Section 74A vs 73 & 74 of CGST Act: Understanding the Differences

After its introduction in 2017, the GST Act has undergone several rounds of review and reforms to address emerging business realities and reduce the burden of compliance on businesses of all sizes and industries. The decisions and amendments in the 53rd GST Council meeting, held on 22nd June 2024, are the latest additions to the simplification process. 

This article discusses the newly proposed Section 74A and its differences with erstwhile Sections 73 and 74. Stay with us. 

What is Section 74A of the CGST Act? 

Section 74A attempts to standardise the timeframe for issuing notice, tax demand, and penalty relief for any due tax liability irrespective of fraud, wilful misstatement, or suppression of facts. This section is applicable from FY 2024-25 and will supersede Sections 73 and 74. 

As per the newly introduced Section 74A, a proper GST officer:

• Can issue tax demand notice on nonpayment, short payment of tax, appropriation of excess tax refund or excess input tax credit, irrespective of an incident of fraud, wilful misstatement and suppression of facts. 
• Cannot issue tax demand notice if the due tax liability is less than ₹1000.   
• Must issue notice within 42 months from the date of erroneous refund or excess input tax credit or due date of annual return in which suppression of facts, fraud or wilful misstatement occurred.
• Must submit material evidence to substantiate the claim of fraud, wilful misstatement or suppression of facts. Mere assumption of wrongdoing will not be sufficient to issue notice related to fraud, wilful misstatement or suppression of fact. 
• The penalty structure as per the Section 74A:
  • When not engaged in intentional wrongdoing, the taxpayer will need to pay 10% of the tax due as a penalty or ₹10000, whichever is the maximum. 
  • The taxpayer paying the tax due before issuance of the notice can get relief regarding the penalty.  
  • When engaged in fraud, suppression of facts, or wilful misstatement, the taxpayer will need to pay a penalty equivalent to the tax dues. 

What is Section 73 of the CGST Act?  

Section 73 concerns determining tax liability following an incident of nonpayment, short payment of tax, erroneous refund, or excess input tax credit received by a taxpayer. The section applies when such an incident happened without the taxpayer's intention of fraud, wilful misstatement, or suppression of facts. 

As per the Section 73, a proper GST officer: 

• Can issue a show-cause notice to the taxpayer to explain the reasons behind such discrepancies at least 3 months before the end of the maximum time limit permit as per sub-section (10) for adjudication of the tax liability.
• Can determine and mention in the notice the amount of due tax liability, interest to be charged, and the penalty applicable. 
• Can charge a maximum penalty of 10% of the tax liability or ₹10000, whichever is higher. 
• The maximum time limit permitted as per Section 73, sub-section (10) for adjudication of the tax liability is 3 years from the due date of filing an annual return in which tax was due or short paid or excess tax refunded or excess input tax credit claimed and appropriated by the taxpayer. 

What is Section 74 of the CGST Act? 

Like Section 73, Section 74 concerns determining due tax liability following an incident of nonpayment or short payment of tax, erroneous refund, or excess input tax credit received by a taxpayer. However, the major difference is that Section 74 applies if and only if tax liability resulted from fraud, wilful misstatement, or suppression of facts by the taxpayer. 

As per the Section 74, a proper GST officer: 

• Can issue tax demand notice at least 6 months before the end of the maximum time limit as per sub-section (10) of Section 74. 
• As per sub-section (10), the maximum limit is 5 years from the due date of filing an annual return in which tax was not paid, short paid or excess refund made erroneously, or excess input tax credit received by the taxpayer. 
• A statement must be served along with the notice explaining the details of tax discrepancies caused by nonpayment, short payment, excess refund received, or excess input tax credit claimed and availed. 
• Can charge interest on the due tax liability along with a penalty of 15% of the tax due. The interest calculation in this matter must be done as per Section 50 of the CGST Act. 
• If the taxpayer fails to pay the full tax liability within 30 days of receiving the first tax demand notice, a penalty of 25% of the due amount can be charged. 
• Consider the representation if the taxpayer communicates a reply or makes a representation in front of the officer in response to the first tax notice with necessary documents. 
• The proceedings must be concluded if the taxpayer's representation substantiates his claim that he does not have the tax liability as detailed in the tax demand notice.  
• Can charge a penalty of 100% of the due tax liability if the officer finds the taxpayer's representation is incorrect. 

Difference between Sections 74A, 73 and 74 of the CGST Act