The Goods and Services Tax (GST) framework in India was introduced in 2017. Since then, various changes have been made to improve its compliance and effectiveness in terms of revenue generation. In 2024 Union Budget, Section 74A has been introduced to further standardize the GST structure from the perspective of litigation. This article discusses the provisions of Section 74A, the effect that it has on the stakeholders and its implications for stakeholders, and its potential impact on businesses as well as tax administration.
Part A: Overview
According to the Central Goods and Services Tax (CGST) Act 2017, the framework for issuing notices and orders (i.e., either related to fraud/non-fraud cases) are clearly defined based on the nature of breaches by taxpayers. For instances that do not involve either fraud, intentional misrepresentation, or concealment of information, procedures/timelines are governed by Section 73. Further, in cases involving such violations such as fraud etc., are subjected to more stringent requirements specified in Section 74.
As Section 74A has been introduced as part of the Union Budget 2024 with the intention to address tax-related issues including non-payment, short payment, erroneous refunds, or inaccurate input tax credits relevant to Financial Year 2024-25 and subsequent years. The primary objective of Section 74A is to standardize the timeframe for issuance of show cause notices and orders across all cases—regardless of whether fraudulent activity is involved or not. Notably, existing regulations under Sections 73 or 74 will continue to apply for tax matters concerning periods up to FY 2023-24; however, provisions outlined in Section 74A will be implemented beginning with FY 2024-25.
Part B: Changes with existing provisions (i.e with Section 73 and Section 74 of CGST Act'2017)
| Relevant Section | Detail (74A) | Comparison with Section 73 (Existing) | Comparison with Section 74 (Existing) |
|---|---|---|---|
| Scope | Uniform approach i.e. tax has been not paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for reason of fraud or otherwise. | Tax has been not paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason other than fraud, wilful misstatement, or suppression of facts. | Tax has been not paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for reason of fraud, wilful-misstatement, or suppression of facts. |
| Issuance of Notice (74A(1)) | INR 1,000 (No SCN to be issued if demand is less than ₹1,000) | No threshold limit | No threshold limit |
| Time Limit for Issuance of Notice (74A(2)) | Issued within 42 months from either the due date of the annual return or the date of the erroneous refund. | Under Current provisions, issuance of notice is permitted to be issued at least 3 months before the expiry of 3 years from the annual return's due date. | Under Current provisions, issuance of notice is permitted to be issued at least 6 months before the expiry of 5 years from the annual return's due date. |
| Penalty (74A(5)(i)) |
10% of the tax due or Rs. 10,000, whichever is higher (for non-fraud cases). Equivalent to tax due (for fraud cases) |
Penalty in Section 73 is 10% of tax or Rs. 10,000, whichever is higher, if payment is made after 30 days of the order. | Penalty under Section 74 is equivalent to the tax due. |
| Issuance of Order (74A(6)) | The proper officer, after considering the representation made by the person, shall determine the amount of tax, interest, and penalty due and issue an order. | Similar provisions | Similar provisions |
| Time Limit for Issuance of Order (74A(7)) | Issued within 12 months from the date of issuance of notice, extendable by 6 months with approval. | Under current provisions, the order to be issued within 3 years from the due date of the annual return. | Under current provisions, order to be issued within 5 years from the due date of the annual return. |
| Voluntary Payment Before SCN (74A(8)(i)) | No penalty if tax and interest are paid voluntarily before the issuance of SCN. | Similar to Section 73 where no penalty is imposed if payment is made voluntarily before SCN. | Similar to Section 74 where a 15% penalty is imposed if payment is made before SCN. |
| Voluntary Payment After SCN (74A(8)(ii)) | No penalty if tax and interest are paid within 60 days of the SCN. | Under current provisions, no penalty is imposed if payment is made within 30 days of the SCN. | Under current provisions, a 25% penalty is imposed if payment is made within 30 days of the SCN. |
| Self-Assessed Tax Penalty (74A(11)) | Penalty will be levied if any self-assessed tax or collected tax is not paid within 30 days from the due date. | No such clause is available under current provisions | No such clause is available under current provisions |
| Applicability (74A(12)) | Applicable for determination of tax from the financial year 2024-25 onwards. | Applicable till 2023-24 | Applicable till 2023-24 |
Part C: Overall impact and Conclusion
Section 74A of the CGST Act, 2017 will enhance tax determination and compliance processes by following a uniform approach for all cases (either fraud/non-fraud). Further, such section encourages taxpayers to promptly correct pending issues with tax office, thereby resulting into decrease in number of litigations. In comparison to current provisions specified in Sections 73 and 74, Section 74A provide a more streamlined approach that provides clarity and fairness within the system i.e for both tax officers and taxpayers.
It is noteworthy that GST officers are allowed approximately five years from the conclusion of the relevant financial year to issue orders. Should this timeframe be fully utilized, taxpayers may face significant increases in interest liabilities subject to obtaining orders near the limitation date of issuance of order. Additionally, ongoing litigation concerning penalty recovery—regardless of whether it stems from fraudulent or non-fraudulent activities—is expected to remain a pertinent issue under these new provisions as well.
Considering tax officer's time frame for issuing notices/orders has been increased to approximately five years, taxpayers need to implement stringent internal audit/review systems. Implementing such measures will facilitate early detection of mistakes and rectification as well as storage of relevant documents therefore minimizing future costs (i.e any penal interest/penalty) and ensuring that the taxpayer is in compliance with all applicable provisions. As a result, taxpayers may save themselves from financial consequences that may affect them negatively in the long run.
For additional insights and a broader overview of the 2024 budgetary changes, please refer to the Coinmen Budget 2024 Report
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.