Introduction
In GST regime, collection of additional taxes other than self-assessed tax is governed through adjudication procedures enumerated in Section 73 and Section 74 of CGST Act, 2017 read with relevant rules. For past 7 years since the inception of the law, these provisions have been guiding the tax payers and administration to determine tax, interest and penalty payable by the person chargeable with tax. This law divides the entire proceedings into two segments, one, tax payable due to an event occurred without an intent to fraud, and second with an intent to fraud. In both segments, other than occasions of chargeability, all provisions are different. From time to issue notice to issue order to penalty and so on. On the other hand, Finance Bill, 2024 proposes (may by, the time you are reading it, that becomes the law also) a common section ie Section 74A for the machinery provisions for both segments together. In this article we are going to write commentary on the changed provision with section wise comparison of existing law of Sec 73/74. Happy GST, Happy Reading.
Discussion
Section 74A- Heading
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 onwards.
We shall deal with the provisions one by one analyzing each and every sub section of the new law.
There is total 12 sub sections in Sec. 74A. It is evident from the heading used in the finance bill that it is applicable to matters pertaining to FY 24-25 onwards. Therefore, till FY 23-24, old provisions of Sec 73/74 shall apply as the case may be.
1. Sub-Section (1)
74A. (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, 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 leviable under the provisions of this Act or the rules made thereunder:
Provided that no notice shall be issued, if the tax which has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized in a financial year is less than one thousand rupees.
Formation of this sub-section is the same as that of old provisions. Except the fact that a new proviso is added to it which restricts issuance of notice if tax demanded is less than 1000/- Rs. It also starts with the phrase, “Where it appears”, which requires the proper officer to gather information first, analyze it and then as result if it appears to PO then act accordingly under this section. So as per this provision notice shall be issued alleging the non-compliance. Instances for invocation of this section remains the same as that of earlier section(s) 73/74. 5 situations where this section can be attracted. Tax not paid, Short paid, erroneous refund, input tax credit wrongly availed, utilized. Interesting part to observe here is that there is no mention of declaring in notice whether it is fraud case or non-fraud case. Does that mean, now while issuing, no need to declare in advance about segment noncompliance falls in?
2. Sub-Section 2
(2) The proper officer shall issue the notice under subsection (1) within forty-two months 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 utilized relates to or within forty-two months from the date of erroneous refund.
Under this sub section, time limit to issue show cause notice is prescribed. Unlike old provision, where two different time lines were given for two different segments i.e. 33 months for Section 73 matters and 54 months for Section 74 matters, here a single limitation is given for both types of cases. SCN under new provision can be issued with in 42 months from the due date of filing of annual return or date of erroneous refund.
3. Sub-Section (3)
(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 utilized for such periods other than those covered under subsection (1), on the person chargeable with tax.
Here it is similar to old provisions only. Where for a particular period SCN under sub-section (1) is already issued and for similar matter for another year a statement containing details of the matter would be sufficient enough to create the charge and fix the allegation.
4. Sub-Section (4)
(4) The service of such statement shall be deemed to be service of notice on such person under sub-section (1), subject to the condition that the grounds relied upon for such tax periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.
Sub-section (3) and (4) are in alignment and guides that if a statement is issued for any other period than for which SCN is issued and is on the same relied upon grounds then that statement shall be deemed to be considered as SCN issued.
5. Sub-Section (5)
(5) 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 utilized, ––
(i) 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 per cent. of tax due from such person or ten thousand rupees, whichever is higher;
(ii) for the reason of fraud or any wilful-misstatement or suppression of facts to evade tax shall be equivalent to the tax due from such person.
This provision is talking about penalty prescription for both fraud as well as non-fraud cases. Penalty for non-fraud cases would be 10% of tax due or Rupees 10,000/-, whichever is higher. For fraud cases penalty shall be equivalent to tax due from the person chargeable with tax.
6. Sub-Section (6)
(6) 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.
Principle of Natural justice has been the hallmark in litigation in every branch of the law. Similarly, in GST also, it has been purposely included in the adjudication process to provide sufficient opportunity and consideration to the tax payer and its replies (both in written and verbal form) before taking any decision in the matter.
7. Sub-Section (7)
(7) The proper officer shall issue the order under sub-section (6) within twelve months from the date of issuance of notice specified in sub-section (2):
Provided that where the proper officer is not able to issue the order within the specified period, the Commissioner, or an officer authorized by the Commissioner senior in rank to the proper officer but not below the rank of Joint Commissioner of Central Tax, may, having regard to the reasons for delay in issuance of the order under sub-section (6), to be recorded in writing, before the expiry of the specified period, extend the said period further by a maximum of six months.
Proper office has to issue order under this section within 12 months from the date of issuance of notice. Thereby making total 54 months for passing the order from the due date of annual return or date of erroneous refund in both segments of fraud and non-fraud cases. Unlike in erstwhile scheme, it was 36 months for non-fraud case and 60 months for fraud case.
If the proper officer is not able to issue order within 54 months (as calculated in above para) then Commissioner or Joint Commissioner (after authorization by commissioner) can further extend this period but not exceeding 6 months. Thereby making total period to issue order to 60 months from the due date of filing of annual return. Also worth mentioning is this extension is possible only before the expiry of 54 months and reasons for extension has to be recorded in writing. Of course, tax payer can demand such reasons recorded for further course of action. Tax payer should be vigil to make note of reasons for extension as expression of sufficient cause would also be applicable on the proper officer.
With this change, time line for issuance of notice and order both for erstwhile Section 73 matters is changed from 36 months to 60 months (extended period included). And for Section 74 matters it remained the same 60 months which was there earlier. Eventually added 24 months with the department to adjudicate Section 73 matters in this new scheme of Section 74A.
8. Sub-Section (8)
(8) 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, ––
(i) before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 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, and the proper officer, on receipt of such information shall not serve any notice under sub-section (1) or the statement under sub-section (3), as the case may be, in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder;
(ii) 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.
This clause is applicable only on non-fraud cases. Here law makers are talking about redemption of the offence and its ramifications in different occasions. Before the issue of notice, if person chargeable with tax (not necessary to be registered person for invocation of this section) pays tax and interest as ascertained by himself or on ascertainment of the proper officer (here, pre show cause is visualized, PO shall inform the person chargeable with tax that pay this tax and I will not issue you the SCN). In this event, on receipt of this information of payment of tax by PO (payment through DRC-03), he will not issue notice and drop the proceedings.
If the notice is issued by the PO, still, if person chargeable with tax, pays the tax and interest as ascertained by himself or ascertained by PO within 60 days of issuance of notice. In that situation also, no penalty shall be payable and proceedings in respect of already issued notice shall be deemed to have been concluded.
Here, one can see the important departure from the previous law, there was 30 days provided to pay tax and interest after issue of notice, now this time is increased to 60 days. Thereby benefitting the tax payer to pay tax and interest within 60 days and get the proceedings concluded.
9. Sub-Section (9)
(9) 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, ––
(i) 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, and 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;
(ii) pay the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. 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;
(iii) 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 be concluded.
This clause is applicable only on fraud cases. In this clause also, statue has provided for various ways to response to the notice and get proceedings dropped or concluded. If notice is not issued, and person chargeable with tax pays tax and interest and 15% of tax as penalty then PO shall not issue the notice at all regarding the such tax and penalty payable.
Another scenario which is visualized here is, notice is issued. In this case, if person chargeable with tax pays tax and interest and 25% of tax as penalty within 60 days of issue of notice, then all proceedings in respect of such notice issued shall be deemed to have been concluded.
Now, if notice is issued and order to such notice is also issued, then what? In this case, person chargeable with tax can pay tax and interest and 50% of such tax as penalty within 60 days of communication of the order. (word used is communication and not receipt of the order), On doing so, all proceedings in respect of such notice shall be deemed to be concluded and no further action shall be taken on that.
10. Sub-Section (10)
(10) Where the proper officer is of the opinion that the amount paid under clause (i) of sub-section (8) or clause (i) of sub-section (9) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in subsection (1) in respect of such amount which falls short of the amount actually payable.
If person chargeable with tax, pays tax before issue of notice on his own ascertainment (whether in fraud or non-fraud cases) and that falls short of amount actually payable, PO shall proceed to issue the notice for the amount which fell short of the actual amount payable.
11. Sub-Section (11)
(11) Notwithstanding anything contained in clause (i) or clause (ii) of sub-section (8), penalty under clause (i) of subsection (5) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.
If a person has collected tax and has not paid such tax within 30 days from the due date of payment of such tax and self-assessed tax is not paid with in 30 days from the due date of payment of such tax then even if such tax is paid before issue of notice or within 60 days from issue of notice, still penalty of 10% of tax due or Rupees 10,000/-, whichever is higher shall be payable. (considering these situations as non-fraud cases)
12. Sub-Section (12)
(12) The provisions of this section shall be applicable for determination of tax pertaining to the Financial Year 2024- 25 onwards.
As it is evident from the text of the section also that adjudication under this section shall start from the financial year 2024-25. Till 2023-24, old provisions of Section 73/74 as the case may be, shall be applicable. It means operation of old provisions are not suspended; they will continue to be in current for the relevant adjudications.
Explanation 1.––For the purposes of this section, ––
(i) the expression “all proceedings in respect of the said notice” shall not include proceedings under section 132;
(ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under this section, the proceedings against all the persons liable to pay penalty under sections 122 and 125 are deemed to be concluded.
Similar explanations were added to erstwhile Section 74 explaining the same concepts. Under this 1st explanation, it is important to note for readers that after payment of tax, interest and penalty under this section, proceedings under section 132 (Punishment for certain offences) shall not be deemed to be concluded. Those are separate than this section. In the second limb of this explanation, law guides that if proceedings in respect of main person to whom notice was issued is concluded then proceedings against other persons shall also be concluded who were require to pay penalty under sections 122 and 125.
Explanation 2.––For the purposes of this Act, the expression “suppression” shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer.
Through this explanation, it is the only place where phrase suppression has been defined in the entire law. It can be observed from the wordings that if any information which is required to be given in GSTR-1/3B or any other document furnished by tax payer or if PO ask for any information in writing and its not provided. This shall be considered as suppression and fraud category can be invoked on the person chargeable with tax.
Conclusion
In past 72 months, tax payers and professional society was just been able to hold the breadth while dealing with Sections 73 and 74. And now replacing the entire code with new section will make life difficult for both tax payer and tax collector communities. It is also relevant to mention here that in the charging section of Section 74A, there is no mention of declaring the reasons for issuance of notice whether it is fraud case or non-fraud case. This will make it onerous on the part of the PO to substantiate the allegation at later stage of adjudication when he will propose higher penalty. One probable reason for bringing this new code could be removal of notion of invocation of extended period for adjudication, which is evident from the time lines mentioned hereunder. But it is also imperative to allege with clarity at the beginning about the category of charge to upheld the principle of natural justice. May we be blessed with Ashirvad of maa Saraswati. Happy GST, Happy Reading. GST की राह में आपका दोस्त
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DISCLAIMER: This publication serves as a general guide for informational purposes only. The references and content provided are for educational purposes and should not be considered as legal advice. We assume no liability for any losses incurred directly or indirectly through the use or reliance upon the information or conclusions presented in this publication. Prior to taking any action based on this publication, it is recommended that you seek professional advice. This work is solely intended to contribute to the subject of GST and serves the best interests of the profession.
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