The introduction of Section 74A in the GST law has sparked debates among tax professionals and businesses alike. While some see it as a step towards procedural clarity, others fear it may lead to increased tax disputes. By altering the time limits for issuing Show Cause Notices (SCNs) and adjudication, this amendment raises a crucial question—does it provide relief by streamlining compliance, or does it tighten enforcement, leaving taxpayers more vulnerable to prolonged litigation? In this article, we uncover the hidden impact of Section 74A and what it means for businesses navigating the evolving GST landscape.
What’s Changing?
Under the CGST Act, tax demand proceedings were governed by two key sections—Section 73 and Section 74:
Now, with the Finance (No. 2) Act, 2024, effective from November 1, 2024, a significant shift is happening.
A new sub-section (12) has been added to both Sections 73 and 74, stating:
“The provisions of this section shall be applicable for determination of tax pertaining to the period up to Financial Year 2023-24.”
It means For tax periods up to FY 2023-24, the existing Sections 73 and 74 will continue to apply. But for FY 2024-25 onwards, a new Section 74A takes over!
Section 74A: One Rule to Cover Them All?
This major change was recommended by the GST Council during its 53rd meeting on June 22, 2024 and justified the insertion to simplify tax administration by standardizing timelines for issuing demand notices and orders.
But does it really simplify things for taxpayers? Or does it just make it easier for tax officers to issue demands without worrying about technical lapses? Let’s analyze.
Key Changes Under Section 74A
1. No More Distinction Between Fraud and Non-Fraud Cases
Earlier, tax officers had to tread carefully when deciding whether a case fell under Section 73 (non-fraud) or Section 74 (fraud). Many taxpayers successfully challenged SCNs in court when the department wrongly categorized a case under fraud just to avail the extended time limit. In short, the courts were essentially telling the tax department, "Nice try, but no shortcuts!"
Now? Section 74A removes this distinction for issuing SCNs!
What does this mean for you? Tax officers no longer need to justify whether a case involves fraud or not at the time of issuing a notice—which could lead to an increase in the number of SCNs issued.
2. Time Limits for Issuing SCNs and Passing Orders Have Changed
This is where things get really interesting. Let’s compare the old and new timelines:
| Provision | Old Time Limit (Section 73 - Non-Fraud) | Old Time Limit (Section 74 - Fraud) | New Time Limit (Section 74A) |
| Order Issuance | 3 years from the due date of the annual return | 5 years from the due date of the annual return | 12 months from the date of issue of SCN (extendable by further 6 months) |
| SCN Issuance | 3 months prior to the date of passing the order | 6 months prior to the date of order. | 3 years 6 months (42 months) from the due date of the annual return |
| Example | The due date for filing the annual return for the tax period 2023-24 is 31st December 2024, the order under section 73 should be completed by 31st December 2027, and the SCN should be served by 30th September 2027. | The due date for filing the annual return for the tax period 2023-24 is 31st December 2024, the order under section 74 should be completed by 31st December 2027, and the SCN should be served by 30th June 2027. | The due date for filing the annual return for the tax period 2024-25 is 31st December 2025, the notice under section 74A should be issued completed by 30th June 2029, and the order should be passed by 30th June 2030 and further can be extended upto 31st December 2030. |
What does this mean?
For non-fraud cases, the total time limit for passing an order has increased from 3 years to 4 years 6 months (extendable to 5 years)!
For fraud cases, the time limit for issuing the Show Cause Notice (SCN) has been reduced from 4.5 years to 3.5 years. However, with an additional 1.5 years (including any extended period) allocated for adjudication, the total time frame for completing the adjudication remains unchanged at 5 years.
Effectively, this gives tax officers more time to issue SCNs and pass orders, which may result in prolonged litigation.
3. Monetary Threshold for SCNs
A minor relief no SCN shall be issued if the tax amount involved is less than Rs. 1,000.
But let’s be honest, how many disputes involve such a small amount? This won’t significantly reduce the compliance burden on businesses.
4. Pre-Notice Consultation: Still Optional?
Earlier, Sections 73(5) and 74(5) provided for pre-notice consultation, ensuring fairness before issuing an SCN.
Now, Section 74A does NOT explicitly mandate pre-notice consultation.
Though pre-SCN communication mechanisms exist in the CGST Rules, will officers actually follow them? Without an explicit requirement in the law, the risk of arbitrary SCN issuance increases.
5. Penalty Provisions: No Change, But a Longer Window for Relief
Although the classification of fraud and non-fraud cases is not necessary for issuing the Show Cause Notice (SCN), it is required for determining the penalty.
For non-fraud cases:
Penalty remains at 10% of tax or Rs. 10,000 (whichever is higher).
However, if tax + interest is paid within 60 days (earlier 30 days), no penalty will apply.
For fraud cases:
Penalty remains 100% of tax.
If tax + interest is paid within 60 days, the penalty reduces to 50% (earlier, this was applicable within 30 days).
At least here, taxpayers get some breathing room, but the fundamental penalty structure remains unchanged.
The key question that remains unanswered is whether this amendment will streamline tax compliance as intended by the GST council or lead to an increase in litigation. Will it bring clarity and efficiency, or will it open the door to more disputes? Only time will tell.
CA Shreeharsha
GST Litigation Expert
Shreeharsha@sreshtaglobal.com
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