GST Demand Proceedings: Time Limits, Exceptions, and Penalty Framework

Stricter timelines and penalties for demand proceedings are introduced under Sections 73 and 74 of the Goods and Services Tax (GST) Act, 2017, for issuing show cause notices (SCNs) and passing of orders. These concepts play a major role for taxpayers as well as practitioners.

Time Limits for Notices and Orders

The statutory framework provides for the deadlines for issuing SCNs and passing orders. The timeline starts from the due date of filing the annual return (GSTR-9) for the relevant financial year. Sections 73 and 74 of the act empower tax authorities to determine and recover unpaid tax, wrongfully availed input tax credit or erroneously refunded tax.

Section 73 (non-fraud cases) are cases where there is no intent to evade tax, but the disparity is due to an honest mistake, clerical error, or misinterpretation. In such cases SCNs must be issued within three years from the due date of GSTR-9, and orders must be passed within three years and nine months.

Section 74 (fraud, suppression, or willful misstatement) applies to cases where there is an actual intent to evade tax, and such cases will involve deliberate fraud, willful misstatement, or suppression of facts. In those cases, SCNs must be issued within five years, and orders within five years and six months from the same reference point.

Year-Wise Illustration

Using the GSTR-9 due dates as anchors, the deadlines unfold as follows:

Exceptions to Limitation

The Statute especially provides for specific exceptions where the limitation period does not apply:

• Section 76 (tax collected but not paid): No limitation period applies. Authorities can initiate proceedings at any time.

• Court/Tribunal stay: If proceedings are stayed by a judicial or quasi-judicial authority, the stay period is excluded from the limitation period.

• Erroneous refunds: In cases where refunds are wrongly sanctioned, the three- or five-year period is counted from the date of the refund order, not the annual return due date.

Penalty Framework

The penalty structure under Sections 73 and 74 is especially inserted to encourage early payment and discourage prolonged litigation:

Section 73 (non-fraud):

• Payment before SCN: No penalty.

• Payment within 30 days of SCN: No penalty.

• Payment within 30 days of order: 10% of tax or ₹10,000, whichever is higher.

• Payment after 30 days of order: Same penalty as above.

Section 74 (fraud/suppression):

• Payment before SCN: 15% of tax.

• Payment within 30 days of SCN: 25% of tax.

• Payment within 30 days of order: 50% of tax.

• Payment after 30 days of order: 100% of tax.

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