Section 74A of the Central Goods and Services Tax Act has been introduced with effect from financial year 2024–25 and is regarded as one of the most important reforms in GST law since its inception. This new provision replaces Sections 73 and 74 by creating a common structure for cases where tax is not paid, short paid, erroneously refunded, or input tax credit is wrongly claimed. Unlike earlier provisions where different procedures were followed for fraud and non-fraud cases, Section 74A consolidates them under a single framework, making the law simpler and more uniform.

Under this section, a show cause notice can be issued only if the tax amount involved exceeds one thousand rupees in a financial year. The notice must be served within forty-two months from the due date of the annual return or the date of erroneous refund, whichever is applicable. If a notice has already been issued for a particular period, then any additional cases of the same nature can be covered by way of a statement instead of issuing a fresh notice, and such a statement will have the same legal value as a notice. Once a notice is issued, the proper officer is required to pass an adjudication order within twelve months, which may be extended by six months by the Commissioner or an officer not below the rank of Joint Commissioner, provided reasons are recorded in writing.

Section 74A also rationalizes penalties. In non-fraud cases, the penalty is fixed at ten percent of the tax due or ten thousand rupees, whichever is higher. In cases of fraud, willful misstatement, or suppression of facts, the penalty is equal to the tax due. At the same time, the law encourages voluntary compliance by allowing taxpayers to conclude proceedings through timely payment. If the taxpayer pays the tax along with interest before the issuance of a notice, no penalty is levied and no notice is served. Even after the notice, if payment of tax and interest is made within sixty days, proceedings are deemed concluded without penalty in non-fraud cases. For fraud cases, taxpayers can settle matters by paying tax, interest, and a reduced penalty of fifteen percent before the notice, or twenty-five percent within sixty days of notice, or fifty percent within sixty days of the adjudication order.

The provision also ensures that if the amount paid by a taxpayer falls short of the actual liability, the authorities can issue a further notice for the balance amount. Importantly, Section 74A applies only to periods starting from FY 2024–25 onwards, while disputes relating to earlier years will continue under the old Sections 73 and 74. Another key feature is that where a case is initially treated as fraud but evidence of fraud is not established, it can be reclassified and concluded as a non-fraud case, thereby offering flexibility and fairness.

In essence, Section 74A brings uniformity, clarity, and stricter timelines to GST enforcement, while at the same time providing taxpayers with ample opportunities for voluntary compliance and penalty relief. While it reduces unnecessary litigation by merging procedures for fraud and non-fraud cases, experts caution that careful implementation will be necessary to ensure genuine taxpayers are not unfairly treated. Still, this change represents a major step towards a more transparent and predictable GST regime in India.