Time Limits Redefined: Amendments in Limitation Provisions under GST

- by Advocate Chirag Mathur, Founder and Partner at Lasa Legal Associates & Satyam Khandelwal, member at CBLT and law student at Rajiv Gandhi National University of Law, Punjab

With more than eight years of implementation of the Goods & Service tax in India, it has been evolving with each day. From an initial phase of 2017-18 to period of Covid up to 2021-22, there were hardly any major litigation apart from matters related to E-way Bills under Section 129 of CGST Act, 2017. The regulatory environment remained relatively stable for taxpayers during this initial phase.

With the last date i.e. 30.10.2022 approaching for issuance of Notice under Section 73 of GST Act for the year 2017-18, it was inevitable that scrutiny’s, audits searches, survey kicked off under GST. Even the backend systems like DGARM/ GST prime etc also supported the revenue by analysing the data’s and providing back-end information to the officers.

But as per Section 73(10) of the GST Act, 2017, the timelines for issuance of order for the period from 2017-18 was provided as 30.01.2023, which led to an overburden over taxpayers as well as revenue, as for subsequent periods also, the last dates were approaching. In order to facilitate the taxpayer and revenue, CBIC issued extensions for timelines under Section 73 & 74 for the period 2017-18 to 2019-20, considering the time lapsed due to Covid-19.

Despite the issuance of these notifications under Section 168A of CGST Act, 2017 with the extension of time limits as prescribed under Section 73(10) & 74(10) of CGST Act, 2017, the said extension led to another batch of litigation, whereby taxpayers challenged the powers exercised by CBIC. Various High Courts had decided the matter differently, and currently, the matter is pending  and has to attain finality by a ruling of the Hon’ble Supreme Court. The matter pending before the Apex Court in the case of M/s HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax has been admitted and notice to the respondent has been issued. The final decision is awaited.

With increasing litigation and reduced time for scrutiny, search and better investigation, in the Budget session for the year 2024, Government of India vide the Finance (No. 2) Act, 2024, w.e.f. 1-11-2024 introduced a new Section 74A effective from the F.Y. 2024-25, providing a new set of timelines for cases in which “any tax which has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason other than fraud, any wilful-misstatement or suppression of facts to evade tax or cases” or “any tax which has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason of  fraud, any wilful-misstatement or suppression of facts to evade tax or cases”.

With the introduction of new Section 74A of CGST ACT, 2017 multiple issues have popped up. The new section provided common timelines for cases of fraud, any wilful-misstatement or suppression of facts to evade tax or cases or otherwise. The timeline seems to be in favour of the tax evader rather than the taxpayers where matters are related to returns and ITC reconciliation as it has reduced the time for investigation in cases of fraud while simultaneously increasing the limitation for non-fraudulent cases which ultimately leads to higher accumulation of interest on tax amount to be paid. The compressed timeline for fraud cases (42 months for notice issuance, reduced from 54 months) may also present practical challenges for revenue authorities in complex fraud investigations, particularly in cases involving interlinked transactions or multi-year schemes.

This restructuring has effectively amended the enforcement window for the tax authorities.

Comparison Between Old Provisions (Section 73 & 74) and New Position Under Section 74A Aspect	Prior to 2024-25 – Section 73 (non-intent to evade)	Prior to 2024-25 – Section 74 (intent to evade)	From to 2024-25 – After Section 74A
Nature of Case	No fraud, no suppression, no wilful misstatement	Fraud, suppression, wilful misstatement with intent to evade tax	Same as earlier definitions under 73 & 74
Timeline for issuance of show cause Notice	33 months from the due date for annual return for the relevant FY	54 months from the due date for annual return for the relevant FY	42 months on the due date for furnishing of annual return
Timeline for issuance of order	Within 36 Months	Within 60 Months	12 Months from date of Notice (maximum 54 Months)
Penalty	10% of tax or ₹10,000 (whichever is higher)	Equal to tax amount (100% penalty)	No change in penalty provisions

Whereas on comparison of the erstwhile Sections 73 & 74 with newly inserted Section 74A (w.e.f. 2024-25 onwards), it is found that the fundamental change is that the timelines for issuance of show cause Notice for cases where it has been alleged that the taxpayer had evaded tax by means of Suppression, Fraud & Wilful misstatement with intent to evade tax has been reduced from 54 months to 42 months. Whereas in cases wherein demands has been raised on taxpayer for any reason other than fraud or any wilful misstatement or suppression of facts the timeline for issuance of show cause notice has been increased from 33 months to 42 Months.

Therefore, the same has extended the limitation for matters where any tax which has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason other than fraud, any wilful-misstatement or suppression of facts to evade tax or cases

The introduction of new section had led to various implications on taxpayers like,

Whereas on comparison of the erstwhile Sections 73 & 74 with newly inserted Section 74A (w.e.f. 2024-25 onwards), it is found that the fundamental change is that the timelines for issuance of show cause Notice for cases where it has been alleged that the taxpayer had evaded tax by means of Suppression, Fraud & Wilful misstatement with intent to evade tax has been reduced from 54 months to 42 months. Whereas in cases wherein demands has been raised on taxpayer for any reason other than fraud or any wilful misstatement or suppression of facts the timeline for issuance of show cause notice has been increased from 33 months to 42 Months.

Therefore, the same has extended the limitation for matters where any tax which has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason other than fraud, any wilful-misstatement or suppression of facts to evade tax or cases

The introduction of new section had led to various implications on taxpayers like,

• Extended Window for non-evasion Cases: Taxpayers who have made genuine mistakes are now exposed to a longer period of scrutiny, increasing uncertainty for compliant businesses.

• Reduced Window for evasion Cases: The curtailment of the fraud limitation period effectively makes it harder for the department to detect and prosecute complex frauds, especially those involving interlinked transactions and fake invoicing chains.

• Administrative Rebalancing: The move appears to shift focus from tackling evasion to increasing recoveries from procedural or clerical errors by genuine taxpayers.

• Ease in Penal Provisions: While the implications are discussed, the introduction of Section 74A provides a flexibility to the Adjudicating Authority to adjudicate applicability of higher penalties in cases other than fraud, misstatement and suppression of facts, where show cause Notices are issued by alleging fraud, misstatement and suppression of facts. In the earlier provisions, the Adjudicating Authority lacked the power to reduce the penalty and deciding on limitations where show cause Notice were issued under Section 74, whereas on the submission of the Notice, provision of Section 73 seems to be appropriate.

• Section 74A introduces structured voluntary compliance options that significantly benefit taxpayers. For non-fraud cases, taxpayers may pay the full amount of tax and interest within 60 days of notice issuance without incurring any penalty. For fraud cases, a tiered penalty structure provides incentives: 15% penalty if payment is made before notice issuance, 25% penalty if payment is made within 60 days of notice, and 50% penalty if payment is made within 60 days of order issuance. This graduated approach creates material incentives for taxpayers to self-correct.

• Since in such cases either the time limitation for adjudication for Section 73 was already exhausted, or no specific power to transfer case from Section 73 to 74 was provided. It was further found that under Section 75 of the Act, the power to change the charging Section lies only with Appellate Authority. Therefore, with same timelines for cases under fraud, misstatement and suppression of facts and otherwise, the Adjudicating Authority may exercise their option more wisely and thereby easing penal provisions for taxpayers.

  
  

While Section 74A was introduced to rationalize timelines and reduce litigation, the practical outcome is paradoxical for compliant taxpayers, i.e., compliant taxpayers face an extended 42-month scrutiny window (increased from 33 months), while those engaged in fraud face a shortened 42-month window (reduced from 54 months). This convergence of timelines, while eliminating the procedural distinction between fraud and non-fraud cases, creates asymmetric risk exposure for different taxpayer categories. A balanced approach would have been ideal in order to keep fraud timelines longer while rationalizing non-fraud cases for faster closure, thereby reinforcing trust in the GST system while deterring wilful evasion.