Insertion of Section 74a In CGST Act- Its Purport, Comparison with Existing Sections 73 &74 And Impact
In the Budget 2024, the Indian Finance Minister proposed the insertion of Section 74A in the CGST Act, 2017, succeeding Sections 73 and 74. This amendment aims to consolidate the provisions for recovering unpaid, short-paid, or erroneously refunded taxes, streamlining the process and extending the time limits for compliance. By comparing Section 74A with the existing Sections 73 and 74, we can understand its broader implications and the relief it offers taxpayers, especially those not involved in fraud or suppression.
The purport behind the insertion of the new Section 74A in the CGST Act, 2017 appears to be
(a) introduce a single Section in lieu of the earlier two Sections (Section 73 for recovery in normal cases and Section 74 for recovery in the cases of fraud, suppression, misdeclaration etc)
(b) to rejig the time limitations for both the officers and the taxpayers, and
(c) to provide a little bit of relief to the taxpayers for making compliances in the cases where no fraud, suppression etc. is involved.
The newly inserted Section 74A and the parallel provisions of erstwhile Sections 73 and 74, which are mostly pari materia with each other. Further, it is to be noted that the operation of the erstwhile Sections 73 and 74 have been limited and capped as far as their application is concerned only for the recovery relating to the FY 2023-24 only. From the FY 2024-25 onwards, the recovery has to be effected by invoking the new Section 74A of the Act.
It may be noted that the earlier Section 73 applicable up to the FY 2023-24 period covered the recovery provisions related to the short levy, non levy and erroneous refunds etc. where no fraud, suppression, misdeclaration was involved and Section 74 specifically dealt with the cases covered under the category of Fraud/suppression etc. The new Section 74A proposes to cover both the categories within its ambit.
In the erstwhile Sections 73, the period of limitation for confirmation of the demand by passing the Demand Order was three years from the due date of furnishing of the Annual Return for the Financial Year, and it mandated that the show cause notice must be issued within a period of at least 3 months from the above said period of passing the demand order. Similarly, the period of limitation in Section 74 was five years for passing the demand orders from the due date of furnishing the Annual Return, and the show cause notice was mandated to be issued at least six months earlier than the said limitation of five years.
In the new Section 74A to be inserted, the singe time limitation for recovery in both the cases involving normal recovery and fraud cases covered under the erstwhile Sections 73 and 74 of the Act. In fact, this point is crystal clear from the wording used “ tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason” . The use of the words “ for any reason” in the new Section shows that it will be single Section dealing with both the categories – normal cases and fraud cases.
As regards the limitation period for recovery under the new Section 74A, it mandates that the show cause notice has to be issued within a period of forty-two months ( 3.5 years) from the due date of furnishing the Annual Return. Further, it is mandated that the order for confirmation of the demand has to be issued by the proper officer within 12 months from the date of issuance of the show cause notice, which may however be extended by the Commissioner or his authorized officer not below the rank of Joint Commissioner, by another six months with recording of the reasons for delay. This means that the proceedings ought to be concluded within 56 months ( 4.5 years) normal and subject to extended period of 5 years.
In existing Section 73, the taxpayer could voluntarily pay the tax and interest as self assessed or assessed by the officer before the show cause notice without any penalty. Further, the tax and interest could be paid within 30 days of the issuance of the show cause notice and intimated to the proper officer, and no further action was required in the matter. However if the amount of the tax not paid or short paid has not been paid within 30 days from the due date of deposit, the payment of penalty of 10% of tax or Rs. 10000/-, whichever is higher, has to be paid. Under Section 74, the taxpayer could pay the amount of tax and interest along with 15% penalty before the issuance of the show cause notice; again the amount of tax and interest with 25% penalty within a period of 30 days of the issuance of show cause notice. Further, if the order of confirmation of tax is passed and communicated, the taxpayer could have discharged his obligation by payment of amount of tax, interest and penalty to the extent of 50% imposed in the orders, within 30 days from the date of communication of the demand confirmation orders.
In the new Section 74A, the provisions regarding the discharge of obligation of the taxpayer are pari materia with the provisions of Section 73 and 74 except that the period of 30 days has been extended to 60 days for deposit of the dues as mentioned above.
The explanation annexed to new Section 74A is also pari materia with the explanation to Section 74.
In nutshell, it can be concluded that the new Section will cover the proceedings for recovery from FY 2024-25, that the period of limitation has been re-designed and fixed as 4.5 years extendable to 5 years for completion of the show cause notice and adjudication proceedings from the due date of furnishing the annual return, and that the period of voluntary discharge of obligations of the taxpayer in regard to such proceedings has been extended from 30 days to 60 days of the respective dates.
One thing important is that the FM has played a master stroke by clubbing the taxpayers with the normal short payments / non payments charged with fraud / suppression / intentional evasion etc. by prescribing the same period of limitation, thereby extending the period of limitation for honest taxpayers at par with those charged with fraud, suppression etc.
So the newly inserted Section is a composite prescription for both the categories of taxpayers – honest and on other side.
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