ADJUDICATION UNDER GST (PART-3)

[Dr. Sanjiv Agarwal]

Determination of tax and Adjudication under Section 73

Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful misstatement or suppression of facts.

Text of Statutory Provision of Section 73

73. (1) Where it appears to the proper officer that any tax 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 the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, 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 thereunder.

(2) The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.

(3) Where a notice has been issued for any period under sub-section (1), 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 utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.

(4) The service of such statement shall be deemed to be service of notice on such person under sub-section (1), subject to the condition that the grounds relied upon for such tax periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.

(5) The person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1) or, as the case may be, the statement under sub-section (3), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

(7) 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.

(8) Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.

(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund.

(11) Notwithstanding anything contained in sub-section (6) or sub-section (8), penalty under sub-section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.

Section 73 of CGST Act, 2017, provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts. This clause further provides that the adjudication order will be issued within three years from the due date of filing of annual  return for the year to which the discrepancy is noticed. This clause also provides that the show cause notice is required to be issued at least three months prior to the time limit. has also been provided that SCN need not be issued if tax along with interest is paid before issue of such notice. This clause also provides that where any person chargeable with tax pays the tax along with interest within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the notice shall be deemed to be concluded.

Following points are important for adjudication and determination of demand under section 73 of CGST Act, 2017

1. Section 73 can be invoked or applied where it appears to the Proper Officer that a situation involving payment of tax (stated in para 1(b) infra) has arisen in cases other than fraud, wilful misstatement or suppression of facts.

2. section 73 of CGST Act, 2017 provides for determination of tax and its demand & recovery under certain circumstances such as:

• Tax not paid; or
• Tax short paid; or
• Tax erroneously refunded; or
• Input tax credit wrongly availed or utilised.

3. section 73 also applies for recovery of interest payable which is not paid or partly paid

or interest erroneously refunded.

4. Such non-payment or short payment etc shall be for any reason other than fraud, misstatement or suppression of facts.

Circumstances for determination of demand under section 73(1) of CGST Act, 2017

The proper officer shall serve notice under the provisions of section 73(1) along with a summary, electronically on the person chargeable with tax for any reason other than:

• Fraud
• Willful misstatement
• Suppression of facts

when he has reason to believe that tax has not been paid or short paid or erroneously refunded or input tax credit has been wrongly availed or utilized.

To determine the demand under section 73 of CGST Act, 2017, proper officer should be of a belief or it should appear to him that:

1. Any tax has not been paid or
2. Any tax has not been short paid or
3. Any amount has been erroneously refunded or
4. Any input tax credit (ITC) has been wrongly availed or wrongly utilized for reasons as stated above. In such a situation, proper officer is required to issue or serve a notice on person chargeable with tax but has not paid or short paid tax or has been erroneously  refunded or has wrongly availed or utilized input tax credit requires him to show cause as to why he should not

1. Pay the amount so payable,
2. Pay the interest under section 50 of the CGST Act, and
3. To be levied with penalty as per the Act.

Section 73(1) provides for :

(a) Service of notice by proper officer;

(b) Notice shall be served on the person who is chargeable with tax, who has –

• Not paid or short paid the tax;
• Received the erroneous refund;
• Wrongly availed or utilized input tax credit;

(c) Such amounts as mentioned above shall be required to be determined along with the applicable interest as per Section 50 and penalty leviable under the provisions of this Act or the rules made thereunder.

Issuance of Notice under section 73(2) of CGST Act, 2017

The notice required to be issued under sub-section (1) shall be issued by proper officer as per time limit given in sub-section (10) i.e., three months before issuance of the time limit for issuance of order.

The proper officer shall issue show cause notice at least 3 months prior to the time limit of 3 years for issuance of order i.e.

• Before completion of 3 years from the due date for furnishing of 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, or
• Within 3 years from the date of erroneous refund, as the case may be.

This can also be understood from the following table:

Situations	Time limit for issuing  Notice [Section 73(2)]	Time limit for issuing order (Sec 73(10))
Cases not involving fraud, willful misstatement or suppression of facts under section 73 CGST Act, 2017.	At least 3 months prior to the time limit specified under Section 73(10) for issuance of an order.	3 years from the due date for furnishing annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or 3 years from the date of erroneous refund.

In any demand proceedings under the provisions of GST, the proper officer is required to issue a show cause notice to the taxable person against whom the allegations are made. The proper officer in the said show cause notice (SCN) set out all facts, detail of allegations made and the amount alleged to be not paid, short paid or erroneously refund and the amount recoverable.

For continuing defaults of the same nature as detailed in show cause notice in the period further to period specified in show cause notice, the proper officer instead of issuing a detailed show cause notice for further period may issue a statement containing details of tax not paid or short paid. The prerequisite to issue of such statement is that the grounds relied upon for such tax period other than those covered by show cause notice are the same as mentioned in show cause notice. These are in general practice called follow-on show cause notices.

It may be noted that statement issued by the proper officer would be deemed to be a notice under section 73 and 74 of CGST Act, 2017.

Issue of statement under section 73(3) of CGST Act, 2017

The proper officer may serve a statement under section 73(3) along with a summary electronically containing details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized where the grounds relied upon by the proper officer for such periods are the same as are mentioned in the earlier notice issued under section 73(1). The service of such statement shall be deemed to be service of show cause notice on the person chargeable with tax.

This sub-section [73(3)] enables the proper officer to issue and serve a statement to the person chargeable with tax for any short payment for the period other than that covered under notice under sub-section (1).

This implies that for periods other than the period covered under notice, a statement issued under sub-section (3) will also be considered as a valid notice. Such a statement should contain the details of tax or amount sought to be demanded from the person liable to pay tax.

Statement deemed to be a notice under section 73(4) of CGST Act, 2017

A statement quantifying the demand of tax, interest and penalty as provided in sub-section (3) shall be deemed to be a notice as required to be issued under sub-section (1) provided that the grounds of issuance of such statement are the same as of the earlier notice. By virtue of sub section (4), the law provides for issuing repetitive notices and there is only a requirement of issuing a statement containing the quantification of demand for other periods.

Voluntary payment prior to notice under section 73(5) of CGST Act, 2017

As provided in section 73(5) of the CGST Act, 2017 in case the person chargeable to tax deposits the amount of tax along with interest on such tax, within 30 days of issuance of show cause notice to him, he will not be charged with any penalty and all the proceedings in respect of said tax as contained in show cause notice will be deemed to be concluded.

According to sub-section (5), the person chargeable with tax can pay the amount of tax along with interest under section 50 based on his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. On receipt of such information, the proper officer shall issue an acknowledgement for accepting the payment made by the said person in Form GST DRC-04 and shall not serve any notice or statement with respect to the tax so paid.

The following conditions are relevant:

1. Such amount should be deposited on a voluntary basis
2. The amount should be deposited before service of notice under sub-section (1) or sub-section (3).
3. Amount so paid must be paid along with interest payable thereon under section 50 of CGST Act, 2017.

The basis of payment must be:

• Either on the basis of assessee’s own ascertainment of tax, or
• On the basis of tax ascertained by the proper officer.
• After depositing the tax, the same should be intimated in writing to the proper officer.

No notice to be served under section 73(6) of CGST Act, 2017

On receipt of intimation of payment by the proper officer of the payment made by the taxable person as per sub-section (5) above, it is obligatory on the proper officer not to issue and serve notice under sub-section (1) or statement under sub-section (3), as the case may be in  respect of tax paid or any penalty payable. In other words, the proper officer shall not serve any notice / statement to the extent of such payment. In such situations, there can be no further proceedings with regard to tax and penalty so paid.

Notice to be issued for shortfall under section 73(7) of CGST Act, 2017

It has been provided in section 73(7) of the CGST Act, 2017, that in case the amount of deposit made by the taxable person under section 73(3) or section 74(3) falls short of the amount as determined by the proper officer, he would proceed to issue the show cause notice of the amount which he considers have been short paid than the amount as determined by him as the amount of defaulted tax.

Such notice shall be issued as per sub-section (1) but the notice should only be for that portion of the shortfall which has not been deposited i.e., after considering the amount paid under sub-section (5).                              

No penalty if amount paid after Show Cause Notice under section 73(8) of CGST Act, 2017

As provided in section 73(5) of the CGST Act, 2017, in case the person chargeable to tax deposits the amount of tax along with interest on such tax, within 30 days of issuance of show cause notice to him, he will not be charged with any penalty and all the proceedings in respect of said tax as contained in show cause notice will be deemed to be concluded.

All proceedings in respect of the said tax shall be deemed to be concluded means any further notice even to co-noticee for penalty, late fee etc. cannot be issued. Further, proceedings may also include penal proceedings, pending inquires under summons etc.

The person chargeable with tax shall inform the proper officer of such payment and the proper officer shall issue an order concluding the proceedings in respect of the said notice. Please note that on such payment, all proceedings in respect of such notice except for proceedings under section 132 shall be deemed to be concluded.

Issuance of order under section 73(9) of CGST Act, 2017

This sub-section provides for determination of demand and issuance of order for determining the amount of tax, interest and penalty. However, such an order should be issued after considering the representation.

As a principle of natural justice, an opportunity of personal hearing should be provided before issuance of an order to a taxable person. However, no such opportunity needs to be provided before issuance of show cause notice.

For show cause notice issued under section 73 of the CGST Act, 2017, the proper officer can levy a penalty for an amount not exceeding 10% of the tax or INR 10,000/- whichever is higher, as provided by section 73(9) of the CGST Act, 2017.

Where the person files a reply or representation, the proper officer after considering the representation, the proper officer shall issue an order consisting of the amount of tax, interest and penalty (i.e. tax + interest + penalty). The amount of penalty shall be higher of 10% of tax or ₹ 10,000/-, whichever is higher. A summary of such order shall be uploaded electronically  specifying therein the amount of tax, interest and penalty payable by the person chargeable with tax. Such summary of order shall be treated as a notice for recovery.

Time limit for order under section 73(10) of CGST Act, 2017

As per sub-section (3), the proper officer is required to pass an order within a period of 3 years from the

• due date for filing of Annual return for the year to which the short payment or non-payment or input tax credit wrongly availed or utilised relates
• date of erroneous refund

The demand proceedings launched under the provisions of section 73 are required to be concluded within a period of 3 years from the due date of filing the annual return or actual date of filing the annual return of the relevant period, whichever is earlier. 

In case the proceedings were started under section 73 of the CGST Act, 2017, but no order was issued within the prescribed period of 3 years of date of filing of annual return of relevant year, the proceedings will come to an end due to reason of expiry of limitation period. Any order issued after the expiry of limitation period of 3 years will be treated as defective order thus ineffective.

Levy of penalty under section 73(11) of CGST Act, 2017

Sub-section (11) of CGST Act, 2017 is an overriding provision and over rides sub-section (6) and (8) in respect of penalty. This sub-section  overrides sub-section (6) and (8) and states that penalty under sub-section (9) (10% of tax or ₹ 10,000/- whichever is higher) shall still be payable were amount of tax which is self assessed or amount of tax is not paid within thirty days from the due date of payment of such tax. Thus, it appears that this is the mandatory penalty payable.

The provisions in relation to penalty under section 73 can be summarized as follows:

Payment of tax plus interest	Amount of penalty levied
Before issuance of show cause notice	No penalty
Within 30 days after the issuance of show cause notice	No penalty
In any other case	10% of the tax or ₹ 10,000 whichever is higher