DETERMINATION OF TAX UNDER GST LAWS

[Mr. M. GOVINDARAJAN]

Determination of tax

There are three provisions in Central Goods and Services Tax Act, 2017 (‘Act’ for short) for determining the tax liability of the registered person by the Department.  These three sections are as below-

• Section 73 – Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts;
• Section 74 - Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason by reason of  fraud or any willful misstatement or suppression of facts;
• Section 75 - General provisions relating to determination of tax.

The provisions of section 73 and 74 are more or less similar except some different features.

Suppression

The term ‘expression’ is defined in Explanation to Section 74(10) as non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made there under, or failure to furnish any information on being asked for, in writing, by the proper officer.

Issue of show cause notice

Section 73(1) provides that the proper officer may issue a show cause notice to the registered person who has not paid the tax or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts  requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made there under in Form GST DRC – 01.

Section 74(1) provides that the proper officer may issue a show cause notice to the registered person who has not paid the tax or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

Before issue of show cause notice the proper officer may communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of Form GST DRC-01A.

Statement

Section 73(3) and Section 74(3)  of the Act provides that  the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered in the earlier show cause notice issued in Form GST DRC – 03.

The service of such statement shall be deemed to be service of notice on the said registered person subject to the condition that the grounds relied upon for such tax periods other than those covered in the show cause notice already issued,  are the same as are mentioned in the earlier notice.

Time limit for issue of show cause notice

Section 73(2) & (10) and 74(2) & (10) fix the time limit for the proper officer for issue of show cause notice.  The relevant date for calculation of time limit starts from the due date for furnishing annual return for the financial year to which the show cause notice is to be issued. 

Section 73(2) provides that the proper officer shall issue the notice at least 3 months prior to the time limit specified in sub-section (10) for issuance of order.  Section 73(10) provides that the proper officer shall issue order within 3 years from the due date of furnishing Annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to.  In case of erroneous refund it is 3 years from the date of erroneous refund.

In respect of section 74 the proper officer shall issue the notice at least 6 months prior to the time limit specified in Section 74(10) for issuance of order.  Section 74(10) provides that the proper officer shall issue order within 5 years from the due date of furnishing Annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to.  In case of erroneous refund it is 5 years from the date of erroneous refund.

Section 44 provides that the Annual return shall be filed on or before 31^st December of that financial year.  We are experiencing that the due date for filing returns are almost extended now and then by the Department due to technical glitches or due to COVID pandemic.

Let us assume that there is no extension of filing return.  Take the FY 2018-19.  The last date for filing the return is 31.12.2019.  In this the order shall be issued within 3 years i.e. on 31.12.2022 under section 73(10).  The show cause notice shall be issued 3 months before the issuing of order.  Therefore the show cause notice shall be issued on or before 30.09.2022.  Therefore there is a chance of issuing show cause notice by the Department from 01.01.2020 to 30.09.2022. 

In respect of section 74(10), the show cause notice shall be issued within 5 years i.e, 31.12.2024.  The show cause notice shall be issued 6 months before the issuing of order.  Therefore the show cause notice shall be issued on or before 30.06.2024.  Therefore there is a chance of issuing show cause notice by the Department from 01.01.2020 to 30.06.2024.

Let us assume that the last date of filing return for the said year is extended to 30.06.2020.  Then the due date for issue of order for the purpose of section 73 is 30.06.2023 and the show cause notice shall be issued on or before 31.03.2023.  In respect of section 74 the due date for issuing order is 30.06.2025 and the show cause notice shall be issued on or before 31.12.2024.

Where any Appellate Authority or Appellate Tribunal or court concludes that the notice issued under of section 74(1) is not sustainable for the reason that the charges of fraud or any willful-misstatement or suppression of facts to evade tax has not been established against the person to whom the notice was issued, the proper officer shall determine the tax payable by such person, deeming as if the notice were issued under of section 73(1).

Where the service of notice or issuance of order is stayed by an order of a court or Appellate Tribunal, the period of such stay shall be excluded in computing the period specified in sub-sections (2) and (10) of section 73 or sub-sections (2) and (10) of section 74, as the case may be.

Payment before issue of show cause notice/statement

Section 73(5) provides that the taxable person may, before the issuance of show cause notice/Statement, pay the tax and interest on the basis of his own ascertainment or as ascertained by the proper officer.  Likewise 74(5) provides that the taxable person may, before the issuance of show cause notice/statement, pay the tax along with interest and a penalty equivalent to 50% of such tax on the basis of his own ascertainment or as ascertained by the proper officer.

If the taxable person paid the above said amount then he is to inform the particulars of the payment to the proper officer in Form GST DRC - 3.  The proper officer shall issue an acknowledgment, accepting the payment made by the said person in Form GST DRC – 4.  The proper officer, on receipt of such information, shall not serve any notice or statement in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made there under.

Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

Payment after issuance of show cause notice/statement

If the taxable person pays the tax along with interest, for the purposes of Section 73, within 30 days from the date of receipt of the show cause notice, no penalty shall be payable by the taxable person.  All proceedings in respect of the said notice shall be deemed to be concluded. 

For the purposes of Section 74, the taxable person shall pay the tax along with interest and a penalty of 25% of such tax within 30 days from the date of receipt of the show cause notice.  All proceedings in respect of the said notice shall be deemed to be concluded.

The taxable person shall intimate the proper officer of such payment in Form GST DRC-03 and the proper officer shall issue an order in Form GST DRC-05 concluding the proceedings in respect of the said notice.

It is to be noted that the expression ‘all proceedings in respect of the said notice’ shall not include proceedings under section 132.

Reply to show cause notice

The taxable person, if he does not opt to pay tax on the above said method, then he shall file reply within the prescribed time limit or extended time limit allowed by the proper officer on the application filed by the taxable person for the extension.  The reply shall be filed in Form GST DRC – 06. 

Hearing

The taxable person is to attend the hearing on the hearing date fixed by the proper officer by himself or through authorized representative.  The proper officer shall, if sufficient cause is shown by the person chargeable with tax, grant time to the said person and adjourn the hearing for reasons to be recorded in writing.  No such adjournment shall be granted for more than 3 times to a person during the proceedings.

Order by proper officer

The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order in Form GST DRC – 07 specifying therein the amount of tax, interest and penalty payable by the person chargeable with tax.  The registered person shall be given reasonable opportunity of being heard before passing the order by the proper officer.   The proper officer, in his order, shall set out the relevant facts and the basis of his decision.  The order shall be a reasoned order.

In ‘M/S BENQ CATERING AND ALLIED SERVICES PRIVATE LIMITED VERSUS ASSISTANT COMMISSIONER - 2021 (6) TMI 772 - ANDHRA PRADESH HIGH COURT the High Court held that it is incumbent upon the assessing authority to give an opportunity of personal hearing to the assessee when a request in that regard is received in writing from it or where any adverse decision is contemplated against the assessee. In the present case, a clear and unequivocal prayer for personal hearing had been made by the petitioner-assessee which remained unheeded to and the impugned assessment order came to be passed.  The  High Court set aside the order and remanded the case to the assessing authority for fresh consideration after giving an opportunity of hearing to the petitioner.

The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice.

The said order shall be treated as the notice for recovery.

Where any order is required to be issued in pursuance of the direction of the Appellate Authority or Appellate Tribunal or a court, such order shall be issued within 2 years from the date of communication of the said direction.

Modification of order

Where the Appellate Authority or Appellate Tribunal or court modifies the amount of tax determined by the proper officer, the amount of interest and penalty shall stand modified accordingly, taking into account the amount of tax so modified.

Payment of interest automatic

The interest on the tax short paid or not paid shall be payable whether or not specified in the order determining the tax liability.

Rectification order

Where a rectification of the order has been passed in accordance with the provisions of section 161 or where an order uploaded on the system has been withdrawn, a summary of the rectification order or of the withdrawal order shall be uploaded electronically by the proper officer in Form GST DRC-08.

 Order issued beyond the limitation period

Section 73(10) provides that the order shall be passed within 3 years from the date of filing of return and 5 years for section 74(10).  The adjudication proceedings shall be deemed to be concluded, if the order is not issued within 3 years as provided for in sub-section (10) of section 73 or within 5 years as provided for in sub-section (10) of section 74.      

An issue on which the Appellate Authority or the Appellate Tribunal or the High Court has given its decision which is prejudicial to the interest of revenue in some other proceedings and an appeal to the Appellate Tribunal or the High Court or the Supreme Court against such decision of the Appellate Authority or the Appellate Tribunal or the High Court is pending, the period spent between the date of the decision of the Appellate Authority and that of the Appellate Tribunal or the date of decision of the Appellate Tribunal and that of the High Court or the date of the decision of the High Court and that of the Supreme Court shall be excluded in computing the period referred to in sub-section (10) of section 73 or sub-section (10) of section 74 where proceedings are initiated by way of issue of a show cause notice under the said sections.

No penalty under other sections

Where any penalty is imposed under section 73 or section 74, no penalty for the same act or omission shall be imposed on the same person under any other provision of this Act.

Discussions to this article

[OmPrakash jain]

Per recent case law of Deem Distributors Pvt. Ltd. v. Union of India & Ors. 2021 (8) TMI 405 - TELANGANA HIGH COURT, it was held that the Demand of Tax etc. during investigations by way of Reversal of ITC is not sustainable.