Comparing CGST Act Sections 74A, 73, and 74: Key Distinctions Explained

The GST Act, since its implementation in 2017, has undergone continuous amendments and reviews to adapt to evolving business landscapes and ease compliance burdens for various industries and enterprises. The most recent efforts to streamline the process include the decisions and changes made during the 53rd GST Council meeting on June 22, 2024.

This article delves into the recently introduced Section 74A of the CGST Act and contrasts it with the existing Sections 73 and 74.

Latest Update The final deadline for issuing Show Cause Notices (SCN) under Section 74 (for FY 2019-20) and Section 73 (for FY 2021-22) is September 30, 2025. Businesses should anticipate an increase in such notices.

Overview of Section 74A of the CGST Act

Section 74A aims to standardize the timeline for issuing notices, raising tax demands, and providing penalty relief for outstanding tax liabilities, regardless of whether they stem from fraud, intentional misrepresentation, or concealment of facts. This section comes into effect from Financial Year 2024-25 and will replace the provisions of Sections 73 and 74.

Under the provisions of the new Section 74A, an authorized GST officer:

• May issue a tax demand notice on non-payment, underpayment of tax, incorrect appropriation of excess tax refunds, or excessive input tax credit (ITC) claims, irrespective of any element of fraud, deliberate misstatement, or factual suppression.
• Is prohibited from issuing a tax demand notice if the outstanding tax liability is below ₹1000.
• Must issue such a notice within 42 months from the date of an erroneous refund, excess input tax credit, or the due date of the annual return where suppression, fraud, or intentional misstatement occurred.
• Is required to present concrete evidence to support any accusation of fraud, intentional misstatement, or factual suppression. A mere assumption of wrongdoing is insufficient for issuing a notice related to such serious allegations.
• The penalty structure under Section 74A is outlined as follows:
  • If no intentional misconduct is involved, the taxpayer faces a penalty of 10% of the tax due or ₹10,000, whichever amount is greater.
  • Taxpayers who settle the outstanding tax liability before the notice is issued may receive penalty relief.
  • In cases involving fraud, suppression of facts, or intentional misstatement, the penalty imposed on the taxpayer will be equivalent to the tax amount owed.

Understanding Section 73 of the CGST Act

Section 73 addresses the process of determining tax liability when there is non-payment, underpayment of tax, an erroneous refund, or excess input tax credit availed by a taxpayer, provided these incidents occurred without any intent of fraud, intentional misstatement, or suppression of facts.

According to Section 73, a relevant GST officer:

• Is empowered to issue a show-cause notice (SCN) to the taxpayer, requiring an explanation for such discrepancies. This notice must be issued at least three months prior to the expiration of the maximum time limit for adjudicating the tax liability, as specified in sub-section (10).
• Can determine and specify in the notice the exact amount of tax due, applicable interest charges, and the penalty amount.
• May impose a maximum penalty equal to 10% of the tax liability or ₹10,000, whichever figure is higher.
• The maximum time limit for adjudicating tax liability under Section 73, sub-section (10), is three years from the due date of filing the annual return in which the tax was due or underpaid, or an excess tax refund was made, or excessive input tax credit was claimed and utilized by the taxpayer.

Understanding Section 74 of the CGST Act

Similar to Section 73, Section 74 deals with ascertaining outstanding tax liability resulting from non-payment, underpayment of tax, incorrect refunds, or excess input tax credit received by a taxpayer. The crucial distinction is that Section 74 is exclusively applicable when the tax liability arises from the taxpayer's fraud, intentional misstatement, or suppression of facts.

Under Section 74, a competent GST officer:

• Can issue a tax demand notice at least six months before the maximum time limit specified in sub-section (10) of Section 74 expires.
• As per sub-section (10), this maximum limit is five years from the due date of filing the annual return where tax was unpaid, underpaid, an erroneous excess refund was issued, or excess input tax credit was received by the taxpayer.
• A detailed statement explaining the tax discrepancies caused by non-payment, underpayment, excess refund, or excessive ITC claims must accompany the notice.
• Is authorized to levy interest on the unpaid tax liability, calculated according to Section 50 of the CGST Act, along with a penalty of 15% of the tax due.
• If the taxpayer fails to settle the full tax liability within 30 days of receiving the initial tax demand notice, a penalty of 25% of the outstanding amount may be imposed.
• Must consider any reply or representation made by the taxpayer to the officer in response to the first tax notice, provided it includes necessary supporting documents.
• Must terminate the proceedings if the taxpayer's representation effectively demonstrates that they do not owe the tax liability detailed in the demand notice.
• Can impose a penalty equivalent to 100% of the tax liability if the officer determines that the taxpayer's representation is inaccurate.

Key Differences Among CGST Act Sections 74A, 73, and 74

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