[BREAKING] GST Demand Notices to be Issued under newly Inserted Sec. 74A Starting FY 2024-25 for 'Any Reason': Finance Bill 2024 [Read Bill]

The budget 2024 was presented by the Finance Minister Nirmala Sitharaman on 23rd july 2024. The Finance Bill 2024 is out now and it has inserted a new provision of 74A under GST Act ( Goods and Services Tax Act ), 2017, which will be used by the department for issuing demand notices from FY 2024-25 onwards.

The 53rd GST council has amended the provisions of Section 73 and 74 and along with that 74A was also inserted. The newly inserted provision 74A deals with the 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.

Thus, the Section 73 and 74 will be time barred as the new bill proposed to insert the word ‘pertaining to the period up to Financial Year 2023-24’ after the word Determination of Tax.

NEWLY INSERTED SECTION 74A

“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 utilised in a financial year is less than one thousand rupees.

(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 utilised 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 utilised for such periods other than those covered under subsection (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 utilised,–– 

1. 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;
2. 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 subsection (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 authorised 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.

(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 wilfulmisstatement or suppression of facts to evade tax, may, ––

1. 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;

2. 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.

(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,––

1. 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;

2. 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,

(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.

(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 selfassessed 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.

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

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.

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.”

This can be inferred that GST demand notices shall be issued when the tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised ‘FOR ANY REASON’ from the Financial  Year 2024-25 onwards. The demand notices under Section 73 and 74 will be limited to FY 2023-24.

The sections 73 and 74 deals with the same tax short paid or erroneously refunded or input tax credit wrongly availed or utilised. However, in 74 of the GST law there needs to be a reason for fraud or any wilful-misstatement or suppression of facts. 

The Explanation 2 of the Section 73 was also proposed to be omitted and the same was added to the newly inserted provision Section 74A. The Explanation 2 of the Section is “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.”

The newly inserted provision also clarified 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 utilised in a financial year is less than one thousand rupees.

According to the newly proposed section, the GST proper officer must issue a notice within 42 months from the due date of the annual return or from the date of an erroneous refund, for issues like unpaid or short-paid tax, or incorrect input tax credit. If a notice has been issued for a specific period, the officer can also issue a statement detailing issues for other periods not covered in the initial notice. The service of this statement will be considered as service of notice for the additional periods, provided the grounds are consistent with those in the initial notice.

PENALTY UNDER 74A

The penalty suggested in this Section 74A suggested that :

1. 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;
2.  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 proper officer shall review any representations made by the taxpayer, determine the tax, interest, and penalty due, and issue an order accordingly  within twelve months from the date of issuance of notice.

If tax has not been paid, short-paid, or erroneously refunded, or input tax credit has been wrongly availed, the taxpayer may pay the tax and interest (under Section 50) based on their own or the proper officer’s ascertainment before receiving a notice.

Upon informing the proper officer of this payment, no notice or additional penalty will be issued for the tax paid. If the taxpayer pays the tax and interest within 60 days of receiving a show cause notice, no penalty will be imposed, and the proceedings related to the notice will be considered concluded.

If tax is unpaid, short-paid, or erroneously refunded due to fraud or willful misstatement, the taxpayer may pay the tax, interest (under Section 50), and a penalty of 15% of the tax before receiving a notice. Informing the proper officer of this payment will prevent further notice or additional penalties.

Paying the tax, interest, and a 25% penalty within 60 days of receiving a notice will conclude all proceedings related to the notice. Further, paying the tax, interest, and a 50% penalty within 60 days of receiving an order will also conclude all related proceedings.

The Section specifies that the term "all proceedings in respect of the said notice" does not extend to proceedings under Section 132 of the GST Act. If a notice is issued to the primary person liable for tax and other individuals, and the proceedings against the primary person are concluded under this section, then the proceedings against all individuals liable for penalties under Sections 122 and 125 are also considered concluded.

To Read the full text of the Finance Bill CLICK HERE

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