GST Demand Proceedings: Time Limits, Exceptions, and Penalty Framework

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Sections 73 and 74 empower tax authorities to determine and recover unpaid tax, wrongfully availed input tax credit or erroneously refunded tax.

GST Demand Proceedings Time Limits, Exceptions, and Penalty Framework - Taxscan

Stricter timelines and penalties for demand proceedings are introduced under Sections 73 and 74 of the Goods and Services Tax (GST) Act, 2017, for issuing show cause notices (SCNs) and passing of orders. These concepts play a major role for taxpayers as well as practitioners.

Time Limits for Notices and Orders

The statutory framework provides for the deadlines for issuing SCNs and passing orders. The timeline starts from the due date of filing the annual return (GSTR-9) for the relevant financial year. Sections 73 and 74 of the act empower tax authorities to determine and recover unpaid tax, wrongfully availed input tax credit or erroneously refunded tax.

Section 73 (non-fraud cases) are cases where there is no intent to evade tax, but the disparity is due to an honest mistake, clerical error, or misinterpretation. In such cases SCNs must be issued within three years from the due date of GSTR-9, and orders must be passed within three years and nine months.

Section 74 (fraud, suppression, or willful misstatement) applies to cases where there is an actual intent to evade tax, and such cases will involve deliberate fraud, willful misstatement, or suppression of facts. In those cases, SCNs must be issued within five years, and orders within five years and six months from the same reference point.

Year-Wise Illustration

Using the GSTR-9 due dates as anchors, the deadlines unfold as follows:

Financial YearGSTR-9 Due DateSection 73 SCNSection 73 OrderSection 74 SCNSection 74 Order
2017–185 Feb 202030 Sep 202331 Dec 20235 Aug 20245 Feb 2025
2018–1931 Dec 202031 Jan 202430 Apr 202430 Jun 202531 Dec 2025
2019–2031 Mar 202131 May 202431 Aug 202430 Sep 202531 Mar 2026
2020–2128 Feb 202230 Nov 202428 Feb 202531 Aug 202628 Feb 2027
2021–2231 Dec 202230 Sep 202531 Dec 202530 Jun 202731 Dec 2027
2022–2331 Dec 202330 Sep 202631 Dec 202630 Jun 202831 Dec 2027
2023–2431 Dec 202430 Sep 202731 Dec 202730 Jun 202931 Dec 2029

Exceptions to Limitation

The Statute especially provides for specific exceptions where the limitation period does not apply:

  • Section 76 (tax collected but not paid): No limitation period applies. Authorities can initiate proceedings at any time.
  • Court/Tribunal stay: If proceedings are stayed by a judicial or quasi-judicial authority, the stay period is excluded from the limitation period.
  • Erroneous refunds: In cases where refunds are wrongly sanctioned, the three- or five-year period is counted from the date of the refund order, not the annual return due date.

Penalty Framework

The penalty structure under Sections 73 and 74 is especially inserted to encourage early payment and discourage prolonged litigation:

Section 73 (non-fraud):

  • Payment before SCN: No penalty.
  • Payment within 30 days of SCN: No penalty.
  • Payment within 30 days of order: 10% of tax or ₹10,000, whichever is higher.
  • Payment after 30 days of order: Same penalty as above.

Section 74 (fraud/suppression):

  • Payment before SCN: 15% of tax.
  • Payment within 30 days of SCN: 25% of tax.
  • Payment within 30 days of order: 50% of tax.
  • Payment after 30 days of order: 100% of tax.

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