The new Finance bill 2024 has inserted the new provision of Section 74A of GST Act as announced in the 53rd GST Council meeting. It can be understood as a merge of Sections 73 and 74. The Finance Minister presented the budget.
Currently, the CGST Act segregates procedures and time limits for issuing notices and orders based on the nature of the charge. Cases involving fraud, willful misstatements, or suppression of facts are handled under Section 74, with longer timelines due to their complexity. In contrast, general cases have shorter timelines.
This differentiation has led to a bifurcated system, causing confusion and inconsistency in handling cases. The proposed Section 74A aims to harmonise time limits across various infractions, whether involving intent to evade tax or not.
SECTION 73 and 74 of GST ACT
Sections 73 and 74 of the GST Act outline the procedures for handling cases involving tax liabilities. Section 73 deals with cases where there is no fraud, willful misstatement, or suppression of facts. In such cases, a notice can be issued within three years from the due date of filing the annual return, and an order can be passed within one year from the date of issuance of the notice. The penalty for such cases is equal to 10% of the tax liability, subject to a minimum of Rs 10,000.
On the other hand, Section 74 deals with cases involving fraud, willful misstatement, or suppression of facts. In these cases, a notice can be issued within five years from the due date of filing the annual return, and an order can be passed within two years from the date of issuance of the notice. The penalty for such cases is equal to 50% of the tax liability, subject to a minimum of Rs 10,000. These sections provide a framework for handling different types of cases and ensure that taxpayers are held accountable for their tax liabilities.
SECTION 74A EXPLAINED
The newly introduced Section 74A of the GST Act mandates the issuance of demand notices for any reason, including non-payment, short payment, erroneous refund, or incorrect input tax credit utilization, from FY 2024-25 onwards. This provision supersedes Sections 73 and 74, which will only apply till FY 2023-24. That is this section has merged both the Section 73 and 74, which confused and harassed the taxpayers by the GST department.
The new section clarifies that no notice will be issued if the amount involved is less than Rs 1,000. The proper officer must issue a notice within 42 months from the due date of the annual return or erroneous refund, and may also issue a statement detailing issues for additional periods.
The penalty structure under Section 74A includes 10% of tax due or Rs 10,000 for reasons other than fraud or willful misstatement, and equivalent to tax due for fraud or willful misstatement as similar to the penalty under Section 73.
The GST payers can pay tax and interest before receiving a notice to avoid penalties, and payment within specified timelines can conclude proceedings. The section also outlines the consequences of payment, including the conclusion of proceedings against all individuals liable for penalties under Sections 122 and 125.
INTENTION BEHIND NEWLY INSERTED SECTION 74A OF GST ACT
A new provision, Section 74A, is being proposed to be added to the GST legislation, which seeks to standardise the timeframe for issuing demand notices and orders, making it uniform across all cases, regardless of whether they involve fraudulent activities or simple non-adherence to regulations. This amendment aims to streamline the process and eliminate disparities in treatment between different types of cases.
The GST law currently has different time limits for issuing demand notices under Sections 73 and 74 of the CGST Act, with three years for Section 73 and five years for Section 74, calculated from the due date of the annual return or the date of erroneous refund.
However, if a notice under Section 74 is issued beyond three years and the charges of fraud or suppression are not sustained, the notice may be dropped as time-barred. To simplify the process and reduce differential treatment, the GST Council recommended a common timeline for issuing demand notices and orders under both sections, regardless of whether the case involves fraud, as seen under Section 74A.
This change allows the proper officer to initiate proceedings and determine fraudulent intention during the course of the proceedings. Additionally, the time limit for taxpayers to avail of a reduced penalty by paying the tax demanded along with interest is proposed to be extended from 30 days to 60 days.
The new Section 74A of the GST Act combines two old rules into one, treating all GST cases the same, whether they involve cheating or not. This means businesses will have one deadline to follow and clear responsibilities, making it easier for them to comply. The GST officials will also benefit from a simpler process, with less paperwork and faster resolution of cases. Most importantly, this change ensures fair treatment for all, reducing the chance of unfair decisions and promoting a more transparent and efficient system.
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