Introduction
The Finance (No. 2) Bill, 2024, proposed inserting s. 74A to the Central Goods and Services Tax Act, 2017 (‘CGST Act’) to issue notices for recovery of tax, interest, and penalty and establish timelines for adjudication under GST. The Bill was passed by the Lok Sabha on 07.08.2024 and received presidential assent on 16.08.2024.
Prior to the insertion of s. 74A of the CGST Act, the provisions related to issuing demand notices under GST were contained in ss. 73 and 74 of the CGST Act. S. 73 of the CGST Act addressed the recovery mechanism for cases that did not involve fraud, suppression, misstatements, etc. On the other hand, s. 74 of the CGST Act dealt with cases involving fraud, suppression misstatement, etc. With the insertion of s. 74A, both these sections have been made inoperative, and the recovery proceedings under GST shall be governed by a consolidated s. 74A of the CGST Act. This update contains a broad overview of newly inserted s. 74A of the CGST Act.
Scope of S. 74A
S. 74A of the CGST Act provides for recovery of tax, interest and penalties in all cases where there is a non-payment, short payment, erroneous refunds, or incorrect input tax credit availed or utilisation, regardless of whether these cases involve fraud, suppression or not. S. 74A of the CGST is applicable from the financial year (‘F.Y.’) 2024-25 onwards, and the recovery of demands for the period prior to F.Y. 2024-25 would continue to be made under s. 73 and s.74 of the CGST Act. Thus, the determination at the time of issuance of notice by the officer (whether it is a case of fraud, suppression or not and, therefore, whether it will fall under s.73 or s.74) is done away with.
Time Limits
Under s. 74A of the CGST Act, a notice for recovery must be issued within 42 months from either the due date of the annual return for the financial year to which the tax dues pertain or the date of the erroneous refund. Furthermore, an order determining the tax dues must be issued within 12 months from the date of the notice, with a possible extension of a maximum of 6 months, contingent upon approval.
The table below captures the time limits under the old and new recovery provisions under the CGST:
Particulars | S. 73 | S. 74 | S.74A |
The time limit for issuance of notice | 33 months from the due date of Annual Return | 54 months from the due date of Annual Return | 42 months from the due date of Annual Return or erroneous refund |
The time limit for passing an Order | 36 months from the due date of the Annual Return | 60 months from the due date of Annual Return | 12 months from the date of issuance of Notice, extendable by a maximum of 6 months |
Penalty Provisions
Though the distinction between fraud and non-fraud cases has been eliminated for the purpose of issuance of notices, it continues to remain relevant when it comes to the imposition of penalties.
S. 74A of the CGST Act provides that in non-fraud cases, the penalty would be 10% of the tax due or Rs. 10,000, whichever is higher. It is provided that if tax dues are paid before the issuance of a notice, there would be no penalty. Further, no penalty would be payable if the tax dues are paid within 60 days of issuance of notice.
S. 74A of the CGST Act provides that in non-fraud cases, the taxpayer may pay tax demand on the basis of his own ascertainment or as per the tax determined by the proper officer before the issuance of notice. If such tax is paid, the proceedings will be deemed to be concluded. This was also previously provided in s. 73 of the CGST Act. A notable addition in s.74A of the CGST Act is that a penalty would be payable even in non-fraud cases where the self-assessed tax or amount collected as tax has not been paid within 30 days of the due date. Therefore, the penal provisions have been made stricter even for non-fraud cases in certain situations.
For fraud cases, the penalty would be leviable under s.74A of the CGST Act as under:
If tax is paid before issuance of notice - 15% of tax dues
If tax is paid after notice but within 60 days – 25% of the tax dues
If tax is paid after passing the order but within 60 days – 50% of the tax dues.
Other Procedural Aspects
Regarding other procedural aspects, s. 74A of the CGST Act is worded similarly to ss. 73 and 74 of the CGST Act.
A notable difference in the new assessment procedure under s.74A of the CGST Act is that the limitation period for non-fraud cases has been extended and reduced for fraud cases. This may send the wrong signal to the business community that honest taxpayers are being penalised, whereas fraudulent taxpayers benefit from a reduction in the period of limitation.
Another notable feature of s.74A of the CGST Act is that the assessment procedure is to be completed in a time-bound manner, i.e., 12 months (extendable by a maximum of 6 months), which will benefit the taxpayers and the tax department for early resolution of the tax disputes. The consolidation into a single section under 74A of the CGST Act aims to streamline the process, reduce administrative complexity, and mitigate unnecessary litigation, thereby promoting a more efficient and cohesive approach to tax enforcement.
Authored by Adhijeet Neogy of Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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