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GST Procedure related to demands and recovery

Abhishek Raja , Last updated: 11 December 2021  
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INTRODUCTION

Like in any other tax collection system, in GST regime also there may be situations where:

  • no tax was paid
  • taxes were short paid
  • there was non-levy or short levy
  • there fund granted was erroneous
  • the availment / utilization of input tax credit was wrong
  • there was fraudulent evasion of tax.

In all such situations, a demand has to be raised and recovery proceedings initiated on the taxpayer for the various situations mentioned above. These proceedings relating to demand and recovery start with the issuance of a show cause notice by the taxman on the taxpayer and these conclude by issuance of an adjudication order, and subsequent recovery of tax, fine, penalty, etc., as applicable.

GST Procedure related to demands and recovery

Demands have been categorised into two categories, i.e., normal period demands which can extend up to 3 years from the date of filing of annual return. Such demands which shall be without an element of allegation of fraud, wilful misstatement, or suppression of facts to evade tax shall require to be show caused at least 3 months prior to 3 years of time limit period with adjudication being time bound and shall be required to be completed within a period of 3 years by the Adjudicating Authority.

Second category of demand shall be for an extended period which can go up to 5 years from annual return and such demands can be invoked on grounds of fraud, wilful misstatement, or suppression of facts to evade tax. Such demands will attract a mandatory penalty of 100% of du ty amount. Unlike Central Excise the words "intent" is missing with ex pression "to evade", but same may not have much effect, as the same is inbuilt in fraud, wilful misstatement, and suppression.

The incidence of short payment of tax or erroneous refund or wrong availment of input tax credit may be because of an inadvertent bona fide mistake (normal cases) or it may be a deliberate attempt (fraud cases) to evade the tax. Since the nature of offence is totally different in both, therefore, separate pro visions for recovery of the tax and the amount of penalty have been made to deal with such type of cases. Besides these, there are provisions to encourage voluntary compliance such as no penalty or lesser penalty.

 

ENCOURAGING VOLUNTARY COMPLIANCE

The incidence of short payment and non-payment of tax, wrong availment of Input Tax Credit, etc. may be because of an inadvertent bona fide mistake (Normal Cases) or it may be a deliberate attempt (Fraud Cases) to evade the tax. Since the nature of offence is totally different in both the incidences, separate provisions for recovery of the tax and the amount of penalty have been made to deal with such type of cases. Besides these, there are provisions to encourage voluntary compliance, such as no penalty or lesser penalty, if the tax dues along with interest are paid within the specified time limit. The table below gives a comprehensive chart of provisions for voluntary compliance:

SI

Action by Taxpayer

Amount of Penalty Payable Normal Cases

Amount of Penalty Payable Fraud Cases

Remarks

1

Tax amount, along with the interest, paid before issuance of notice

No penalty and no notice will be issued

15% of the tax amount and no Notice will be issued

The penalty will also not be chargeable in cases, where the self-assessed tax or any amount collected as tax is paid (with interest) within 30 days from the due date of payment

2

Tax amount, along with the interest, paid within 30 days of issuance of notice

No penalty. All proceedings deemed to be concluded

25% of the tax amount. All proceedings deemed to be concluded

3

Tax amount, along with the interest, paid within 30 days of communication of order

10% of the Tax amount or Rs. 10,000, whichever is higher

50% of the tax amount. All proceedings deemed to be concluded

4

Tax amount, along with the interest, paid after 30 days of communication of order

10% of the Tax amount or Rs. 10,000, whichever is higher

100% of the tax amount

Thus, there are incentives for the person who accepts tax liability and readily discharges the same. The law provides an opportunity for the payment of tax, interest and a nil or nominal penalty (depending on the nature of offence) before the issuance of notice and emphatically stipulates that in all such cases, no. notice shall be issued and consequently there shall be no other consequences for any default.

 

FURTHER ACTIONS

In spite of these opportunities, if it becomes inevitable to issue a show cause notice and thereafter pass an order, the GST Act ensures timely completion of all these procedures by providing a fixed timeline for issuance of notice and order.

Particulars

Recovery of tax not paid or short paid or ITC wrongly erroneously refunded - reason other than fraud

Recovery of tax not paid or short

or ITC wrongly availed or availed or utilized or utilized or erroneously refunded - reason being fraud

Grounds of Difference

Any reason other than fraud or any wilful misstatement or suppression of facts.

Reason of fraud or any wilful misstatement or suppression of facts.

(1) Issue of Show Cause Notice (SCN)

Why Tax, Interest and Penalty should not be paid.

[Section 73(1)]

Why Tax, Interest and Penalty equivalent of tax should not be paid.

[Section 74(1)]

(2) Time Limit to issue the SCN

At least 3 months prior to the time specified in Section 73(10)

[Section 73 (2)]

At least 3 months prior to the time specified in Section 74(10)

[Section 74 (2)]

(2) Statement (Deemed Notice) for the subsequent period relating to matter same

The service of such statement shall be deemed to be service of notice on such person. However, the grounds relied upon for the subsequent period are the same as are mentioned in the SCN.

[Section 73(3)]

The service of such statement shall be deemed to be service of notice on such person. However, the grounds relied upon for the subsequent period are the same as are mentioned in the SCN.

[Section 74(3)]

(3) Option to pay (Tax and Interest) on Suo-moto by taxpayer/as ascertained by the proper officer.

The person on payment of Tax & Interest must inform the proper officer in writing of such payment.

[Section 73(5)]

The proper officer, on receipt of such information, shall not serve SCN.

[Section 73(6)]

The person on payment of Tax, Interest & Penalty of 15% must inform the proper officer in writing of such payment.

[Section 74(5)]

The proper officer, on receipt of such information, shall not serve SCN.

[Section 74(6)]

(4) Issue of SCN, if the amount paid under (3) falls short of amount actually payable.

The proper officer shall proceed to issue SCN in respect of such amount which falls short of the amount actually payable.

[Section 73(7)]

The proper officer shall proceed to issue SCN in respect of such amount which falls short of the amount actually payable.

[Section 74(7)]

(5) No penalty & proceeding deemed to be concluded

If the Tax & Interest payable under sub section (1) &/or (2) is paid within 30 days of issue of SCN.

[Section 73(8)]

If the Tax, Interest & Penalty of 25% payable under sub section (1) &/or (2) is paid within 30 days of communication of SCN.

[Section 74(8)]

(6) Process after considering the representation made by the taxpayer

Determine and Issue an Order:

*Tax

*Interest, &

*Penalty not exceeding 10% of Tax or INR 10,000 [whichever is hit higher].

[Section 73(9)]

Determine and Issue an Order:

*Tax

*Interest, &

*Penalty.

[Section 74(9)]

(7)Time Limit for issue of an Order

A. The order shall be issued within 3 years from the:

-due date, or

-the actual date

[for filing of GSTR 8 for the year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates] whichever is earlier.

B. In case of erroneous refund, within 3 years from the date of erroneous refund

[Section 73(10)]

A. The order shall be issued within 5 years from the:

-due date

-the actual date

[for filing of GSTR 8 for the year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates) whichever is earlier.

B. In case of erroneous refund, within 5 years from the date of erroneous refund.

[Section 74(10)]

(8) Option to pay reduced Penalty

No such Option.

If the Tax, Interest and 50% of the Penalty as mentioned in the 'Order' issued under sub section (6) is paid within 30 days of communication. [Section 74 (11)]

GENERAL DISCIPLINES RELATING TO DETERMINATION OF TAX

  1. Opportunity of personal hearing shall be given to the taxpayer.
  2. Adjournment maximum 3 times to each party.
  3. Amount demanded in order must not exceed the amount mentioned in SCN
  4. Interest is payable whether or not determined in the Order.
  5. Officer issuing Order must be different from him who issued SCN.
  6. Adjudication proceedings deemed to be concluded if not decided within stipulated time period.
  7. Where the service of notice is stayed by an order of a Court or Appellate Tribunal, the period of such stay shall be excluded.
  8. Order passed by the Proper Officer shall be a Speaking Order.
  9. The Interest shall create automatic charge whether or not specified in the order determining the tax liability.
  10. Direct recovery proceedings U/s 79 shall be initiated for any pending self-assessed tax liability along with interest in accordance with the returns furnished either GSTR-1 or GSTR-3B.

SOME RELEVANT CASE LAWS

EXTENDED PERIOD

  • Where Notice does not allege suppression, etc with intent to evade, extended period (U/s 74) cannot be invoked. - Jagron Machine Tools vs CCE, [1993 (65) ELT 300 (CEGAT - New Delhi)]
  • Extended period of Limitation would not apply, if assessee had bona fide belief. - Mitul Engineering Services vs CCE, [ (2011) STT 289 (CESTAT - New Delhi)] and Sunil Metal Corpn. Vs CCE, [ (2010) STT 473 (CESTAT - Ahmedabad Branch)]

PERSONAL HEARING

  • The Supreme Court observed that personal hearing enables the concerned authority to watch the demeanour of the witness etc and also clear up his doubts during the course of the arguments. - Automative Tyre Manufacturers Asson. Vs Designated Authority, [ (2011) 263 ELT 481 (Supreme Court)]
  • A Personal Hearing is not required in an application for a stay. - Union of India vs Jesus Sales Corporation, [ (1996) 83 ELT 486 (Supreme Court)]

PRINCIPLES OF NATURAL JUSTICE & SCN

  • SCN should necessarily comply with the Principle of Natural Justice. - East India Commercial Co. Ltd. Vs Collector of Customs, [ (1983) 13 ELT 1342 (Supreme Court)]
  • Where Show-Cause Notice is not issued, demand of tax and interest is not sustainable. - Diamond Cables vs CCE, [ (2005) 1 STT 91 (CESTAT - Mumbai)]

NOTICE ONLY ON EMAIL

  • Notice sent on email, but not uploaded on GSTN is not valid. - Akas Garg vs State of Madhya Pradesh, [TS(DB)-GST-HC(MP)-2020-724]
  • The SCN/Order communicated to petitioner by email and not uploading on Website of the revenue is no communication as per the law. - Ram Prasad Sharma vs Chief Commissioner, [ (2021) 124 taxmann.com 280 (High Court - Madhya Pradesh)]

LETTERS ARE NOT NOTICE

  • Letters issued in the form of suggestion or advice cannot be regarded as SCN. - Metal Forgings vs UOI, [ (2002) 146 ELT 241 (Supreme Court)]
  • Notice must be in Writing. In case of absence of a Notice in Writing the Principles of Natural Justice had not been applied. - Voltas Ltd. Vs CCE, [ (2000) 121 ELT 802 (CEGAT - Bangalore)]

NO NOTICE = NO DEMAND

  • Demand will not sustain without issueance of Show Cause Notice. - Prabhat For

NO NOTICE = NO PENALTY

Assessee can't be forced to pay penalty if show cause notice is not issued. - D. Rama Kotiah & Co. vs State of Andhara Pradesh, [ (2019) 111 taxmann.com 536 (High Court - Telangana)]

MEMO BEFORE SCN

Vide Notification No. 49/2019-Central Tax, dated 9-Oct-2019, Rule 142of CGST Rules has been amended to provide for service of Form GST DRC-01A providing the details of tax, interest and penalty as ascertained by the officer before service of any SCN. If the assessee partially pays such tax, interest or penalty or the assesee needs to make some submissions, the assesee will be required to file the details in Part B  of Form GST DRC-01A.

DOCUMENT IDENTIFICATION NUMBER (DIN)

Generation and quoting of DIN on any communication issued by the Officers of the CBIC to the tax payers and other concerned persons. - Circular No. 122/41/2019-GST dated 05-Nov-2019 read with Circular No. 128/47/2019-GST dated 23-Dec-2019

MONETARY LIMITS TO ISSUE SCN'S

CBIC have prescribed the monetary limits within for issuance of Show Cause Notices as per Circular No. 31/05/2018-GST, dated 09-Feb-2018 which is as follows:

Particulars

Superintendent

AC/DC

ADC/JC

Amount of CGST (including Cess) involved in a case

Demand <= Rs. 10 Lakhs

Rs. 10 Lakhs < Demand <= Rs. 1 Crore

Demand > Rs. 1 Crore

Amount of ICGST (including Cess) involved in a case

Demand <= Rs. 20 Lakhs

Rs. 20 Lakhs < Demand <= Rs. 2 Crore

Demand > Rs. 2 Crore

Amount of ICGST and CGST (including Cess) involved in a case

Demand <= Rs. 20 Lakhs

Rs. 20 Lakhs < Demand <= Rs. 2 Crore

Demand > Rs. 2 Crore

CONCLUSION

As per Section 2 of the CGST Act'2017, the term assessment means "Determination of Tax Liability" under this act and includes self-assessment, re-assessment, provisional assessment, summary assessment and Best Judgement Assessment. Summary assessment and best judgement assessment have to be done by the Proper Officer and after computation demand have to be made. But the Provisions of Demand of GST starts with the issuance of Show Cause Notice under section 73 (Normal case within 3 year), under Section 74 (Fraud cases within 5 years) and ends with issuance of Adjudication Order. Show Cause Notice in all cases should follow the Principal of Natural Justice and provide an opportunity of being heard to the assessee before passing of any adverse order.1


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Abhishek Raja
(Practising CA)
Category GST   Report

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