Summary: The article provides a detailed advisory on penalty provisions under Section 74A of the GST Act for both fraud and non-fraud cases involving short payment of tax, excess Input Tax Credit (ITC), or erroneous refunds. It explains how penalties vary depending on the stage at which the taxpayer settles the liability — before issuance of intimation in Form DRC-01A, after intimation but before show cause notice (SCN), after SCN, or after passing of the demand order in Form DRC-07. In non-fraud cases, taxpayers can avoid penalties entirely if tax and interest are paid within 60 days of the notice, whereas fraud cases attract graded penalties ranging from 15% to 100% of the tax amount depending on the timing of payment. The article also clarifies that penalties apply only to actual discrepancies and not merely to amounts alleged in notices. Through practical illustrations, it emphasizes the importance of independently verifying tax demands before making payments under GST proceedings.
1. Coverage of this article:
a. In this article, I am discussing about the penalty provisions which is given us 74A of GST Act in case of fraud & non fraud cases.
b. I am covering the penalty provisions in case when an intimation is issued in Form DRC: 01A, a notice is issued in Form DRC: 01, an order is passed in Form DRC: 07, before issuance of intimation, after issuance of intimation but before issuance of notice along with some other scenarios.
c. Penalty given us 73 & 74 will be covered in a separate article.
d. Other practical scenarios
2. Intimation in Form DRC: 01A Part: A:
a. Under section 74A (8), an officer can issue intimation before issuance of show cause notice.
b. It is discretion of officer whether he wants to issue an intimation in case of non-fraud cases.
3. Intimation in Form DRC: 01A Part: A:
a. Under section 74A (9), an officer can issue intimation before issuance of show cause notice.
b. It is discretion of officer whether he wants to issue an intimation in case of fraud cases.
4. Show cause notice in Form DRC: 01:
An officer can issue notice us 74A (1) in DRC 01 in case of fraud & non fraud cases.
5. Scenarios related to penalties:
a. Penalty before issuance of intimation
b. Penalty after issuance of intimation but before issuance of notice
c. Penalty after issuance of notice & paid within the specified period
d. Penalty after issuance of notice but not paid within the specified period
e. Penalty after issuance of order in DRC: 07 & paid within the specified period
f. Penalty after issuance of order in DRC: 07 but not paid within the specified period.
6. Penalty before issuance of intimation for non-fraud cases:
a. U/s 74A there will be no penalty if registered person pays the taxes along with applicable interest before issuance of intimation because there is no willful fraud or misstatement. But officer will be levied the penalty if he issued the notice.
b. Bare Act: 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 utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, may pay the said tax along with interest payable under section 50 within sixty 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.
7. Penalty before issuance of intimation in fraud cases:
a. U/s 74A there will be a penalty of 15% of tax amount if registered person pays the taxes along with applicable interest before issuance of intimation.
b. Bare Act: 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 utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, may before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen percent of such tax on the basis of his own ascertainment of such tax.
8. Penalty after issuance of intimation before issuance of SCN in non fraud cases:
a. U/s 74A there will be no penalty if registered person pays the taxes along with applicable interest as mentioned in the intimation because there is no willful fraud or misstatement. But officer will be levied the penalty if he issued the notice.
b. Bare Act: 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 utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, may pay the said tax along with interest payable under section 50 within sixty 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.
9. Penalty after issuance of intimation before issuance of SCN in fraud cases:
a. U/s 74A there will be a penalty of 15% of tax amount if registered person pays the taxes along with applicable interest after issuance of intimation.
b. Bare Act: 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 utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, may before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen percent of such tax on the basis of his own ascertainment of such tax.
10. Penalty after issuance of notice & paid within the specified period in non-fraud cases:
a. U/s 74A there will be no penalty if registered person pays the taxes along with applicable interest as mentioned in the notice within 60 days from the date of notice because there is no willful fraud or misstatement.
b. Bare Act: 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 utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, may pay the said tax along with interest payable under section 50 within sixty 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.
11. Penalty after issuance of notice & paid within the specified period in fraud cases:
a. U/s 74A there will be a penalty of 25% of tax amount if registered person pays the taxes along with applicable interest as mentioned in the notice within the 60 days from the date of SCN.
b. Bare Act: 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 utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, may pay the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five percent of such tax within sixty days of issue of the notice, and on doing so, all proceedings in respect of the said notice shall be deemed to be concluded.
12. Penalty after issuance of notice but not paid within the specified period in non-fraud cases:
a. U/s 74A there will be a penalty of 10% of tax amount or 10,000 whichever is higher if registered person pay the taxes along with applicable interest as mentioned in the notice after expiry of 60 days from the date of SCN.
b. Bare Act: 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 utilised, for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, shall be equivalent to ten percent of tax due from such person or ten thousand rupees, whichever is higher.
13. Penalty after issuance of notice but not paid within the specified period in fraud cases:
a. U/s 74A there will be a penalty of 50% of tax amount if registered person pays the taxes along with applicable interest as mentioned in the notice after the expiry of 60 days from the date of SCN.
b. Bare Act: Pay the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within sixty days of communication of the order, and on doing so, all proceedings in respect of the said notice shall be deemed to concluded.
14. Penalty after issuance of order in DRC: 07 in non-fraud cases:
a. U/s 74A there will be a penalty of 10% of tax amount or 10,000 whichever is higher if registered person pay the taxes along with applicable interest as mentioned in the demand order.
b. Bare Act: 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 utilised, for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, shall be equivalent to ten percent of tax due from such person or ten thousand rupees, whichever is higher.
15. Penalty after issuance of order in DRC: 07 & paid within the specified period in fraud cases:
a. U/s 74A there will be a penalty of 50% of tax amount if registered person pay the taxes along with applicable interest as mentioned in the demand order within the 60 days from the date of order.
b. Bare Act:- Pay the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty percent of such tax within sixty days of communication of the order, and on doing so, all proceedings in respect of the said notice shall be deemed to be concluded.
16. Penalty after issuance of order in DRC: 07 but not paid within the specified period in fraud cases:
a. U/s 74A there will be a penalty of 100% of tax amount if registered person pays the taxes along with applicable interest as mentioned in the demand order after the expiry of 60 days from the date of order.
17. Comparison of all scenarios for non-fraud cases:
| S No | Scenarios | Penalty us 74A of GST |
| 1 | Penalty before issuance of intimation | No penalty |
| 2 | Penalty after issuance of intimation but before issuance of notice | No penalty |
| 3 | Penalty after issuance of notice & paid within the s pecified period | No penalty |
| 4 | Penalty after issuance of notice but not paid within the specified period | Higher of 10% of tax amount or 10,000 |
| 5 | Penalty after issuance of order in DRC: 07 | Higher of 10% of tax amount or 10,000 |
18. Comparison of all scenarios for fraud cases:
| S No | Scenarios | Penalty us 74A of GST |
| 1 | Penalty before issuance of intimation | 15% of tax amount |
| 2 | Penalty after issuance of intimation but before issuance of notice | 15% of tax amount |
| 3 | Penalty after issuance of notice & paid within the specified period | 25% of tax amount |
| 4 | Penalty after issuance of notice but not paid within the specified period | 50% of tax amount |
| 5 | Penalty after issuance of order in DRC: 07 & paid within the specified period | 50% of tax amount |
| 6 | Penalty after issuance of order in DRC: 07 but not paid within the specified period | 100% of tax amount |
19. Note:
a. You will be liable to pay the penalty when there is excess availment of ITC or short payment of output tax liability or any other reason.
b. You no need to pay the tax, interest & penalty as mentioned in notice. Firstly, you will identify whether there is an actual discrepancies or not. If yes, then compute the penalty amount & pay along with taxes & interest.
c. If tax payable is zero then there will be no liability of penalty.
20. Practical scenario 1 for non-fraud cases:
a. Suppose a notice has been issued by the officer & raised the demand of tax of Rs 1,00,000 along with interest of 7,000 & penalty of 10,000. It is related to excess input claimed in GSTR-3B.
b. As per analysis, there is no excess ITC claimed. Hence, there is no requirement to pay the taxes, interest and penalty.
c. If tax payable is zero then there will be no liability of penalty.
21. Practical scenario 2 for fraud cases:
a. Suppose a notice has been issued by the officer & raised the demand of tax of Rs 1,00,000 along with interest of 7,000 & penalty of 1,00,000. It is related to excess input claimed in GSTR-3B.
b. As per analysis, we have claimed the excess ITC of Rs 50,000. Then we will pay the tax of Rs 50,000 along with the interest of 3,500 & penalty of 12,500.
c. Penalty amount will be 12,500 which is 25% of 50,000 if we paid the demand within 60 days from the date of SCN.
d. Penalty amount will be 25,000 which is 50% of 50,000 if we paid the demand after expiry of 60 days from the date of SCN.
22. Practical scenario 3 for fraud cases:
a. Suppose an order has been issued by the officer & raised the demand of tax of Rs 1,00,000 along with interest of 7,000 & penalty of 1,00,000. It is related to excess input claimed in GSTR-3B.
b. As per analysis, we have claimed the excess ITC of Rs 50,000. Then we will pay the tax of Rs 50,000 along with the interest of 3,500 & penalty of 25,000.
c. Penalty amount will be 25,000 which is 50% of 50,000 if we paid the demand within 60 days from the date of order.
d. Penalty amount will be 50,000 which is 100% of 50,000 if we paid the demand after expiry of 60 days from the date of order.
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Disclaimer: The views and opinions expressed in this article are those of the author. This article is intended for general information purposes only and does not constitute professional advice. Readers are strongly advised to consult a qualified professional for guidance specific to their individual situation before making any financial, legal, or tax-related decisions. The author shall not be held liable for any loss or damage of any kind incurred as a result of the use of this information or for any actions taken based on the content of this article.
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