The Finance Act (No. 2), 2024 made changes to India's Goods and Services Tax (GST) system by adding Section 74A to the Central Goods and Services Tax (CGST) Act, 2017. Starting with tax periods in FY 2024–25, this section addresses the process for identifying tax shortfalls and wrongly claimed input tax credits (ITC), regardless of whether they resulted from fraud or inadvertent error.

Legal Basis and Objective

Section 74A replaces the earlier bifurcated procedures under Sections 73 and 74, which separately addressed cases without and with fraud or suppression of facts. The new provision consolidates these into a single unified framework, providing clarity, fixed timelines, and structured relief options for taxpayers. This change is aimed at improving tax administration and reducing disputes by simplifying compliance.

Key Features of Section 74A

1. Applicability

Section 74A applies only to tax periods beginning from Financial Year 2024–25. All previous periods continue to be governed by the existing Sections 73 and 74.

2. Show Cause Notice (SCN) Requirements

If a proper officer believes there is a tax shortfall, erroneous refund, or wrong ITC claim, he must issue a show cause notice (SCN) within 42 months from:

the due date for filing the annual return for the relevant year, or the date of erroneous refund, whichever applies.

No SCN will be issued if the tax discrepancy is less than ₹1,000.

3. Time-bound Adjudication

Upon issuance of the SCN, the officer must pass a final adjudication order within 12 months. The Commissioner may extend this deadline by an additional 6 months, provided reasons are recorded in writing.

4. Penalty Structure

Section 74A standardizes penalties based on the nature of the discrepancy:

Non-fraud cases: 10% of the tax due or ₹10,000, whichever is higher. Fraud or suppression: 100% of the tax due.

5. Relief Through Voluntary Compliance

Section 74A strongly encourages early compliance with several relief mechanisms:

a. Non-fraud Cases

Before SCN: Taxpayer can pay tax + interest and notify the officer—no penalty, and SCN not issued. Within 60 days of SCN: Pay tax + interest—no penalty, and proceedings are closed.

b. Fraud Cases

Before SCN: Pay tax + interest + 15% penalty—SCN not issued. Within 60 days of SCN: Pay tax + interest + 25% penalty—case concluded. Within 60 days of order: Pay tax + interest + 50% penalty—case concluded.

These measures allow taxpayers to settle disputes efficiently, reduce litigation, and avoid severe penalties by proactively correcting errors.

7. Clarifications

Two explanations in the section provide clarity on:

Scope of concluded proceedings (excluding criminal prosecution under Section 132).The definition of “suppression” as non-disclosure in returns/statements or failure to furnish information when formally requested.

Implications and Industry Outlook

The introduction of Section 74A signifies a major step toward procedural simplification in the GST regime. By providing a unified mechanism regardless of the intent behind the discrepancy, and offering structured relief options with clear deadlines, the government aims to:

Ease compliance burdens Encourage voluntary rectification Reduce litigation Bring procedural uniformity to tax recovery mechanisms

Professionals and businesses should note that tax discrepancies from FY 2024–25 onwards will be addressed under Section 74A, requiring SCNs to meet its standards. Section 74A provides clearer timelines and penalty reliefs, ensuring the GST demand process is fair and transparent.

Conclusion

Section 74A of the CGST Act streamlines demand and recovery, showing the government's dedication to better tax governance and fair compliance opportunities as GST evolves in India.

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Disclaimer: This blog is intended for informational purposes only and should not be considered as financial, tax, or legal advice.

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