Section 73, 74 & 74A: New Unified GST Demand Regime from FY 2024–25

Section 74A is a new, single demand section that replaces Sections 73 and 74 for FY 2024‑25 (AY 2025‑26) onwards, with old 73/74 continuing only for periods up to 31‑03‑2024.

“From Sections 73 & 74 to 74A: New Unified GST Demand Regime from FY 2024‑25”

1. Legislative backdrop and applicability

• Finance (No. 2) Act, 2024 inserts Section 74A to govern determination of tax not paid/short‑paid, erroneous refunds, and wrongful ITC availment/utilisation.metalegal+2
• Scope split by period:
  • Period 01‑07‑2017 to 31‑03‑2024: department may still invoke old Sections 73 (non‑fraud) or 74 (fraud).
  • Period 01‑04‑2024 onwards (effectively FY 2024‑25): all SCNs must be under Section 74A only, irrespective of fraud/non‑fraud.

Courts have already started holding that for FY 2024‑25 onwards, authorities cannot continue to rely on omitted Sections 73/74; only Section 74A applies.

2. Old Sections 73 & 74 vs new Section 74A – conceptual shift

Earlier position (up to 31‑03‑2024)

• Section 73 (non‑fraud):
  • Cases without allegation of fraud, wilful misstatement, or suppression.
  • Shorter limitation (3 years from due date of annual return), lower/softer penalty regime.
• Section 74 (fraud):
  • Cases involving fraud, wilful misstatement, or suppression of facts.
  • Longer limitation (5 years), heavy penalties (up to 100% of tax).

Chronic litigation: assessees attacked SCNs issued under 74 instead of 73, arguing mis‑classification just to grab extended limitation and 100% penalty; many HCs agreed.

New position (FY 2024‑25 onwards) – Section 74A

Key policy idea: remove the 73 vs 74 threshold dispute at notice stage.

• Single provision for all cases – fraud and non‑fraud both proceed under 74A.
• Nature of case (fraud vs non‑fraud) is crystallised during adjudication, not at SCN drafting.
• Penalty slabs similar to earlier 73/74 are embedded inside Section 74A (lower for non‑fraud, higher for fraud), but:
  • Windows for reduced penalty are more generous (60 days etc.).
  • Conversion from “treated as fraud” to “actually non‑fraud” allows automatic down‑gradation to softer non‑fraud penalty.

3. Time limits and computation under Section 74A

(Exact figures vary slightly between commentaries; you should confirm final enacted text, but the structure is clear.)

• Common limitation framework now applies, but still distinguishes fraud/non‑fraud:
  • Non‑fraud: demand period extended slightly (e.g. 3 years → 42 months).
  • Fraud: look‑back period rationalised (earlier 5 years; now a harmonised but still longer period vs non‑fraud).
• Typical pattern under 74A (illustrative based on analyses):
  • SCN to be issued at least 12 months before the last date for passing order.
  • Order to be passed within a fixed number of months from the due date of annual return for the relevant FY, with separate limits for fraud vs non‑fraud embedded in 74A.cleartax+4

Example (non‑fraud, FY 2024‑25, assumed numbers):

• Due date of GSTR‑9 for FY 2024‑25: 31‑12‑2025.
• Suppose non‑fraud limit under 74A is 42 months from this date (you will plug exact numbers once final text is read).​
• Outer last date to pass order ≈ 30‑06‑2029; thus, SCN must issue at least 12 months earlier, say by 30‑06‑2028.metalegal+2

The take‑away for practice: from FY 2024‑25, all demand timelines you compute will be under 74A, but you will still segregate cases internally as fraud vs non‑fraud for penalty and limitation within that section.

4. How GST officers should now issue notices under Section 74A

For periods from 01‑04‑2024 onwards, proper officers must:

1. Invoke Section 74A only in the header and body of SCN.

2. Clearly state:

• • Nature of issue – non‑payment, short‑payment, erroneous refund, or wrongful ITC.
  • Proposed classification: whether, on prima facie basis, they allege fraud/wilful misstatement/suppression or treat it as non‑fraud.
  • Basis and evidence: e.g. fake ITC chain, non‑existent supplier, mismatch, audit objections.

3. Mention in the notice itself:

• • Computation of tax and interest.
  • Alternative penalty positions under 74A – i.e. what penalty applies if case is finally held to be non‑fraud vs fraud, and options for early payment with reduced penalty.

4. Follow new timelines under 74A for:

• • Last date for SCN.
  • Last date for passing order (and internal limitation in departmental systems).

Good practice (from recent commentary): avoid making irretrievable “fraud” accusations in the SCN; present facts and indicate that final categorisation under 74A is subject to adjudication.

5. How taxpayers should respond and comply under Section 74A

A. –Replying to 74A notices – strategy

Taxpayer’s written reply should:

• First contest the very basis of demand (jurisdiction, limitation under 74A, incorrect period selection, incorrect section if they wrongly cite 73/74 for FY 2024‑25 onwards).
• Second, carefully address classification:
  • Demonstrate absence of fraud/wilful misstatement/suppression.
  • Show full disclosure in returns, audit reports, departmental communications etc.
  • Argue that at worst it is a non‑fraud 74A case, attracting only lower penalty slab.
• Third, map early‑payment options under 74A:
  • If case is weak on merits, consider payment (tax + interest) within the new extended reduced‑penalty windows (e.g. 60 days instead of 30) to close proceedings.

B. Documentation and categorization – fraud vs non‑fraud

Even though SCN is under a single section, officials and assessees still need to classify the conduct for penalty and limitation. You can think of four baskets in practice:

1. Pure non‑fraud / bona fide error

• • Examples: wrong head (CGST vs IGST) but overall tax paid; technical mismatches; interpretational issues.
  • Position: argue for non‑fraud treatment under 74A, no penalty (if paid before SCN) or only 10% penalty.

2. Negligence / gross error, but with disclosure

• • Examples: missed outward supplies but visible in books, disclosed during audit; ITC taken on borderline credits where legal view later goes against assessee.
  • Position: stress absence of mens rea, prior disclosure, cooperation; push hard to stay in non‑fraud slab.

3. Supplier default / non‑existent supplier

• • Examples: supplier later found fake, cancelled registration, or non‑payment.
  • Here department often seeks to term as “fraud” at recipient end. Taxpayer should:
    • Prove due diligence, movement of goods, banking channel payment.
    • Cite case law that genuine recipient cannot be automatically branded as fraudster merely because supplier defaulted.
  • Push for classification as non‑fraud 74A case even if tax is disputed.

4. Actual fraud / fake ITC chain

• • Where there is strong evidence of circular trading, bogus invoices, no movement of goods, cash rotations.
  • These rightly fall in fraud limb of 74A; penalty up to 100% and extended limitation would apply.

Under 74A, classification into these buckets is formally done by the adjudicating authority in the order, not frozen at SCN, which opens room to persuade authority to re‑characterise case as non‑fraud even if the SCN narrative sounded harsh.

6. Transitional matrix – which section applies for which year?

You can include a small table in the article:

7. Litigation outlook and case law trends under 74A

Emerging themes you can mention:

• HCs have indicated that once 73/74 are omitted, authorities cannot issue or sustain notices under those sections for FY 2024‑25 onwards; any such demand is liable to be quashed or realigned to 74A.
• New disputes will shift from “73 vs 74” to:
  • Correct application of 74A timelines.
  • Appropriateness of classifying conduct as “fraud limb” vs “non‑fraud limb” within 74A.
• Commentators predict “next wave of GST notices” under 74A and fresh litigation around transitional treatment of FY 2023‑24 vs 2024‑25, and penalty realignment.