Understanding CGST Act Section 73: Scope, Deadlines, and Sanctions
Section 73 of the CGST Act governs GST demand in non-fraudulent situations, covering cases of unpaid, underpaid, or erroneously refunded tax, and incorrect ITC utilization. Recent amendments in FY 2024-25, influenced by the 53rd GST Council and Finance Bill, introduce a new Section 74A, which clarifies time limits for issuing notices and orders. This includes new monetary thresholds for demand notices and revised penalty structures, offering relief to taxpayers who settle dues promptly.
Since the Goods and Services Tax (GST) was implemented in India, Section 73 of the CGST Act has governed the assessment of GST demands in situations where no fraudulent intent is present. Significant amendments have been introduced via the FY 2024-25 budget, based on recommendations from the 53rd GST Council meeting. This article will examine these changes to Section 73 of the CGST Act and their potential advantages for taxpayers.
Important Update > The final date for issuing Show Cause Notices (SCN) under Section 74 (for Financial Year 2019-20) and Section 73 (for Financial Year 2021-22) is September 30, 2025. Businesses should anticipate an increase in such notices.
What is Section 73 of the CGST Act?
Section 73 of the Central Goods and Services Tax (CGST) Act details the procedure for determining GST demand in typical situations that do not involve fraud, intentional misrepresentation, or concealment of facts. This provision applies if:
- Tax has not been properly paid.
- The tax amount remitted is less than the actual liability.
- An erroneous tax refund has been issued.
- Input Tax Credit (ITC) has been incorrectly claimed or utilized.
For a comprehensive understanding of GST law, refer to the relevant provisions.
Applicability of Section 73 from FY 2024-25 Onwards
The financial year 2024-25 marks significant revisions to Section 73 of the CGST Act. Two major developments have reshaped how these provisions will affect businesses. Below, we explore these key events and their associated changes.
Recommendations from the 53rd GST Council Meeting
The 53rd GST Council meeting put forth several crucial recommendations, including:
- Establishing a definitive maximum period for issuing demand notices.
- Reducing the penalty burden for taxpayers who settle their tax and interest obligations within 60 days of receiving a notice.
Amendments Introduced by the Financial Budget 2024-25
Following the 53rd GST Council Meeting's recommendations, the Finance Minister incorporated a new Section 74A into the Finance Bill 2024-25. This new section now encompasses the stipulations previously found in Section 73 and Section 74 of the CGST Act. Consequently, the following changes are effective from FY 2024-25:
- Section 73 remains applicable for GST demands pertaining to financial years up to 2023-24.
- Section 74A will govern cases from FY 2024-25 onwards.
The primary alterations introduced by Section 74A to the earlier Section 73 of the CGST Act are detailed below:
| Provisions in Section 73 of the CGST Act | Changes Introduced by Section 74A of the CGST Act |
|---|---|
| Issue of Demand Notice | A demand notice will only be issued if the tax amount involved for the Financial Year exceeds Rs. 1,000. |
| Time Limit | The time limit is now fixed at 42 months from either the due date for annual return filing or the date of an erroneous refund issuance. The final order must be issued within 12 months of the demand notice, with a possible extension of up to 6 additional months. The entire process should conclude within 18 months. |
| Penalty | The penalty will be the higher of 10% of the tax due or Rs. 10,000. No penalty applies if the taxpayer pays the full tax and interest within 60 days of the demand notice being issued. |
Time Limits Under CGST Act Section 73
Previously, Section 73 mandated that a demand notice be served at least three months before the final order's issuance. However, the specific timeframes under Section 73 of the CGST Act were often ambiguous, causing uncertainty for taxpayers. Furthermore, there was no defined limit for completing the demand resolution process.
The recently introduced Section 74A establishes precise time limits:
- The demand notice must be issued within 42 months from either the annual return filing deadline or the date an incorrect refund was processed.
- The conclusive order must be issued within 12 months of the notice's date.
- This timeframe can be extended for a maximum of six months by a Joint Commissioner or a higher-ranking official.
The Demand and Recovery Certificate (DRC) forms are utilized for the demand process under Section 73 of the CGST Act. For additional details on DRC forms, or to understand the procedure for issuing a demand notice, please refer to the respective guides.
Responding to a Demand Notice Under CGST Act Section 73
Continuing with the DRC series of forms, taxpayers can inform the relevant officer of payment under Section 73 of the CGST Act using Form DRC-03. Should you need to respond to a demand notice, Form DRC-06 is the appropriate document.
Taxpayers have several ways to address a demand notice issued under Section 73 of the CGST Act:
- Acknowledge the demand as correct with payment still due.
- Confirm the demand as correct, with payment already completed.
- Assert that the demand is not entirely accurate.
- State that the demand is only partially correct.
For guidance on drafting an effective response, refer to this step-by-step blog.
If you dispute a demand order issued by the GST authorities, you have the right to file an appeal under Section 73 of the CGST Act. A guide to appealing a demand order is available for assistance.
Penalties Under CGST Act Section 73
A primary objective behind enacting Section 74A to supersede the former Section 73 of the CGST Act was to offer penalty relief to taxpayers in standard scenarios. Let's examine the penalty provisions in greater detail.
| Section 73 of the CGST Act Penalty | Section 74A of the CGST Act Penalty | |---| | Situation | Levy of penalty | Situation | Levy of penalty | | Tax & Interest Paid Before Notice | No Penalty | Tax & Interest Paid Before Notice | No Penalty | | Tax & Interest Paid Within 30 days of the Notice | No Penalty | Tax & Interest Paid Within 60 days of the Notice | No Penalty | | Tax & Interest paid after 30 days of the Notice | Higher of 10% of Tax Due or Rs. 10,000 | Tax & Interest Paid after 60 days of the Notice | Higher of 10% of Tax Due or Rs. 10,000 |
For further information on penalties under Section 73 of the CGST Act, click here. It is also crucial to understand the conditions for claiming Input Tax Credit to ensure compliance with Section 73 provisions.