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GST Litigations for FY 2024-25-Section 74A inserted!

In the Budget of 2024, a new section, 74A, has been introduced in the CGST Act, 2017, marking a significant development. This section has been inserted in the CGST Act, 2017 on 16.08.2024 by way of The Finance (No. 2) Act, 2024. This section addresses the determination of tax that has not been paid, has been underpaid, erroneously refunded, or where input tax credit has been wrongly availed or utilized, effective from the Financial Year 2024-25 onwards. The government aims to establish a unified time limit for issuing show cause notices and passing orders, applicable to both cases involving fraud and those that do not. Tax determinations for periods up to FY 2023-24 will continue under sections 73 or 74 of the CGST Act, while provisions of section 74A will govern tax determinations for FY 2024-25 and beyond.

Let's understand the section!

Section 74A of the CGST Act, 2017

Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason about Financial Year 2024-25 onward.

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 utilized, 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 utilized 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.

2. The proper officer shall issue the notice under sub-section (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.

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 sub-section (1), on the person chargeable with tax.

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.

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-

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 percent. of tax due from such person or ten thousand rupees, whichever is higher
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.

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.

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 the 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.

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 utilized for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, may-

Before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 of such tax based on his 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;
Pay the said tax along with interest payable under section 50 within sixty days of the 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.

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 utilized because of fraud, or any wilful misstatement or suppression of facts to evade 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 based on his 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;
Pay the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five percent. of such tax within sixty days of the issue of the notice, and on doing so, all proceedings in respect of the said notice shall be deemed to be concluded;
Pay the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty percent. 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.

10. Where the proper officer thinks that the amount paid under clause (i) of sub-section (8) or clause (i) of sub-section (9) falls short of the amount 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 payable.

11. Notwithstanding anything contained in clause (i) or clause (ii) of sub-section (8), penalty under clause (i) of sub-section (5) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within thirty days from the due date of payment of such tax.

12. The provisions of this section shall be applicable for the determination of tax for the Financial Year 2024-25 onwards.

Explanation 1.

For this section-

The expression "all proceedings in respect of the said notice" shall not include proceedings under section 132;
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.

Explanation 2.

For this Act, the expression "suppression" shall mean non-declaration of facts or information that 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.

Key changes

Section 74A is applicable for AY 2024-25 onwards. For previous Financial years, sections 73 and 74 are applicable.
As per Section 74A, notice can be issued only if the amount involved is Rs.1,000/- or more. This will lead to avoiding unnecessary litigations involving small amounts.
Notice u/s 74A can be issued within 42 months from the due date of filing the annual return for such year or within forty-two months from the date of erroneous refund.
The penalty provisions u/s section 74A are as follows:

For any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, shall be equivalent to 10% of the tax due from such person or Rs.10,000 whichever is higher;
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.

The time limit to issue order u/s 74A is 12 months from the date of issuance of the notice.
If any taxpayer pays the following amounts on his own within a specified time, all proceedings in respect of the said notice shall be deemed to be concluded:

Conclusion

The introduction of Section 74A in the CGST Act, 2017 represents a significant shift in the approach to GST litigation for the financial year 2024-25 and beyond. This new provision aims to streamline the tax determination process, reduce unnecessary litigations involving small amounts, and ensure timely resolution of tax disputes.

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