In this article, we explore the significant procedural changes introduced under the Goods and Services Tax (GST) with the introduction of Section 74A of the CGST Act, 2017. This section consolidates and replaces the earlier Sections 73 and 74, aiming to streamline tax assessment processes, enhance compliance, and strengthen measures to combat tax evasion. The analysis highlights how these reforms impact taxpayers and tax authorities alike.
We begin by reviewing the pre-amendment framework u/s. 73 (non-fraudulent errors) and Section 74 (fraudulent defaults). While effective in addressing specific scenarios, this bifurcation often led to complexities and inefficiencies in tax assessments and recoveries. The introduction of Section 74A integrates these provisions, simplifying the process and ensuring uniformity in handling tax defaults.
The article also delves into the procedural enhancements u/s. 74A, including revised timelines for issuing notices and orders, along with a balanced penalty structure for non-fraudulent and fraudulent cases.
Through this critical review, we examine the advantages and challenges of this new approach, focusing on its implications for transparency, compliance, and fraud prevention. By unifying processes and addressing inefficiencies, Section 74A represents a progressive step in GST administration.
The erstwhile provisions of Section 73 and 74 existing prior to Finance Act, 2024 have been substituted and new Section 74A have been introduced.
This article unpacks these sections, their recent updates, and their implications for taxpayers and tax authorities.
Page Contents
- Section 74A vs Section 73 / Section 74:
- Section 74A – Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to Financial Year 2024-25 onward (w.e.f. FY 2024-25)
- Impact on the Implementation of Section 16(5) and 16(6) on section 73 and 74 of CGST Act, 2017
- Conclusion:
Section 74A vs Section 73 / Section 74:
Prior to amendment made in Finance Act, 2024, The demand and recovery of taxes had been calculated in accordance of the provisions of Section 73 for cases other than fraud and Section 74 for the Fraud cases. Thus, due to amendment in Finance Act, 2024, the new provision, sunset clause has been inserted in section 73 and 74. Now, the Demand and Recovery of Taxes will be in accordance with Section 74A.
Changes in time limit:
Old Provisions:
Order u/s 73 could be issued upto 3 years from the due date of filling of annual return for the Financial Year or erroneous refund and incase of Section 74, Order u/s. 74 could be issued upto 5 years from the due date of filling of annual return for the Financial Year or erroneous refund.
New provisions:
Notice should be issued within 42 months from the due date of the annual return or erroneous refund, and Order shall be issued within 12 months from the date of issuance of notice.
Changes in Legal Consequences:
Old Provisions:
Section 74 involves stronger legal consequences, including the possibility of criminal prosecution for tax fraud
New Provisions:
Section 74A is designed to focus on unreported/unexplained transactions, which may lead to GST evasion but doesn’t necessarily lead to criminal charges like in Section 74.
Section 74A – Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to Financial Year 2024-25 onward (w.e.f. FY 2024-25)
Section 74A has brought procedures u/s. 73 and 74 under one frame. This should streamline the process and give an equally consistent approach to handle honest mistakes and intentional frauds alike. Main procedural changes brought about by Section 74A are:
Section 74A brings together both provisions under one provision and makes the process of dealing with genuine mistakes and fraudulent tax evasion easier. Thus, it reduces the hassle of dealing with two different procedures and makes a more straightforward approach towards dealing with defaults.
Proper officer shall initiate inquiry if they receive information regarding the underreporting of income, indicates that there are unreported or misrepresented transactions which may have led to GST evasion, inquiry shall be initiated before issuance of any notice.
Then Proper officer shall provide opportunity of being heard to the assessee by issuing show cause notice u/s. 74A in FORM GST DRC-01 with proper approval to ask the assessee to explain why the tax should not be levied based on the information available.
After considering the reply of the assessee, If the assessee’s reply is satisfactory and no further action is needed, the proceedings will be dropped in FORM GST DRC-05 and If the assessee’s reply isn’t satisfactory the proper officer will issue an Order u/s. 74A and FORM GST DRC-07.
If the assessee disagree with the Order u/s. 74A , shall prefer an appeal to Appellate Authority in FORM GST APL-01.
Impact on the Implementation of Section 16(5) and 16(6) on section 73 and 74 of CGST Act, 2017
In the circular 237/31/2024-GST, CBDT has made some clarification regarding retrospective extension of time limits for claiming ITC u/s. 16(5) and 16(6). This amendment was made in Finance Act 2024, which has significant impact in the provisions of Section 73 and 74.
Retrospective extension of ITC claim for the FY 2017-18 to FY 2020-21
This extension allows taxpayers who missed the original deadlines u/s. 16(4) to claim ITC for earlier periods. The implementation of Sections 16(5) and 16(6) influences these sections in the following ways:
- In case where no demand notice has been issued u/s. 73 or 74:
- If the Adjudicating Authority has started an investigation due to the provisions of section 16(4), but yet no demand notice has been issued u/s. 73 or 74. The assessee now can claim the ITC under the new provisions (Sections 16(5) and 16(6)), which were made effective from July 1, 2017.
- The authorities will consider these new provisions and take appropriate action. This also applies to cases where a preliminary notice (FORM DRC-01A) was issued but no formal demand notice was made.
- In case demand notice u/s. 73 or 74 has been issued but no Order u/s. 73 or 74 has been issued:
- The Adjudicating Authority will consider the new provisions u/s. 16(5) and 16(6) of the CGST Act, which were applied retrospectively from July 1, 2017, and will issue an appropriate order u/s. 73 or 74 of the CGST Act.
- In case Order u/s. 73 or 74 has been issued and Appeal has been filled in FORM GST APL-01 but no order has been issued:
- The Adjudicating Authority will consider the new provisions u/s. 16(5) and 16(6) of the CGST Act, which were applied retrospectively from July 1, 2017, and will issue an appropriate order u/s. 107 of the CGST Act.
- In case Order u/s. 73 or 74 has been issued and Appeal has been preferred by Revisional Authority but no Order has been passed:
- The Revisional Authority will consider the new provisions u/s. 16(5) and 16(6) of the CGST Act, which were applied retrospectively from July 1, 2017, and will issue an appropriate order u/s. 108 of the CGST Act.
- In case order u/s. 107 or 108 has been issued by the Appellate or Revisional Authority and no appeal has been filed with the GST Appellate Tribunal:
- If an order has been issued confirming a demand for wrongly claimed input tax credit (ITC) due to violating Section 16(4) of the CGST Act, but now the ITC is allowed u/s. 16(5) or 16(6), and no appeal has been filed, the taxpayer can apply to correct the order, within six months from October 8, 2024 (upto 8th April, 2025), as per the notification no. 22/2024 dated 08/10/2024.
Rectification of Past Orders
The circular also addresses the rectification of past orders where ITC was denied due to non-compliance with Section 16(4). The application must be filed within six months from the date of issuance of the notification i.e. 8th October, 2024 (Last date to file application is 8th April, 2025).
Conclusion:
Section 74A introduces the most significant change in the GST system by incorporating both non-fraudulent and fraudulent defaults in one procedure. These changes are aimed at making the process streamlined, less complex, and more fraud-sensitive. Much will depend upon effective implementation and proper communication between taxpayers and tax authorities. Taxpayers, particularly small businesses, will have to get accustomed to these new procedures to avoid penalties and stay compliant. The changes also open up opportunities for streamlining tax assessments, recoveries, and efficiency in the GST system.
Thank You!
Bibliography:
1. Finance Act, 2024
2. Circular 237/31/2024-GST
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