Section 74 of GST – Determination of tax not paid

Section 74 of GST – Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts. Complete Details for GST Section 74. find all details for “Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilfulmisstatement or suppression of facts ” as per GST Act 2017. Detailed Analysis of GST Section 74 of GST Act 2017. We Provide Complete Details for All GST Section’s and In this article you may find all details for GST Section 74. Check Section Wise Analysis of Revised GST Act 2017, Chapter Wise Analysis of GST All Sections. in this article you may find complete details regarding Section 74 of GST Act 2017 – Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilfulmisstatement or suppression of facts , gst all sections and definitions. Now Check more details from below…..

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Section 74 of GST

(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 by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, 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 equivalent to the tax specified in the notice.

(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

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

(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.

(5) The person chargeable with 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 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.

(6) 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.

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

(8) Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.

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(9) 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.

(10) The proper officer shall issue the order under sub-section (9) within a period of five years 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 five years from the date of erroneous refund.

(11) Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.

Explanation 1.- For the purposes of section 73 and 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 section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122, 125, 129 and 130 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.

Related Provisions of the Statute

Section or Rule Description
Section 73 Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts
Section 75 General provisions relating to determination of tax
Section 50 Interest on delayed payment of tax
Section 122 Penalty for certain offences
Section 125 General penalty
Section 129 Detention, seizure and release of goods and conveyances in transit
Section 130 Confiscation of goods or conveyances and levy of penalty
Section 132 Punishment for certain offences
Rule 142 Notice and order for demand of amounts payable under the Act

Introduction

The section covers certain situations for demand and recovery of taxes in cases of fraud, or any kind of wilful mis-statement or suppression of facts with an intent to evade payment of tax.

  • Whenever the tax is

• not paid or
• short paid or
• credit wrongly availed or utilized or
• erroneously refunded
with an intent to evade tax by way of
• Fraud;
• Willful misstatement;
• Suppression of facts;

the Proper Officer shall issue a notice for such amount along with interest as per Section 50 and penalty equivalent to the amount of tax specified in notice. The Proper Officer shall along with the Notice provide a summary in Form GST DRC-01 specifying therein the details of the amount payable.

  • This section covers the time limit within which the proper officer shall issue the Notice and Order for the determination/ recovery of tax defaulted by the person. Section 74 also applies for demand of interest payable which is not paid or partly paid or interest erroneously refunded. Interest is an automatic incidence that does not involve any explanation or arguments except to the extent of accuracy in computation. Please note, Karnataka High Court has decided in the case of UoI & Ors v. LC Infra Projects Pvt Ltd [WA 188 of 2024] that SCN is required before making demand of interest under section 50 in view of principles of natural justice. Unless demand for interest is ‘disputed’ unpaid, interest on self-assessed or other admitted tax liability would be an ‘undisputed arrear’. Please refer to discussions under section 75(12) about such undisputed arrears coming within the operation of automatic recovery of dues under section 79.
  • Fraud is normally understood as deceit with an intent to obtain an unjust advantage, while suppression has been defined by way of explanation 2 to section 74. Willful misstatement usually covers a case of deceit but generally with the connivance of another. The situations cited supra normally come to light only on an inquiry. A fraud generally comes to light on its detection. Thus, this section broadly covers detection and response while no provisions are traceable to prevention mechanism.
  • Care must be taken that vide explanation 2 to section 74, the word ‘suppression’ has been given a very special meaning. As per this meaning, normal understanding of suppression has been left behind such that a variety of actions or inactions can be regarded as suppression to invoke extended period of limitation.
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Analysis

  • No notice is required to be issued for ‘periodical demand’: Similar to the provisions of Section 73 explained earlier, this section also provides that a statement containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised be issued, for such periods other than those covered in the Notice under section 74(1) on the person chargeable with tax, along with a summary in FORM GST DRC-02. This is issued in place of a detailed notice for the period other than the ones covered in the notice issued as per Sec 74(1). Further, service of such statement shall be deemed to be service of notice under section 73(1), subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under section 74(1) are the same as those mentioned in the earlier notice.
  • The proper officer shall not serve any notice on the assessee in case of voluntary payment of tax and interest along with penalty @ 15% of tax either
    • As per the own ascertainment of the tax or;
    • As per the ascertainment of the proper officer; In

both the above situations the person charged with tax shall intimate the same to the proper officer in FORM GST DRC-03 and proper officer will provide acknowledgment in FORM GST DRC-04 and no notice shall be served in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

In case there exists some shortfall between the amount paid by assessee on his own ascertainment and the actual amount liable to be paid, the Proper Office shall issue a notice for the tax that remains unpaid.

  • Where the person makes the payment of tax and interest along with penalty equal to 25 % of tax within 30 days of issuance of Notice / Statement and intimates the proper officer of such payment in FORM GST DRC-03, the proper officer shall issue an order in FORM GST DRC-05 concluding the proceedings in respect of the said notice.
  • If the person makes any representation or files a reply, the proper officer shall issue an order after considering the representation / reply in FORM GST DRC-06, and the amount determined shall comprise of tax along with interest and penalty as stated above. A summary of such order shall be uploaded electronically in FORM GST DRC07, specifying therein the amount of tax, interest and penalty payable by the person chargeable with tax. Such summary of order in Form GST DRC-07 shall be treated as a notice for recovery.
  • Where the assessee makes the payment of tax and interest along with penalty @ 50 % of tax within 30 days of communication of the order, then in such cases it shall be deemed that all the proceedings have been concluded.
  • The proper officer shall pass an order within a period of 5 years from the
    • due date for filing of aannual return for the year to which the short payment or non-payment or input tax credit wrongly availed or utilised relates
    • date of erroneous refund
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The time limit for issuance of Notice and Order is summarized in the following table:

Particulars Time limit for issuing SCN Time limit for issuing order. [Sec 74(10)]
Cases involving fraud, wilful misstatement or suppression of facts to evade tax At least 6 months prior to the time limit specified under Section 74(10) for issuance of order. 5 years 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 5 years from the date of erroneous refund.
  • The term “suppression” is specifically explained to 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 the Act or the rules made thereunder, or
    • failure to furnish any information on being asked for, in writing, by the proper officer
  • Proper officer: As per Circular No. 31/05/2018-GST dated 09.02.2018, the Superintendent of Central Tax is assigned to discharge powers under sub-sections (1), (2), (3), (5), (6), (7), (9) and (10) of section 74 of the CGST Act. In other words, all officers up to the rank of Additional/Joint Commissioner of Central Tax are assigned as the proper officer for issuance of show cause notices and orders under this Section. Further, they are also assigned under the IGST Act as well, as per section 3 read with section 20 of the IGST Act. Please refer earlier discussion under section 73 regarding some aspects relating to the manner in which proceedings should be conducted to pass adjudication orders.

Monetary limits have been also being prescribed vide Circular No. 31/05/2018-GST dated 09.02.2018 for officers of different designations to function as the proper officers in relation to issue of show cause notices and orders under Section 74. Refer Para 11 of our analysis of Section 73.

  • After adjudication order is passed, taxpayer may pay 50% of the penalty demanded in such adjudication order within 30 days of communication of the order and enjoy rebate of the remainder of the penalty. Tax and interest as demanded must be fully paid as a condition of this relaxation under 74(11).

Summary of Penalty implications:

If tax, interest and penalty as indicated in the table below, are paid, it is provided that further proceedings should not be continued to that extent.

Payment of Tax, Interest & Penalty Amount of Penalty
Before issuance of show cause notice 15% of the tax amount
Within 30 days after the issuance of SCN 25% of the tax amount
Within 30 days from the communication of order 50% of the tax amount
In any other case 100% of the amount equal to tax

Issues and Concerns under Section 73 and 74

  • Where a Statement is issued by the proper officer against which the assessee remits applicable taxes along with interest and penalty at 25%. Subsequently, it is held that the statement cannot be deemed to be a notice as it does not have the same grounds as the previous notice. Can the assessee apply for refund of the additional 10% penalty that was paid on grounds that payment prior to issue of notice attracts only 15% penalty?
  • Rule 142(1A) has been introduced for issuing FORM GST DRC-01A to undertake process of ‘pre-notice consultations’ It is important to engage in such consultations by marking all communication as ‘without prejudice’ as there may be some misleading promises alluded to without expressly granting assurance that SCN will not be issued. Experts caution that such consultations should not be entertained, if taxpayer is not freely admitting liability and there is no ambiguity around the nature of tax demand. Rejection of this opportunity does not imply that, any adversarial approach is being followed for the taxpayer and full extent of relief based on merits of the case will be available in adjudication and appellate proceedings. This provision is mainly to take away discretion in the hands of proper officer regarding the penalty to be imposed.
  • On comparison of Section 73(11) with Section 122(1) (iii) & (iv) one finds that while penalty under Section 73(9) is applicable if self-assessed tax or any amount collected as tax is not paid within 30 days from the due date for payment of such tax, Section 122 penalty will be applicable if such tax or amount is not paid within 3 months from the due date for payment.

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