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Published on:

November 20, 2024

Shaaransh Sharma

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Basics of GST

Demand and Recovery under Section 73-74 of CGST Act: A Comprehensive Guide

CGST Act, 2017 states that the Central Goods and Services Tax is to regulate the levy of taxes on goods and services. Its demand and recovery provisions help to fulfil the tax liabilities even in the circumstances of non-payment or fraud. The importance of demand and recovery to maintain the credibility of the taxation system cannot be overemphasized. This blog post discusses the provisions in the CGST Act, namely Sections 73 & 74 — mentioning what actions can get you penalized and how pending dues of taxes are recovered.

Section 73 of the CGST Act: Non-Fraudulent Cases

Tax no-show or non-payment, section 73 of CGST Act deals with cases where there is tax shortfall, which in a few instances could be due to an error but was not done with malafide intention. One important purpose of the provision is to provide a safety net in situations where taxpayers are penalized through no fault of their own, often because of clerical errors or misunderstandings. Centre typically gives the tax officers a chance to respond and pay up before initiation of any punitive action.

Key Features:

1. Period of Limitation:

There should not have been a failure on the part of the officer within the last three years from the relevant financial year for which audit is mandatory.

2. Notice Payment Period:

Taxpayers have 30 days from the date of the notice to pay, plus any interest due, without penalty.

3. Penalty and Interest:

If the taxpayer has not cleared the dues within 30 days then a penalty will be charged to him. A fine of 10 per cent of the tax due or ₹10,000, whichever is higher.

Penalty under Section 73 of GST:

If a taxpayer fails to comply even after the issuance of the notice, the penalty levied is 10% of the tax owed. However, if the tax is paid within 30 days of the notice, no penalty is imposed.

Section 74 of CGST Act: Fraudulent Cases

Section 74 of CGST Act deals with cases of fraud, deliberate tax evasion, or willful misrepresentation. Here, the taxpayer knowingly avoids paying taxes, either by manipulating input tax credits or falsifying records. These cases are treated more severely due to the intentional nature of the misconduct.

Key Features:

1. Larger Period for Recovery:

The notice shall be issued not later than six months before the end of five years from the end of the relevant financial year, giving authorities more time to rectify such cases(cases indulged into being fraud).

2. More Severe Penalty:

Fraud can carry jail time. If a taxpayer is convicted of intentionally evading tax, the penalty could equal up to 100 per cent of the taxes owed.

3. Voluntary Disclosure:

If the taxpayer himself comes out before a notice is issued by paying 15% of the tax and interest with applicable tax, then this can be an agreement for settlement without further proceedings.

Penalty under Section 74 of GST:

The fine under Section 74 is quite heavy to show the severity of the offence. Where the taxpayer deposits the tax amount before the issue of a show-cause notice then the penalty can be reduced from 300% to 150%. If a notice is issued, the penalty can rise to 100% of the tax due in some cases.

Issuance of Demand Notices and Adjudication Process

The demand and recovery under GST proceed with issuing a Demand Notice that may be raised based on ordinary audit, inspection, clarifications or investigation by the GST Department. Adjudication is the process that allows the taxpayer to respond to such notices and dispute any claims made against them.

Section 73 of CGST Act's notices are usually issued when there is a suspicion that a taxpayer has underpaid or not paid taxes, but without any evidence to suggest fraud.

Section 74 Notices are invited only for more serious offences where the tax department believes that fraud/suppression of facts or misrepresentation has occurred/taken place.

The taxpayer will then be given a notice of inquiry to which he or she may wish to appeal and present additional documents, or evidence. The facts are then evaluated by the adjudication officer who addresses whether tax is due and makes a decision.

Recovery Proceedings under GST

After adjudication, if there is a final tax demand that becomes payable by the taxpayer and not paid then recovery proceedings are initiated.

The CGST Act, moreover authorises the authorities to effect recovery under Section 78 after a lapse of a period of three months from the date of issue of demand order. A Section 79 recovery mechanism includes the recovery of dues via:

1. Deduction from the bank account of a defaulter.

2. Seizure and sale of Personal and Real Estate properties.

3. Levying on the taxpayer's funds paid to or held by third parties.

4. Goods and transit vehicles to be detained, if required.

This allows the government to seize whatever amount of your taxes that remain unpaid, by its collection of revenues under force.

You might also want to look into What are the Differences Between CGST and SGST?

Conclusion: Balancing Compliance and Penalties

To operationalize the taxpayers' rights, Sections 73 and 74 of the CGST Act have been included that enable dealing with both genuine error as well as fraud. Where Section 73 is meant for a non-fraudulent scenario where an opportunity to rectify your mistake without heavy penalties, Section 74 provides a tougher rule for willful evasion of tax.

It is a dual approach to justice, punishing those who deliberately seek to evade tax and allowing those to comply to do so without imposing unnecessary financial burden. Taxpayers are always recommended to keep proper records and file the return on time and if there is any under-reporting or tax effect while filing on account of clarification between section 206AB and section 206AA they shall take corrective actions.

Penalty as envisaged under Section 73 and Section 74 are indicative of how prompt compliance is intended to be whereas more stringent penalties are set for cases involving fraud. With the government constantly updating its systems to collect taxes, taxpayers must keep themselves updated with these provisions to avoid legal hassles and financial penalties.

Stay Compliant with Swipe GST Filing Solutions

GST demand and recovery under Sections 73 and 74 are complex, and with high penalties for non-compliance navigating through the complexities can be difficult. Make sure you have detailed accountability of your tax filings and keep current with Swipe's all-in GST solutions. Our system processes the tax returns on time, keeps you posted about the mistakes and alerts you to rectify them before they turn into expensive errors. Use Swipe and forget all your worries about your GST compliance requirements, so you can keep on the growth path!

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FAQ

1. What is the main difference between Sections 73 and 74 of the CGST Act?

Section 73 is for non-fraudulent errors such as genuine and honest mistakes, while section 74 is for fraud cases where taxpayers have actually evaded taxes or misrepresented.

2. Is there a penalty if I pay the tax within 30 days of a Section 73 notice?

No, you will not be penalized if you pay the tax and applicable interest within 30 days from the time you receive a Section 73 notice.

3. What is the penalty under Section 74 of GST for fraudulent cases?

Section 74 deals with cases of fraud and the penalty can be up to 100 per cent of the tax amount that needs to be paid, along with interest and tax liabilities.

4. What is the limitation period for issuing a notice under Section 73?

According to sub-section (9) of section 73, the authorities have to issue the notice within three years from the end of the relevant financial year in which tax is payable.

5. What recovery actions can be taken if I fail to pay the tax demand?

When you do not respond to a tax demand, the authorities may recover dues under Section 79 by carrying out an adjustment from your bank account, or property or even detaining goods in transit.