NEWLY INSERTED SECTION 74A OF THE CENTRAL GOODS AND SERVICES ACT, 2017

[Mr. M. GOVINDARAJAN]

Determination of tax

The registered persons have to pay tax under GST laws on self-assessment basis.  If there is any opinion in the minds of the proper officers that the tax is not levied or short levied or erroneously refunded or the input tax credit has been wrongly taken and utilized, then the proper officer may initiate action against the said registered person for the determination of tax and recovery of the said tax from the registered person. 

There are two sections 73 and 74 which provide for the determination of tax and recovery of the same.  Action will be taken under section 73 where the failure of levy of tax or short levy of tax etc. for the reasons other than fraud or any willful statement or suppression of facts.  Section 74 is the case where the reason by means of fraud or willful statement or suppression of facts. 

The Finance Bill, 2024 brought an end to the operation of Sections 73 and 74 by 31.03.2024.  The Finance Bill introduced a new Section 74A which is more or less similar to the provisions of Section 73 and 73 but differ in many aspects which came into effect from 01.04.2024.

The Finance Bill inserted the word ‘74A’ in the following sections which provides the determination of tax in one way or other-

• Section 21 – manner of recovery of credit distributed in excess;
• Section 35- Accounts and Records;
• Section 49 – Payment of tax, interest and penalties;
• Section 50 –Interest on delayed payment of tax;
• Section 51 – Tax deduction at source;
• Section 61 –Scrutiny of returns;
• Section 62 – Assessment of non-filers of returns;
• Section 63 – Assessment of unregistered persons;
• Section 64 – Summary assessment in certain cases;
• Section 65 – Audit by tax authorities;
• Section 66 –Special audit;
• Section 75 – General provisions relating to determination of tax;
• Section 104 – Advance Ruling to be void in certain circumstances;
• Section 107 -Appeals to Appellate Authority;
• Section 127 – Power to impose penalty in certain cases.

Limitation for issue of show cause notice

Section 74A almost combines the provisions of Section 73 and 74.  Section 73 provides for the issuance of show cause notice in case the registered person fails to levy tax or pay tax etc. for the reason other than fraud or willful misrepresentation or suppression of facts.  Section 74 provides for the issuance of show cause notice in case the registered person fails to levy tax or pay tax etc. by the reason of fraud or willful misrepresentation or suppression of facts.

Section 74A provides for issuing a show cause notice irrespective of whether the charges of fraud, willful misstatement, or suppression of facts are invoked or not, while keeping a higher penalty, for cases involving fraud, willful misstatement, or suppression of facts.

Section 73 provides that the show cause notice shall be issued within 3 months prior to the date of issuing of order which is 3 years from the last date for filing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within 3 years from the date of erroneous refund.  Section 74 provides that the show cause notice shall be issued within 6 months prior to the date of issuing of order which is 5 years from the last date for filing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within 5 years from the date of erroneous refund.

Section 74A provides that the show cause notice shall be issued within 42 months from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within 42 months from the date of erroneous refund.

Threshold limit

Section 74A provides that no notice shall be issued, if the tax which has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized in a financial year is less than Rs.1000/-.  No such threshold limit is available in section 73 or 74.

Payment of penalty

Section 73 provides that the registered person shall file a reply to the show cause notice within the time stipulated in the show cause notice. The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to 10% of tax or Rs.10,000/-, whichever is higher, due from such person and issue an order.

Section 74A (5) provides that the penalty in case where any tax which has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized-

1. for any reason, other than the reason of fraud or any willful-misstatement or suppression of facts to evade tax, shall be equivalent to 10% of tax due from such person or Rs.10000/-, whichever is higher;
2. for the reason of fraud or any willful-misstatement or suppression of facts to evade tax shall be equivalent to the tax due from such person.

Penalty shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of 30 days from the due date of payment of such tax.

Time limit for passing the order

Section 74A provides that the proper officer shall pass the order within 12 months from the issue of show cause notice.  If the proper officer is not able to issue the order within the specified period, the Commissioner, or an officer authorized by the Commissioner senior in rank to the proper officer but not below the rank of Joint Commissioner of Central Tax, may, having regard to the reasons for delay in issuance of the order under sub-section (6), to be recorded in writing, before the expiry of the specified period, extend the said period further by a maximum of 6 months.

Whereas Section 73 provides that the order shall be issued within 3 years from the due date of furnishing the return or erroneous refund.  Section 74 provides that the order shall be issued within 5 years from the due date of furnishing the return or erroneous refund.

Statement

All the three sections give powers to the proper officer to issue Statement in lieu of notice for the subsequent periods.  The service of such statement shall be deemed to be service of notice on such person subject to the condition that the grounds relied upon for such tax periods other than those covered in the said notice are the same as are mentioned in the earlier notice.

No notice

Section 73 (5) provides that the person chargeable with tax may, before service of notice or the statement pay the amount of tax along with interest payable thereon on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.  The proper officer, on receipt of such information, shall not serve any notice in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

Section 74(5) provides that the person chargeable with tax may, before service of notice pay the amount of tax along with interest payable and a penalty equivalent to 15% of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.   The proper officer, on receipt of such information, shall not serve any notice in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

Further notice

Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

Section 74 (7) provides that where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice in respect of such amount which falls short of the amount actually payable.

Section 74A (10) provides that where the proper officer is of the opinion that the amount paid falls short of the amount actually payable, he shall proceed to issue the notice in respect of such amount which falls short of the amount actually payable.

Deemed closure of show cause notice

Section 73(8) provides that where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable within 30 days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

Section 74 (11) provides that where any person served with an order pays the tax along with interest payable and a penalty equivalent to 50% of such tax within 30 days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.

Section 74A (8) provides that the person chargeable with tax where any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized for any reason, other than the reason of fraud or any willful misstatement or suppression of facts to evade tax, may, –

• before service of notice pay the amount of tax along with interest payable on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment, and the proper officer, on receipt of such information shall not serve any notice in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder;
• pay the said tax along with interest payable within 60 days of issue of show cause notice, and on doing so, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

Section 74 A (9) provides that the person chargeable with tax, where any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud, or any willful-misstatement or suppression of facts to evade tax, may, –

• before service of notice pay the amount of tax along with interest payable and a penalty equivalent to 15% of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment, and the proper officer, on receipt of such information, shall not serve any notice in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder;
• pay the said tax along with interest payable and a penalty equivalent to 25% of such tax within 60 days of issue of the notice, and on doing so, all proceedings in respect of the said notice shall be deemed to be concluded
• pay the tax along with interest payable thereon under section 50 and a penalty equivalent to 50% of such tax within 60 days of communication of the order, and on doing so, all proceedings in respect of the said notice shall be deemed to be concluded.