Penalizing Genuine Taxpayer in the name of simplification of GST-Budget 2024

One of the most important change made in GST in the budget presented by Hon’ble Finance Minister on 23^rd July, 2024, is by inserting Section 74A in Central Goods and Services Tax Act, 2017 (“CGST Act, 2017”).

The given change earlier had been recommended by 53^rd GST council meeting, which has been given effect in the given budget.

Section 74A has been inserted in the CGST Act, 2017 in the place of Section 73 and Section 74 of CGST Act, 2017. Further, the provisions of Section 74A would be applicable from the financial year 2024-25 onwards.

As we all know, the provisions of Section 73 and Section 74 invoked to issue show cause notice under GST and pass demand order to recover the amount, where there is short payment of tax or availment of ineligible input tax credit or erroneous refund claimed by the persons.

Now, from Financial Year 2024-25 onwards the show cause notice and demand order would be passed as per the provisions of Section 74A.

Some of the important point of Section 74A is given below for your kind reference:

1. There will be no difference between genuine taxpayers and fraud taxpayers for the purpose of issuance of show cause notice and legal proceedings under GST

2. Time limit to issue the show cause notice would be 42 months from the due date of filing the annual return and the order is to be passed within 12 months from issuance of show cause notice. Therefore, the time limit to pass the order in genuine case has been increased from 36 months to 54 months.

3. The only difference remains between genuine taxpayer and fraud taxpayer is imposition of penalty amount. As usual in genuine case the penalty can be imposed maximum upto 10% of tax amount and in fraud case maximum upto 100% of tax amount.

Our Comment:

It appears this Section has been inserted for ease of GST officers rather than taxpayers. Now, the GST officer would have more time to issue the show cause notice and pass the order in genuine case as well.

However, the given ease of GST officers has been done at the cost of difficulty to genuine taxpayers. Because now the GST officer has the time to issue the order of GST demand upto approximately 5 years from end of financial year, which will increase the interest amount in the total demand of the order. In other words, the interest burden would be approximately 90% of the tax amount.

Meaning thereby, indirectly the genuine taxpayers has been penalized in the form of increasing the penal interest and which would be very painful for the genuine taxpayer.

The litigation on the point whether it is genuine case or fraud case would not end by inserting this Section, because the taxpayer has to litigate this point to reduce his penalty amount from 100% to 10% of tax amount. Hence, the litigation on this point will remain.

In nutshell, the provisions of given Section 74A will create ease-ness for GST officers and hurdle for genuine taxpayers.