Section 73 and 74 of CGST Act – Comprehensive Guide
Sections 73 and 74 of the Central Goods and Services Tax (CGST) Act, 2017 deal with the determination of tax not paid, short paid, or erroneously refunded, or input tax credit (ITC) wrongly availed or utilized. The key difference between these sections is whether fraud or willful misstatement or suppression of facts is involved.
Section 73 – Determination of Tax Without Fraud, Willful Misstatement, or Suppression of Facts
Applicability:
Applicable when any tax is not paid, short paid, or erroneously refunded, or ITC is wrongly availed or utilized without any fraud, willful misstatement, or suppression of facts.
Procedure:
Show Cause Notice (SCN):
- The proper officer issues a notice to the taxpayer, demanding the unpaid tax along with interest and penalty (if applicable).
- The notice is issued at least three months before the time limit for passing an order.
Time Limit for Order:
- The order must be passed within three years from the due date of filing of the annual return for the relevant financial year.
Taxpayer’s Response:
- If the taxpayer pays the tax along with interest before the SCN is issued, no penalty is levied, and no further proceedings are initiated.
- If the taxpayer pays the tax within 30 days of the notice, a reduced penalty of 10% of tax (maximum ₹10,000) is applicable.
Penalty:
- If the taxpayer does not pay tax before the notice and the demand is upheld, a 10% penalty of the tax amount or ₹10,000, whichever is higher, is imposed.
Section 74 – Determination of Tax With Fraud, Willful Misstatement, or Suppression of Facts
Applicability:
This applies when any tax is not paid, short paid, or erroneously refunded, or ITC is wrongly availed or utilized due to fraud, willful misstatement, or suppression of facts.
Procedure:
Show Cause Notice (SCN):
- The proper officer issues a notice demanding the unpaid tax along with interest and a higher penalty.
- The notice is issued at least six months before the time limit for passing an order.
Time Limit for Order:
- The order must be passed within five years from the due date of filing of the annual return for the relevant financial year.
Taxpayer’s Response:
- If the taxpayer pays the tax along with interest and a 15% penalty before the notice is issued, no further proceedings are initiated.
- If the taxpayer pays within 30 days of notice, a reduced penalty of 25% of tax is applicable.
- If the taxpayer pays within 30 days after the order, a penalty of 50% of the tax is imposed.
Penalty:
- If the taxpayer does not pay voluntarily, a penalty of 100% of the tax amount is imposed.
Key Differences Between Section 73 & Section 74
| Particulars | Section 73 (No Fraud) | Section 74 (With Fraud) |
|---|---|---|
| Nature of Default | Unintentional (No fraud, suppression, or misstatement) | Intentional (Fraud, suppression, or willful misstatement involved) |
| Time Limit for Order | 3 years | 5 years |
| Penalty before SCN | No penalty if tax + interest is paid | 15% penalty along with tax + interest |
| Penalty after SCN but before Order | 10% of tax or ₹10,000, whichever is higher | 25% of tax |
| Penalty after Order | 10% of tax or ₹10,000, whichever is higher | 50% of tax |
| Maximum Penalty | 10% of tax or ₹10,000 | 100% of tax |
Conclusion
- Section 73 applies to cases where there is no intention to evade tax, and it provides relief in terms of lower penalties.
- Section 74 deals with cases of tax evasion, where fraud or suppression of facts is involved, and imposes heavier penalties.
- Taxpayers should ensure timely and accurate tax compliance to avoid penalties under these sections.