GST Notices under Section 73-74 – 74A
Handling a GST notice under Section 73 (which applies to non-fraudulent cases of unpaid/short-paid tax or wrongly availed Input Tax Credit (ITC)) requires a structured and timely approach. The key steps are to review the notice thoroughly, gather supporting documentation, prepare a detailed response in the specified form, and make any undisputed payments promptly.
Key Steps to Handle the Notice
1. Review the Notice Carefully:
• Understand the Allegations: The notice, typically in Form DRC-01, will specify the exact discrepancies, the financial year concerned, and the amount of tax, interest, and potential penalty.
• Verify Validity: Check if the notice includes a valid Document Identification Number (DIN) and was issued by an officer with the proper monetary jurisdiction.
• Check Timelines: Ensure the notice was issued within the time limit (generally 2 years and 9 months from the annual return due date for the relevant financial year).
2. Gather Documentation:
• Collect all relevant invoices, GST returns (GSTR-1, GSTR-3B, GSTR-9), bank statements, and reconciliation statements to support your position.
• If the issue is an ITC mismatch, request a detailed, party-wise breakdown from the GST authorities.
3. Submit a Detailed Response:
• A formal reply to the show cause notice (SCN) is typically filed in Form GST DRC-06 on the GST portal.
• Address each point and discrepancy raised in the notice clearly and concisely, providing supporting evidence.
• Explicitly request a personal hearing if you want to present your case in person, as it is a mandatory right if an adverse order is contemplated.
4. Pay Undisputed Dues (if any):
• If you agree with the demand (fully or partially), you should pay the undisputed tax amount along with applicable interest using Form GST DRC-03.
• Prompt payment is incentivized: if you pay the full tax and interest within 30 days of the SCN, you avoid a penalty.
Consequences & Next Steps
• If the officer is satisfied with your explanation and/or payment, they will issue a closure order in Form GST DRC-05.
• If the officer is not satisfied or you do not reply, they will issue a demand order in Form GST DRC-07, which will include tax, interest, and a penalty (10% of the tax due or ₹10,000, whichever is higher).
• Appeal: If you are aggrieved by the final order, you can file an appeal with the Appellate Authority within three months.
It is highly recommended to consult with a qualified GST professional or legal advisor, especially for complex cases, to ensure procedural compliance and an effective defence.
A Goods and Services Tax (GST) notice under Section 74 is issued for cases involving fraud, wilful misstatement, or suppression of facts to evade tax. Handling it involves a careful, multi-step approach, which includes understanding the allegations, preparing a robust defence, and exploring options for reduced penalties.
Steps to Handle the Notice
1. Understand the Allegation: The notice (likely in Form GST DRC-01) must clearly state the specific grounds for invoking Section 74, with material evidence of fraud or deliberate evasion. If the allegations are vague or lack evidence, this can be a strong ground for challenge.
2. Verify Timelines and Jurisdiction:
• A Section 74 notice can be issued up to five years from the due date of the annual return for the relevant financial year.
• Ensure the notice was issued by the proper officer with the correct jurisdiction.
3. Gather Documents and Evidence: Collect all relevant documents, such as GST returns (GSTR-1, GSTR-3B, GSTR-9), invoices, bank statements, and reconciliation statements, to support your position and counter the allegations.
4. Draft a Detailed Reply: Prepare a precise, point-by-point response to every allegation in the notice.
• The reply must explicitly address the charges of fraud, wilful misstatement, or suppression of facts.
• If the issue is due to a bona fide interpretation of the law or an unintentional error, state this clearly and provide supporting case laws or circulars.
• Submit the reply in the required form (often through the GST portal) and a physical copy to the officer, obtaining an acknowledgment.
5. Request a Personal Hearing: It is mandatory to provide an opportunity for a personal hearing if requested, which is a crucial part of natural justice. Make a specific request for one in your reply.
6. Explore Payment Options (if applicable): The law provides opportunities for reduced penalties if you admit the liability and pay the dues at different stages.
• Before notice service: Pay full tax, interest, and a 15% penalty to close the matter without an SCN.
• Within 30 days of notice (SCN): Pay full tax, interest, and a 25% penalty to conclude proceedings. (Note: Recent recommendations propose increasing this to 60 days once notified by the CBIC).
• Within 30 days of the Order (DRC-07): Pay full tax, interest, and a 50% penalty to close the matter.
Key Defence Grounds
• Absence of Intent: The primary difference between Section 73 (non-fraud cases) and Section 74 is the requirement to prove deliberate intent to evade tax. If the department cannot prove fraud, the notice may be challenged as invalid under Section 74 and potentially relegated to Section 73 proceedings, which have lower penalties.
• Procedural Lapses: Non-compliance with mandatory procedures, such as not issuing a pre-notice intimation in Form GST DRC-01A (though this is now optional for the officer) or not providing a fair hearing, can be grounds to challenge the notice.
• Lack of Evidence: The tax authorities bear the burden of proof. Mere suspicion is not enough; concrete evidence must be part of the SCN.
Consulting a GST expert or tax advisor is highly recommended to ensure compliance and mount an effective defence.
To handle a GST notice received under Section 74A (applicable for the Financial Year 2024-25 onwards), you must promptly review the notice, choose between voluntary payment with reduced penalties or contesting the demand, and formally reply on the GST portal.
Section 74A is a new provision that consolidates the previous Sections 73 (non-fraud cases) and 74 (fraud cases) but maintains different penalty structures based on the nature of the discrepancy.
Immediate Actions and Options
1. Review the Notice Carefully: Understand the specifics of the demand (unpaid/short-paid tax, erroneous refund, wrongly availed ITC) and the alleged grounds (fraud, wilful misstatement, suppression of facts, or bona fide error). The notice will typically be in Form DRC-01.
2. Determine the Intent: The core of handling the notice is discerning if the tax authority has evidence of an intent to evade tax (fraud, etc.).
1. If it is a bona fide error (no intent to defraud), the penalties are lower, and you have greater relief options.
2. If it involves alleged fraud, suppression of facts, or wilful misstatement, the penalties are significantly higher. The officer must provide material evidence for these allegations in the notice.
3. Consult a Professional: Due to the complexities of the law and potentially high penalties, it is highly advisable to consult a qualified GST professional or legal advisor. They can help assess the notice's validity and draft an effective defence.
Response Pathways
You generally have two main pathways:
• Option 1: Accept the Liability and Pay: You can pay the demanded tax, interest, and a reduced penalty (if applicable) to conclude the proceedings.
o Before SCN is issued (if you received an intimation in DRC-01A):
o Non-Fraud Cases: Pay the full tax and interest with zero penalty.
o Fraud Cases: Pay the full tax, interest, and a 15% penalty.
o Within 60 days of receiving the SCN (DRC-01):
o Non-Fraud Cases: Pay the full tax and interest with zero penalty.
o Fraud Cases: Pay the full tax, interest, and a 25% penalty.
• Option 2: Contest the Demand: If you disagree with the notice, you must file a formal reply.
o File a Reply: Submit your explanation and supporting documents in Form DRC-06 on the GST portal within the specified timeframe (usually 60 days).
o Gather Evidence: Collate all necessary documents such as invoices, bank statements, reconciliation reports, and relevant court judgments to substantiate your position.
o Personal Hearing: You can request a personal hearing in your reply to present your case directly to the adjudicating authority.
o Order and Appeal: After considering your representation, the officer will issue a final order (DRC-07). If you are unsatisfied with the order, you have the right to file an appeal with the First Appellate Authority within three months.
Key Considerations
• Timelines are Crucial: Missing deadlines can lead to higher penalties or ex-parte orders.
• Documentation: Ensure all submissions are backed by robust documentation.
• Burden of Proof: The tax authorities have the burden of proof to establish fraud or wilful misstatement; mere assumption is not enough.
• Check Jurisdiction: Ensure the notice has a valid Document Identification Number (DIN) and that the officer has the proper jurisdiction to issue it under Section 74A.
