Simplified GST Series -Section 74- CGST ACT 2017

Section 74-Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts.

(1) Where it appears to the proper officer that 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, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order 

Analysis-  The section covers certain situations for demand and recovery of taxes in cases of fraud, or any kind of wilful mis-statement or suppression of facts with an intent to evade payment of tax.

‘’Fraud’’ is normally understood as deceit with an intent to obtain an unjust advantage.

‘’Wilful misstatement’’ generally covers a case of deceit but generally with the connivance of another.

The term “suppression” is specifically explained to mean:

  • non-declaration of facts or information which a taxable person is statutorily required to declare in the return, statement, report or any other document furnished under the Act or the rules made thereunder, or
  • failure to furnish any information on being asked for, in writing, by the proper Officer.

√ Whenever the tax is

  • not paid or
  • short paid or
  • credit wrongly availed or utilized or
  • erroneously refunded with an intent to evade tax by way of
  • Fraud;
  • Willful misstatement;
  • Suppression of facts;

the Proper Officer shall issue a notice for such amount along with interest as per Section 50 and penalty equivalent to the amount of tax specified in notice. The Proper Officer shall along with the Notice provide a summary in Form GST DRC-01 specifying therein the details of the amount payable.

√ This section covers the time limit within which the proper officer shall issue the Notice

and Order for the determination/ recovery of tax payment defaulted by the taxable person.

(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax. 

(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilfulmisstatement or suppression of facts to evade tax, for periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.

Analysis- Where no notice is required to be issued: Similar to the provisions of Section 73 explained earlier, this section also provides that a statement containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised be issued, for such periods other than those covered in the Notice under section 74(1) on the person chargeable with tax, along with a summary in FORM GST DRC-02.

This is issued in place of a detailed notice for the period other than the ones covered in the notice issued as per Sec 74(1). Further, service of such statement shall be deemed to be service of notice under section 73(1), subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under section 74(1) are the same as those mentioned in the earlier notice. 

(5) The person chargeable with 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 per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. 

(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder. 

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable. 

Analysis- The proper officer shall not serve any notice on the assessee in case of voluntary payment of tax and interest along with penalty @ 15% of tax either

  • As per the own ascertainment of the tax or;
  • As per the ascertainment of the proper officer;

In both the above situations the person charged with tax shall intimate the same to the proper officer in FORM GST DRC-03 and proper officer will provide acknowledgment in FORM GST DRC-04 and no notice shall be served in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder. 

In case there exists some shortfall between the amount paid by assessee on his own ascertainment and the actual amount liable to be paid, the Proper Office shall issue a notice for the tax that remains unpaid.

(8) Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded. 

(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order. 

(10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund. 

(11) Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded. 

Analysis-  Where the person makes the payment of tax and interest along with penalty @ 25 % of tax within 30 days of issuance of Notice / Statement and intimates the proper officer of such payment in FORM GST DRC-03, the proper officer shall issue an order in FORMGST DRC-05 concluding the proceedings in respect of the said notice.

If the person makes any representation or files a reply, the proper officer shall issue an order after considering the representation / reply in FORM GST DRC-06, and the amount determined shall comprise of tax along with interest and penalty as stated above. A summary of such order shall be uploaded electronically in FORM GST DRC-07, specifying therein the amount of tax, interest and penalty payable by the person chargeable with tax. Such summary of order in Form GST DRC-07 shall be treated as a notice for recovery.

The proper officer shall pass an order within a period of 5 years from the due date for filing of annual return for the financial year to which the short payment or non-payment or input tax credit wrongly availed or utilised relates or date of erroneous refund.

√ Where the assessee makes the payment of tax and interest along with penalty @ 50 % of tax within 30 days of communication of the order, then in such cases it shall bedeemed that all the proceedings have been concluded.

√ Summary of penalty implications-

If tax, interest and penalty as indicated in the table below, is paid, it is provided that further proceedings should not be continued to that extent.

Payment of Tax, Interest & Penalty Amount of Penalty
Before issuance of show cause notice 15% of the tax amount
Within 30 days after the issuance of SCN 25% of the tax amount
Within 30 days from the communication of order 50% of the tax amount
In any other case 100% of the amount equal to tax

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