Table of Contents
Introduction
The GST law in India is continuously evolving. With every change, compliance expectations shift, and businesses must adapt. The 53rd GST Council Meeting held on 22nd June 2024 has introduced significant amendments, particularly the insertion of a new Section 74A along with refinements in Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017).
The amendments are not just procedural — they are substantial enough to impact how recovery proceedings, fraud detection, and taxpayer rights are handled from FY 2024-25 onwards.
In this article, we will dive deep into the Major Changes under Sections 74A, 73 & 74, analyzing their scope, timelines, penalties, legal language, practical implications, and what businesses need to watch out for.
Section 74A – Introduction of a New Provision
The most notable addition is Section 74A — a completely new provision inserted into the CGST Act, 2017.
It sets a unified standard for recovery in both fraud and non-fraud cases.
1. Scope and Applicability
- Section 74A(1): It applies when any tax is short paid, not paid, or input tax credit (ITC) is wrongly availed/utilized, or when refund is erroneously granted, whether or not by fraud.
- It brings uniformity across various recovery situations, reducing confusion between Sections 73 and 74.
2. Time Limits for Issuing Notice
- As per Section 74A(2), the tax officer must issue a Show Cause Notice (SCN) within 42 months (i.e., 3.5 years) from:
- The due date of furnishing Annual Return under Section 44, or
- The date of erroneous refund, whichever is applicable.
3. Mandatory Material Evidence for Fraud Cases
- Section 74A(3):
- In alleged fraud cases, material evidence is compulsory.
- No proceedings shall be initiated based merely on suspicion, rumor, or assumption.
This legal safeguard strengthens the taxpayer’s position and protects against arbitrary notices.
Penalty under Section 74A
Nature of Case | Penalty Payable |
Without Fraud | 10% of tax amount or ₹10,000, whichever is higher |
With Fraud | 100% of the tax amount |
- Relief Options under GST:
- Full penalty waiver if tax + interest are paid before issuance of SCN.
- Reduced penalties if paid within prescribed timelines after SCN.
This mechanism incentivizes early compliance and quick resolution of disputes.
Section 73 – Revised Framework for Non-Fraudulent Errors
Section 73 focuses solely on non-fraud cases — covering mistakes, oversights, and genuine errors without any malafide intention.
1. Applicability
- Section 73(1):
Cases where tax is not paid, short paid, or ITC is wrongly availed/utilized without fraud, willful misstatement, or suppression of facts.
2. Revised Notice Timelines
- Notice must be issued at least three months before the expiry of three years from the due date of furnishing the Annual Return under Section 44.
Example:
If Annual Return for FY 2023-24 is due on 31st December 2024, the SCN must be issued by 30th September 2027.
3. Penalties
- Standard Penalty:
- 10% of tax due or ₹10,000, whichever is higher.
- Relief Options under GST:
- Full penalty waiver if tax and interest are paid before issuance of SCN.
- Reduced penalty if paid within 30 days of SCN.
Section 74 – Provision for Fraudulent Cases
Section 74 addresses cases where there is fraud, willful misstatement, or suppression of facts to evade tax.
1. Applicability
- Section 74(1):
Cases involving intent to evade tax, such as manipulation of records, misreporting, or deliberate non-compliance.
2. Notice Timelines
- SCN must be issued at least six months before the expiry of five years from the due date of furnishing the Annual Return under Section 44.
Example:
For FY 2023-24, if the Annual Return is due by 31st December 2024, the SCN must be issued by 30th June 2029.
3. Penalties
- Early Payment (before SCN):
- Pay tax + interest + 15% of tax as penalty → escape SCN.
- Post-SCN Payment:
- Pay tax + interest + 25% of tax penalty within 30 days → reduced penalty.
- Proven Allegations:
- 100% penalty on tax amount if charges are proven.
This section severely punishes willful tax evasion while giving early compliers some benefit.
Comparative Overview of Sections 74A, 73 & 74
Basis | Section 74A | Section 73 | Section 74 |
Applicability | All recovery cases | Non-fraudulent cases | Fraudulent cases |
Time limit to issue SCN | 42 months | 3 years | 5 years |
Penalty without SCN | Full waiver if pre-paid | Full waiver if pre-paid | 15% penalty if pre-paid |
Penalty after SCN | Reduced if timely paid | Reduced if timely paid | 25% if paid in 30 days |
Need for material evidence | Mandatory in fraud cases | Not applicable | Required |
Important and Practical Considerations
- Section 74A is a game-changer — it emphasizes evidence-based proceedings.
- Distinction between bona fide errors and fraud is now clearer, minimizing harassment for genuine taxpayers.
- Reduced litigation risks — thanks to clearer timelines and structured relief mechanisms.
- Businesses must strengthen record-keeping and internal compliance frameworks to proactively defend against any allegations.
- Training and Awareness: Accounts and Bookkeeping Teams should be educated on the nuances between genuine mistakes and willful evasion.
- Regular GST compliance checking can detect errors early, enabling tax and interest payment before SCN, avoiding penalties.
Conclusion
The Major Changes under Sections 74A, 73 & 74 indicate a matured GST framework that balances enforcement with fairness. While fraudulent activities will face strict action, genuine taxpayers are given timely opportunities to correct their mistakes without suffering heavy penalties.
Adapting early to these new rules isn’t optional — it’s essential for survival and smooth business operations under the GST regime.
Stay compliant. Stay aware. And follow Taxgroww for the latest updates on GST law and beyond!
Frequently Asked Questions (FAQs)
Q1. When will Section 74A come into force?
➔ Section 74A is applicable from Financial Year 2024-25 onwards, post the 53rd GST Council Meeting.
Q2. Can SCN be issued without material evidence under Section 74A?
➔ No. Material evidence is mandatory for initiating action under fraud allegations as per Section 74A(3).
Q3. What happens if tax is paid before SCN under Section 73?
➔ Full penalty waiver is available if tax and interest are paid before SCN under Section 73.