74A(1):

• As per Section 74A(1), where any tax has been short paid or not paid or erroneously refunded, or where ITC has been wrongly availed or utilized then the proper officer shall issue the Show Cause Notice to the concerned person requiring him to pay the amount along with interest and penalty leviable thereon.

• However, no SCN shall be issued where the tax amount or ITC involved is less than INR 1000.

• Such show cause notice shall be issued within 42 months from the due date of furnishing the annual return of the corresponding financial year or within 42 months from the date of erroneous refund. 

E.g.

For FY 2024-25, the due date for furnishing of annual return is 31st December 2025. Accordingly, show cause notice number section 74A can be issued by 30th June 2029 (i.e., 42 months from 31st December 2025)

• Earlier, the following due dates were provided for the issuance of show cause notice:
  • Section 73: Notice is to be issued within 3 months before the time limit provided for issuance of an order under Section 73(10). Order was required to be issued within 3 years from the due date of furnishing of the annual return of the corresponding year.
  • Section 74: Notice is to be issued within 6 months before the time limit provided for the issuance of an order under Section 74(10). Order was required to be issued within 5 years from the due date of furnishing of the annual return of the corresponding year.

• Accordingly, Section 74A has extended the time limit for issuance of notice for genuine cases from 33 months to 42 months from the due date of filing of the annual return. Whereas, the time limit has been reduced for fraud cases from 54 months to 42 months.

• A statement containing details of tax payable is also required to be issued along with a show cause notice.

2. Penalty Provision

As per proposed Section 74A, the penalty of the following amount shall be levied:

• Where the notice is issued for any reason, other than fraud or any wilful-misstatement or suppression of facts- 10% of the tax due or INR 10,000, whichever is higher; 
• Where notice is issued for the reason of fraud or any wilful misstatement or suppression of facts- Amount equivalent to the tax due.

3. Issuance of Order

• As per Section 74A(7) of the CGST Act, the proper officer shall issue the order within 12 months from the date of issuance of the Notice. Therefore, for FY 2024-25, if the notice is issued on 30th June 2029 then the order is required to be issued by 30th June 2030. 

• Therefore, the time limit for issuance of orders for genuine cases has been increased from 36 months (3 years) to 52 Months. On the contrary, the time limit for fraud cases has been reduced from 60 months (5 years) to 52 Months.

• Extension of time limit of issuance of order: If a proper officer is not able to issue the order within the specified period, the Commissioner, or an officer authorized by the Commissioner but not below the rank of Joint Commissioner of Central Tax, may extend such period by further period, subject to a maximum of six months. Order of extension should be issued before the expiry of the specified period.

4. Earlier payment of taxes

As per Section 74A(8) of the CGST Act,  The person chargeable with tax for any reason, other than fraud or any wilful misstatement or suppression of facts, may:

1. Deposit the amount of tax along with interest before issuance of notice under Section 74A(1) on his own and inform the proper officer in writing about such payment. In such case, the proper officer shall not serve any notice on such person in respect of the tax so paid or any penalty payable thereon;

2. Pay the tax along with interest within 60 days from the issue of the show cause notice (30 days is provided under section 73). In such case, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.  

As per Section 74A(9) of the CGST Act,  The person chargeable with tax for any reason of fraud or any wilful misstatement or suppression of facts, may:

1. Pay the amount of tax involved along with interest payable and penalty equivalent to 15% of such tax amount before issuance of notice under section 74A(1) on his ascertainment and inform the proper officer about such payment. In this case, the proper officer shall not issue any show cause notice concerning such tax and penalty applicable thereon;

2. Pay the tax along with interest payable and a penalty equivalent to 25% of such tax within 60 days of the issue of the notice (30 days is provided under section 74). In such case, all the proceedings in respect of the said notice shall be deemed to be concluded;

3. Pay the tax along with interest payable thereon and a penalty equivalent to 50% of such tax within 60 days of communication of the order (30 days is provided under section 74). In such case, all proceedings in respect of the said notice shall be deemed to be concluded.  

However, where payment made by the taxpayer on a suo-moto basis falls short of tax payable then the proper office shall issue the notice for a differential amount.

5. Applicability of Section 74A of CGST Act

Provisions of Section 74A shall apply from FY 2024-25 onwards.

6. Conclusion

Section 74A has been inserted with the intent of streamlining the process for both fraud and non-fraud cases. However, providing unnecessary higher time for non-fraud cases may cause hardship to the genuine taxpayers. Also, treating fraud and non-fraud cases similarly will discourage motivation for GST compliance. Whether GST Income Tax or any other law, fraud and non-fraud cases have been treated differently, especially in terms of timelines.