GST notice, order, and demand U/s 74

In this article, we aim to bring brief knowledge about issues, processes, time limits, amount of penalty, and compliance required at each stage of GST notice U/s.74.

When will the GST department issue notice U/s 74?

Proceedings U/s 74 will be initiated in the following circumstances

• Any tax has not been paid to the department
• Any tax has been short paid
• Any tax has been refunded erroneously
• Input tax has been wrongly utilized or availed

because of fraud, any wilful misstatement, or suppression of facts.

Once the GST return filing is completed by the dealer, the GST department initiates the assessment process to determine whether the correct amount of tax and other amounts are paid by the dealer. Proceeding Under section 74 is considered as critical due to reason for issue of notice, once the order U/s 74 is issued and accepted by the dealer may be added in willfull defaulter list for future assessments.

GST notice U/s 74 for initiation assessment proceeding

GST show cause notice U/s 74 and its contents

Issue of show cause notice is mandatory to initiate proceeding U/s.74, GST show cause notice will mention the amount of tax, interest at 18 % p.a, and penalty to be imposed.

The GST notice issued will have the reasons regarding why the notice is issued, and on what facts the department had used to calculate the tax, interest and penalty payable.

Reconciliation statements, actual data and tax declared in the return, correct amount of tax that should have been paid if there was no fraud or will full misstatement will form part of GST notice issued for initiating proceeding U/s.74.

GST notice U/s.74 can be issued by the GST department even when the GST registration number is cancelled by the department or GST number is surrendered by the dealer.

Time limit for issuing GST notice U/s 74

The notice U/s 74 should be issued at least 6 months prior to the time limit for issue of order U/s.74, issue of notice within the time limit is mandatory for passing order.

For financial year 2022-2023 the time limit for issue of order U/s 74 is 31st December 2028, therefore the notice should be issued 6 months prior to 31st December 2028, so the time limit for issue of notice is 30th day of June 2028.

Time limit for responding to GST showcase notice U/s 74

• The tax, interest and penalty equal to 25 % of tax determined in the notice should be paid completely on or before 30 days from the date of issue of notice.
• Where tax along with the interest, penalty is paid within 30 days from the date of issue of GST notice, the proceedings are deemed to be concluded at this point, and no further action will not be taken.
• In case tax along with the interest is not paid with in 30 days of issue of GST notice or time allowed, the officer can issue final demand order U/s 74 in form GST DRC-07.

Show cause notice is not required to be issued for the subsequent period for same issue

Where the show cause notice for a period is issued mentioning the reasons, if there is the same issue in any subsequent tax periods, then separate show cause notice is not required to be issued for subsequent period, the statement with computation is deemed as service as show cause notice for subsequent period.

The statement issue for a subsequent tax period is valid only if the statement is issued with in the time limit available for issue of show cause notice for the subsequent financial year.

Example

M/s.THE BAD BOY PRIVATE LIMITED received show cause notice under section 73 for financial year 2022-2023 mentioning reason as difference in tax payable between GSTR-3B and GSTR-1, then for financial year 2023-2024 if there is mismatch between tax payable between the GSTR-3B and GSTR-1 a separate SCN is not required to be issued.

It is sufficient that the statement containing the reason and calculation for the financial year 2023-2024 is issued.

Show cause notice Under 74 should not be issued where the amount mentioned in the ASMT-10 is paid.

Where GST ASMT-10 notice is issued by the officer, the tax, and interest paid to the department by the dealer, then the notice U/s 74 cannot be issued for the same issue and same amount.

In most of the cases, action U/s 74 will not be initiated immediately after the expiry of time limit to reply to GST ASMT-10 notice. Even after the expiry of the time limit and before the issue of show notice, if the amount due is paid voluntarily along with 15 % of penalty equal to tax, then the proceeding under section 74 will not be initiated.

Where the tax is paid voluntarily without any active notices, then the dealer should provide a written intimation to the proper officer.

SCN U/s.74 can be issued after voluntary payment, or GST ASMT-11 payment if there is any shortfall in the tax or interest payable.

Order U/s 74

Order U/s 74 is the final step taken by the department in respect of assessment proceeding Under section 74, once the order U/s 74 is issued, the demand amount mentioned in the notice should be paid with in 30 days.

When Order U/s 74 will be issued ?

• Where tax amount along with the interest and penalty equal to 25 % of tax is not paid with in 30 days of the notice, and reply is not submitted by the dealer with in the time allowed.
• Where a reply is filed, and the reply is not satisfactory.
• In case the amounts mentioned in the notice is paid, the closure order will be issued.
• Where reply to GST notice is satisfactory, a closure order will be issued, U/s.74.

Time limit for Order U/s 74

Order U/s 74 is required to be issued with in 5 years from the due date for filing the annual return for the relevant financial year. In case of financial year 2022-2023, the due date for filing annual return is 31st December 2023, therefore order U/s.73 should be issued on or before 31st December 2028.

What is the remedy after issue of order U/s.73

Once the order U/s.73 is passed, the dealer should pay the amount of tax, interest and penalty equal to 50 % of tax determined in the order with in 30 days of communication of order.

Where the demand amount mentioned in the notice is not correct, the dealer can file an GST appeal U/s.107 to the respective appellate authority by paying the minimum amount required to be paid for filling the appeal with in the time limit.