Introduction: The Finance Bill dated 23rd July 2024 heralds a significant transformation in GST Demand and Recovery with the introduction of Section 74A, effective from the financial year 2024-25. This amendment, replacing Sections 73 and 74, carries profound implications for taxpayers and the regulatory framework.
Two distinct time limits currently govern the issuance of Show Cause Notices (SCNs) and the passing of Adjudication Orders under Sections 73 and 74. These timelines will remain effective only until the enactment of Section 74A. The following table elucidates the timelines under the current sections compared to the new Section 74A:
| Section | Time Limit for SCN Issuance | Time Limit for Order Passing | Applicable Cases |
|---|---|---|---|
| 73 | 33 months | 36 months | Non-Fraudulent |
| 74 | 54 months | 60 months | Fraudulent |
| 74A | 42 months | 54 months (extendable to 60) | All Cases |
These time limits are calculated from either the due date for filing the annual GST return or the actual filing date, whichever is later. While this amendment alleviates the department’s burden to prove fraudulent intent, it extends the timeframe for non-fraudulent cases by nine months, imposing a greater burden on genuine taxpayers by prolonging the SCN issuance and order passing periods.
Taxpayer Gains: The deletion of Section 74 presents a notable advantage as the denial of Input Tax Credit (ITC) under Section 17(5) for cases under Section 74 will no longer apply. This change benefits taxpayers by removing ITC denial in specific scenarios.
Additional Amendments: The Finance Bill also proposes removing ITC denial under Section 17(5) for cases under Sections 129 and 130, which pertain to the detention and confiscation of goods during movement. This change further alleviates taxpayer burdens in such instances.
The inclusion of Section 74A appears prominently, mentioned 40 times in the Finance Bill 2024, underscoring its critical importance in the legislative framework.
Section 11A Insertion: Introducing Section 11A is a commendable move, granting the government authority to regularize short payments of GST due to prevalent industry practices, thereby offering clarity and regularity based on subsequent developments.
In cases where SCNs are issued under Section 74A involving fraud, willful misstatement, or suppression of facts to evade tax, the penalty equates to the tax amount. However, if adjudication or appeal stages establish the absence of fraud or misstatement, the penalty reduces to ten percent of the tax, with a minimum penalty of ten thousand.
Penalty Structure: The penalty structure under Section 74A is as follows: a 15% penalty applies when tax and interest are paid before notice issuance, a 25% penalty applies up to 60 days post-notice issuance, and a 50% penalty applies if tax and interest are paid within 60 days of order passing.
Conclusion: Despite GST being in effect since 1st July 2017, the Finance Bill 2024 introduces 44 clauses proposing various amendments based on GST Council recommendations, marking a pivotal evolution in GST legislation and administration.
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