Insertion of section 74A- One more positive effort of government to reduce the litigation and incentivizing the taxpayer
Budget 2024: New section 74 A has been introduces in the CGST Act, 2017 as a game changer. Under this section has been introduced for Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason pertaining to Financial Year 2024-25 onwards. The Government intended to provide same time limit for issuance of show cause notice and passing of the order for both cases involving fraud as well as other than fraud. Determination of the tax for the period up to FY 2023-24 will be made under section 73 or 74 of the CGST Act. For the period 2024-25 onwards provision of section 74A will be applicable.
Benefits of amended section 74A
Through insertion of Section 74A the approach for dealing with discrepancies irrespective of fraud is consolidated and the procedural aspects are simplified. Further by making provision for reduced penalties for early settlements will incentivize the tax payer to resolve issues promptly and consequently litigation will be reduced.
Comparison of Proposed Section 74A with existing section 73 & 74
| Issues | Detail of 74A | Comparison with Existing Law- other than fraud cases
(Section 73) |
Comparison with Existing Law- Fraud cases
(Section 74) |
| Issuance of Notice (74A(1)) | Issued if tax not paid, short paid, erroneously refunded, or ITC wrongly availed/utilized for reasons other than fraud. No notice if the amount involved is less than Rs. 1,000. | Similar to Section 73 but with a new threshold of Rs. 1,000 below which no notice will be issued. | Similar to Section 74 but with a new threshold of Rs. 1,000 below which no notice will be issued. |
| Time Limit for Issuance of Notice (74A(2)) | Issued within 42 months from the due date of filing the annual return or from the date of erroneous refund. | Current law allows issuance within 3 years from the due date of filing the annual return. | Current law allows issuance within 5 years from the due date of filing the annual return. |
| Issuance of Statement (74A(3)) | The proper officer may serve a statement containing details of tax discrepancies for periods not covered under the original notice. | Similar provision exists in Section 73, where a statement can be served for other periods. | Similar provision exists in Section 74, where a statement can be served for other periods. |
| Condition for Deemed Notice (74A(4)) | Grounds for discrepancies in the statement must be the same as those in the original notice. | Same as the current provision under Section 73. | Same as the current provision under Section 74. |
| Penalty (74A(5)(i)) | 10% of the tax due or Rs. 10,000, whichever is higher. | Penalty in Section 73 is 10% of tax or Rs. 10,000, whichever is higher, if payment is made after 30 days of the order. | – |
| Penalty (74A(5)(i)) | Equivalent to the tax due from such person. | – | Penalty under Section 74 is equivalent to the tax due. |
| Issuance of Order (74A(6)) | The proper officer, after considering the representation made by the person, shall determine the amount of tax, interest, and penalty due and issue an order. | Similar to the current law under Section 73. | Similar to the current law under Section 74. |
| Time Limit for Issuance of Order (74A(7)) | Issued within 12 months from the date of issuance of notice, extendable by 6 months with approval. | Current law under Section 73 requires the order to be issued within 3 years from the due date of the annual return. | Current law under Section 74 requires the order to be issued within 5 years from the due date of the annual return. |
| Voluntary Payment Before SCN (74A(8)(i)) | No penalty if tax and interest are paid voluntarily before the issuance of SCN. | Similar to Section 73 where no penalty is imposed if payment is made voluntarily before SCN. | NA |
| Voluntary Payment After SCN (74A(8)(ii)) | No penalty if tax and interest are paid within 60 days of the SCN. | In Section 73, no penalty is imposed if payment is made within 30 days of the SCN. | NA |
| Voluntary Payment Before SCN (74A(9)(i)) | 15% penalty if tax, interest, and a 15% penalty are paid before the issuance of SCN. | NA | 15% penalty if tax, interest, and a 15% penalty are paid before the issuance of SCN. |
| Voluntary Payment After SCN (74A(9)(ii)) | 25% penalty if tax, interest, and a 25% penalty are paid within 60 days of the SCN. | NA | In Section 74, a 25% penalty is imposed if payment is made within 30 days of the SCN |
| Voluntary Payment After SCN (74A(9)(iii)) | 50% penalty if tax, interest, and a 50% penalty are paid within 60 days of the order | NA | In Section 74, a 50% penalty is imposed if payment is made within 30 days of the order |
| Shortfall in Payment (74A(10)) | If the amount paid is short of the actual amount payable, the proper officer will issue a notice for the shortfall amount. | Similar provision exists under Section 73. | Similar provision exists under Section 74. |
| Self-Assessed Tax Penalty (74A(11)) | Penalty will be levied if any self-assessed tax or collected tax is not paid within 30 days from the due date. | Section 73 does not have a specific clause for self-assessed tax penalties, this is a new addition in Section 74A. | Section 74 does not have a specific clause for self-assessed tax penalties, this is a new addition in Section 74A. |
| Applicability (74A(12)) | Applicable for determination of tax from the financial year 2024-25 onwards. | Section 73 applies to all previous financial years. | Section 74 applies to all previous financial years. |
| Explanation 1 | “All proceedings in respect of the said notice” do not include proceedings under Section 132. | Similar provision exists under Section 73. | Similar provision exists under Section 74. |
| Explanation 2 | “Suppression” includes non-declaration of required information or failure to furnish information when asked by the proper officer. | Similar definition of “suppression” under Section 73. | Similar definition of “suppression” under Section 74. |
Section 74A of the CGST Act, 2017 is poised to be a game changer in the realm of tax determination and compliance. By consolidating the approach for handling discrepancies and introducing provisions for reduced penalties for early settlements, this section incentivizes taxpayers to address issues promptly, thereby reducing litigation. The comparison with existing Sections 73 and 74 highlights the streamlined processes and enhanced fairness brought about by Section 74A. As this new section comes into effect for the financial year 2024-25 onwards, it promises to bring clarity and efficiency to the GST compliance landscape.
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