Summary: Section 74 of the Central Goods and Services Tax Act, 2017 prescribes the procedure for determining tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilised because of fraud, wilful misstatement or suppression of facts to evade tax. For tax periods up to FY 2023-24, it provides different penalty consequences depending on the stage at which tax, interest and the prescribed penalty are discharged. Before service of a show-cause notice, payment under Section 74(5) attracts a penalty of 15% of tax. Payment within 30 days of issue of the show-cause notice under Section 74(8) attracts 25%. Following an adjudication order, Section 74(11) permits payment with a 50% penalty within 30 days of communication of that order, while the ordinary adjudicated penalty is equivalent to 100% of the tax. The process involves Form GST DRC-01A, DRC-01, DRC-03 and DRC-07, depending on the stage of proceedings. This article examines six penalty scenarios and illustrates their financial consequences with practical input tax credit disputes. From FY 2024-25 onwards, Section 74A governs tax-demand determinations, making identification of the relevant financial year, statutory conditions and payment deadline essential.
CBIC Notification No. 17/2024–Central Tax
- 1. Coverage of this article
- 2. Intimation in Form DRC: 01A Part: A
- 3. Show cause notice in Form DRC: 01
- 4. Scenarios related to penalties
- 5. Penalty before issuance of intimation
- 6. Penalty after issuance of intimation before issuance of SCN
- 7. Penalty after issuance of notice & paid within the specified period
- 8. Penalty after issuance of notice but not paid within the specified period
- 9. Penalty after issuance of order in DRC: 07 & paid within the specified period
- 10. Penalty after issuance of order in DRC: 07 but not paid within the specified period
- 11. Comparison of all scenarios
- 12. Note
- 13. Practical scenario 1
- 14. Practical scenario 2
- 15. Practical scenario 3
1. Coverage of this article
a. In this article, I am discussing about the penalty provisions which is given us 74 of GST Act in case of fraud cases.
b. I am covering the penalty provisions in case when an intimation is issued in Form DRC: 01A, a notice is issued in Form DRC: 01, an order is passed in Form DRC: 07, before issuance of intimation, after issuance of intimation but before issuance of notice along with some other scenarios.
c. Other practical scenarios that will be helpful for professionals.
2. Intimation in Form DRC: 01A Part: A
Under section 74(5), an officer can issue intimation before issuance of show cause notice. It is discretion of officer whether he wants to issue an intimation.
3. Show cause notice in Form DRC: 01
An officer can issue notice us 74(1) in DRC: 01 in case of fraud cases.
4. Scenarios related to penalties
a. Penalty before issuance of intimation
b. Penalty after issuance of intimation but before issuance of notice
c. Penalty after issuance of notice & paid within the specified period
d. Penalty after issuance of notice but not paid within the specified period
e. Penalty after issuance of order in DRC: 07 & paid within the specified period
f. Penalty after issuance of order in DRC: 07 but not paid within the specified period
5. Penalty before issuance of intimation
a. U/s 74 there will be a penalty of 15% of tax amount if registered person pay the taxes along with applicable interest before issuance of intimation
b. Bare Act: 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 percent 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. Penalty after issuance of intimation before issuance of SCN
a. U/s 74 there will be a penalty of 15% of tax amount if registered person pay the taxes along with applicable interest as mentioned in the intimation.
b. Bare Act: 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 percent 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.
7. Penalty after issuance of notice & paid within the specified period
a. U/s 74 there will be a penalty of 25% of tax amount if registered person pay the taxes along with applicable interest as mentioned in the notice within the 30 days from the date of SCN.
b. Bare Act: 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 percent 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.
8. Penalty after issuance of notice but not paid within the specified period
a. U/s 74 there will be a penalty of 50% of tax amount if registered person pay the taxes along with applicable interest as mentioned in the notice after expiry of 30 days from the date of SCN.
b. Bare Act: 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 percent 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.
9. Penalty after issuance of order in DRC: 07 & paid within the specified period
a. U/s 74 there will be a penalty of 50% of tax amount if registered person pay the taxes along with applicable interest as mentioned in the order within the 30 days from the date of order.
b. Bare Act: 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 percent 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.
10. Penalty after issuance of order in DRC: 07 but not paid within the specified period
U/s 74 there will be a penalty of 100% of tax amount if registered person pay the taxes along with applicable interest as mentioned in the order after expiry of 30 days from the date of order.
11. Comparison of all scenarios
| S No | Scenarios | Penalty us 74 of GST |
|---|---|---|
| 1 | Penalty before issuance of intimation | 15% of tax amount |
| 2 | Penalty after issuance of intimation but before issuance of notice | 15% of tax amount |
| 3 | Penalty after issuance of notice & paid within the specified period | 25% of tax amount |
| 4 | Penalty after issuance of notice but not paid within the specified period | 50% of tax amount |
| 5 | Penalty after issuance of order in DRC: 07 & paid within the specified period | 50% of tax amount |
| 6 | Penalty after issuance of order in DRC: 07 but not paid within the specified period | 100% of tax amount |
12. Note
a. You will be liable to pay the penalty when there is excess availment of ITC or short payment of output tax liability or any other reason.
b. You no need to pay the tax, interest & penalty as mentioned in notice. Firstly, you will identify whether there is actual discrepancies or not. If yes, then compute the penalty amount & pay along with taxes & interest.
c. If tax payable is zero then there will be no liability of penalty.
13. Practical scenario 1
a. Suppose a notice has been issued by the officer & raised the demand of tax of Rs 1,00,000 along with interest of 7,000 & penalty of 1,00,000. It is related to excess input claimed in GSTR-3B.
b. As per analysis, there is no excess ITC claimed. Hence, there is no requirement to pay the taxes, interest and penalty.
c. If tax payable is zero then there will be no liability of penalty.
14. Practical scenario 2
a. Suppose a notice has been issued by the officer & raised the demand of tax of Rs 1,00,000 along with interest of 7,000 & penalty of 1,00,000. It is related to excess input claimed in GSTR-3B.
b. As per analysis, we have claimed the excess ITC of Rs 50,000. Then we will pay the tax of Rs 50,000 along with the interest of 3,500 & penalty of 12,500.
c. Penalty amount is 12,500 which is 25% of 50,000 if we paid the demand within 30 days from the date of SCN.
d. Penalty amount is 25,000 which is 50% of 50,000 if we paid the demand after expiry of 30 days from the date of SCN.
15. Practical scenario 3
a. Suppose an orderhas been issued by the officer & raised the demand of tax of Rs 1,00,000 along with interest of 7,000 & penalty of 1,00,000. It is related to excess input claimed in GSTR-3B.
b. As per analysis, we have claimed the excess ITC of Rs 50,000. Then we will pay the tax of Rs 50,000 along with the interest of 3,500 & penalty of 25,000.
c. Penalty amount is 25,000 which is 50% of 50,000 if we paid the demand within 30 days from the date of order.
d. Penalty amount is 50,000 which is 100% of 50,000 if we paid the demand after expiry of 30 days from the date of order.
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Disclaimer: The views and opinions expressed in this article are those of the author. This article is intended for general information purposes only and does not constitute professional advice. Readers are strongly advised to consult a qualified professional for guidance specific to their individual situation before making any financial, legal, or tax-related decisions. The author shall not be held liable for any loss or damage of any kind incurred as a result of the use of this information or for any actions taken based on the content of this article.
