Section 74A, introduced into the Central Goods and Services Tax (CGST) Act, 2017, marks a significant step in enhancing the GST regime’s transparency and procedural efficiency. This provision governs the process for investigating, notifying, determining, and penalizing tax discrepancies—such as unpaid, short-paid, or erroneously refunded taxes, and wrongly availed or utilized input tax credit (ITC). Designed for implementation from FY 2024–25, Section 74A offers clarity, graded penalties, and a strong incentive for timely voluntary compliance.
Key Provisions of Section 74A
1. Initiation: Issuance of Notice (Sub-section 1)
When a proper officer detects tax discrepancies—whether non-payment, short payment, erroneous refund, or incorrect ITC utilization—they issue a show cause notice (SCN) to the taxpayer. This notice calls for an explanation as to why the shortfall, along with applicable interest and penalty, should not be recovered.
- Threshold: No notice is issued for discrepancies below ₹1,000 in a financial year.
2. Timeline for Notice and Order (Sub-sections 2 & 7)
To ensure timely resolution, Section 74A specifies strict deadlines:
| Action | Time Limit | Extension Provision |
| Issuance of Notice | Within 42 months from annual return due date or date of erroneous refund | Up to 6 months (not below the rank of Joint Commissioner) |
| Issuance of Order | Within 12 months from date of notice | Up to 6 months (same condition as above) |
3. Statements for Other Periods (Sub-sections 3 & 4)
If an SCN is already issued for a specific period, further discrepancies for other periods on the same grounds can be addressed through a statement instead of a fresh notice. Such a statement is considered equivalent to an SCN.
4. Penalties Based on Nature of Default (Sub-section 5)
Penalties vary according to the seriousness of the default:
| Nature of Default | Penalty |
| Other than fraud / wilful misstatement / suppression | 10% of tax or ₹10,000, whichever is higher |
| Fraud / wilful misstatement / suppression | 100% of tax |
5. Voluntary Compliance Provisions (Sub-sections 8 & 9)
Section 74A encourages early settlement by offering significant relief when taxpayers voluntarily rectify discrepancies. The structure is as follows:
| Situation | Amount to be Paid | Penalty | SCN/Proceedings | Timeframe |
| No Fraud, Before SCN | Tax + Interest | Nil | No SCN issued | Before SCN |
| No Fraud, Within 60 days of SCN | Tax + Interest | Nil | Proceedings deemed concluded | Within 60 days of SCN |
| Fraud, Before SCN | Tax + Interest + 15% Penalty | 15% of tax | No SCN issued | Before SCN |
| Fraud, Within 60 days of SCN | Tax + Interest + 25% Penalty | 25% of tax | Proceedings deemed concluded | Within 60 days of SCN |
| Fraud, Within 60 days of Order | Tax + Interest + 50% Penalty | 50% of tax | Proceedings deemed concluded | Within 60 days of order |
6. Shortfall in Voluntarily Paid Amount (Sub-section 10)
If the amount voluntarily paid under the above provisions is less than the actual liability, the officer will issue a notice for the remaining amount.
7. Exception for Self-Assessed Tax (Sub-section 11)
Even when the tax is self-assessed or has been collected but remains unpaid for over 30 days from the due date, the penalty under Section 74A(5)(i) (10% of tax or ₹10,000, whichever is higher) will still apply.
8. Finality and Scope of Proceedings (Explanations 1 & 2)
- Explanation 1: The phrase “all proceedings” under Section 74A does not include prosecution under Section 132.
- Explanation 2: When proceedings conclude against the main person, they are also considered concluded against co-noticees under Sections 122 and 125.
9.Implications and Best Practices for Taxpayers
Section 74A incentivizes proactive compliance, reduces litigation, and ensures structured timelines for both authorities and taxpayers. Its graded penalty regime underscores the importance of intent—offering leniency for honest errors and imposing stricter consequences for deliberate defaults.
- File GST returns accurately and on time to minimize risk.
- Opt for voluntary disclosure and payment wherever discrepancies are realized, especially before receiving any SCN.
- On receipt of notice, promptly evaluate whether the case involves fraud and plan compliance strategy accordingly.
1 Differences Between Section 73, 74 & 74A Regarding Issuance of Notice and Order
| Section | Time Limit for Issue of SCN | Time Limit for Passing the Order | Cases Covered |
| 73 | 33 months | 36 months | Non-Fraudulent |
| 74 | 54 months | 60 months | Fraudulent |
| 74A | 42 months | 54 months, extendable to 60 months | All Cases |
Conclusion
Section 74A of the CGST Act, 2017, stands as a robust mechanism for balancing revenue interests and taxpayer rights. By streamlining the process of detection, notification, and recovery—and by allowing for early, penalty-free compliance in genuine cases—it enhances the overall effectiveness and fairness of the GST framework for FY 2024–25 and beyond.
Disclaimer: This guide is for informational purposes only and does not constitute legal advice. For case-specific guidance, please consult a qualified GST professional or legal advisor.
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if tax paid after 60 days in case of fraud after issuing of SCN, penalty will be 25% or 50% or 100% ?