Next Wave of GST Notices Likely: Section 74A vs S. 73 &S. 74 Set to Trigger Fresh Litigation Battles [Read Order]

The GST ( Goods and Services Tax ) payers will witness the next set of notices under Section 74A. However, on the litigation aspect, the upcoming litigation area expected is the issuance of Section 73 or 74 notices instead of Section 74A.

Why a New Wave of GST Notices Is Expected

The GST department started to issue notices for the Financial Year 2024-25. Therefore the taxpayers can expect notices under Section 74A soon. This is also shifted to the newly inserted provision. However, this shift will also increase the legal battles regarding the provisions if the department wrongly invokes Section 73 or 74.

Section 73 and Section 74 - Repealed w.e.f. 01.04.2024

This is an important update for all taxpayers, tax professionals and GST department officials that the Sections 73 and 74 will not apply post 01-04-2024. The new Section 74A applies. Therefore, any notices issued under these provisions post this date will not have the legal effect.

Section 73: deals with the determination of tax pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts.

Section 74: deals with the determination of tax pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts.

Section 74A : Unified GST Demand Provision

Section 74A is the consolidated provision merging Section 73 and 74. This applies from Financial 2024-25. It introduced the Finance Act, 2024 amendments. This was intended to create a single framework for issuing GST notices rather than two different Sections.

The earlier issue was that the GST notices were often issued quoting different sections which initiated a lot of litigation where these notices were quashed. This even extends the litigation period even more which ultimately affects the exchequer. Therefore, it is expected that Section 74A will reduce such classification issues.

The provision also clarified that the department cannot issue demand notice if the due tax liability is less than ₹1000. This Section applies irrespective of fraud , wilful misstatement or suppression of fact. The time limit for issuing the notice is 42 months from the due date for furnishing an annual return for the financial year. The order shall be issued after 12 months from the date of issuance of notice.

Applicability Disputes

The GST department has a high chance of issuing notices for FY 2024-25 with the repealed provisions S. 73 and 74. At present, there are a lot of notices issued in this manner. The Madras High Court has issued few orders with regards to the issue. In such cases, the court sets aside the impugned order and directs the taxpayer to consider the Section 73 order as notice to Section 74A.

Retrospective vs Prospective Arguments: In the case of Section 73, 74 and 74A, the argument of retrospective or prospective will not stand. The statute clearly stated that all new GST notices from FY 2024-25 shall be issued under Section 74A.

Orders issued by Court w.r.t. Non-issuance of Section 74A FY 2024-25

In the matter of M Gnanaraj vs The Assistant Commissioner, the Madurai bench of Madras High Court has set aside the Section 73 issued for FY 2024-25 and directed the taxpayer to treat it as notice to Section 74A. The court upheld the submission of the taxpayer that the Sections 73 and 74 repealed w.e.f. 01-04-2024 and new notices from FY 2024-25 shall be issued under Section 74A.

Also Read:GST S. 74A applies from FY 2024-25’: Madras HC directs to Treat wrongly Issued S. 73 Order as Notice to S. 74A [Read Order]

In another case, Baskar Selvakumar vs The Assistant Commissioner, the Madras High Court dealt with the Section 74 order issued for FY 2024-25. In this case, the high court adopted the same approach taken in the matter of M. Gnanaraj. It directed to treat the S. 74 order as notice to S. 74 instead of quashing whole proceedings to save time and cost.

Strategy for Taxpayers Receiving Section 74A Notices

The first step is that a taxpayer has to check the tax period involved in the notice. Section 74A applies from FY 2024-25. If the notice is issued Section 73/74 for FY 2024-25, then you can challenge the same on jurisdictional defects. Also, the taxpayer has to check if the limitation period is proper.

Also, you have to make sure that the department is not demanding a higher penalty. Check if there is any allegation of fraud. And if you found any copy paste of the notice in the order, without considering the submissions, you can challenge the same.

What GST department should consider

The GST Department Officers must carefully identify the financial year under scrutiny before issuing GST notices or orders. With the amended law now in force, demands relating to FY 2024-25 onwards are required to be initiated under Section 74A. Invoking the earlier provisions instead may expose the notice to legal challenge.

Present and Future Scenario : Wave of Legal Battles

The current and future landscape of GST demand notices indicates a fresh wave of legal battles. With the introduction of the new demand provisions, disputes are increasingly arising over the invocation of sections, applicable financial years..etc.

The courts have already begun to see early challenges on these issues, especially, the Madras High Court has recently entertained and disposed of multiple matters involving similar notice-validity and provision-applicability questions. These rulings are only the beginning of a wave of litigation as more notices are issued under the new provision.

Therefore considering this, the department should be more cautious while issuing the notices. The officials have to check the structure of the newly inserted Section 74A before issuing notice or order to avoid litigations coming out of mechanical issues.

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