APPLICABILITY OF PROVISIONS OF SECTION 75(2) OF CENTRAL GOODS AND SERVICES TAXES ACT, 2017 ON LIMITATION

[Mr. M. GOVINDARAJAN]

Determination of tax

Section 73 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides the procedure for 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 73(1) provides that 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 utilized for any reason, other than the reason of fraud or any willful-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 utilized 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 there under.

Section 74 of the Act provides the procedure for determination of tax not paid 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.  Section 74(1) provides that 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 utilized by reason of fraud, or any willful-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 utilized 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 equivalent to the tax specified in the notice.

Section 75(2) of the Act provides that where any Appellate Authority or Appellate Tribunal or court concludes that the notice issued under 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 section 73(1).

Query on Limitation

The stakeholders sought clarifications from the Department as to the time limit within which the proper officer is required to re-determine the amount of tax payable considering notice to be issued under  section 73(1), specially in cases where time limit for issuance of order as per  section 73(10) has already been over and also  the methodology for computation of such amount payable by the noticee, deeming the notice to be issued under  section 73(1).

Clarifications

The Board, vide Circular No. 185/17/2022-GST, dated 27.12.2022, issued clarifications for the above said issue.

Limitation for issue of SCN to re-determine the tax

The Board clarifies that in cases where any direction is issued by the appellate authority or appellate tribunal or the court to re-determine the amount of tax payable by the noticee by deeming the notice to have been issued under  section 73(1) of the Act in accordance with the provisions of  section 75(2) of the said Act, the proper officer is required to issue the order of redetermination of tax, interest and penalty payable within the time limit as specified in under  section 75(3) of the said Act, i.e. within a period of two years from the date of communication of the said direction by appellate authority or appellate tribunal or the court, as the case may be.

Re-computation of tax

In some cases the amount of tax, interest and penalty payable by the noticee is required to be re-determined by the proper officer in terms of  section 75 (2) of the Act, the demand would have to be re-determined keeping in consideration the provisions of  section 73(2), read with  section 73(10)  of the Act.

Section 73(2) provides that 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.  Section 73(10) provides that the proper officer shall issue the 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 utilized relates to or within three years from the date of erroneous refund.

The Circular clarified that the amount of tax short paid or not paid, or input tax credit wrongly availed or utilized, along with interest and penalty payable, in terms of section 73 of the Act relating to such financial years can be re-determined only where show cause notice was issued within 2 years and 9 months from the due date of furnishing of annual return for the respective financial year. 

Similarly the amount of tax payable on account of erroneous refund along with interest and penalty payable can be re-determined only where show cause notice was issued within 2 years and 9 months from the date of erroneous refund.

The Circular clarified the following in respect of show cause notice issued under Section 74(1)-

• Where the show cause notice under  section 74(1) was issued for tax short paid or tax not paid or wrongly availed or utilized input tax credit beyond a period of 2 years and 9 months from the due date of furnishing of the annual return for the financial year to which such demand relates to, and the appellate authority concludes that the notice is not sustainable thereby deeming the notice to have been issued, the entire proceeding shall have to be dropped, being hit by the limitation of time as specified in section 73. Similarly, where show cause notice under  section 74(1) of the Act was issued for erroneous refund beyond a period of 2 years and 9 months from the date of erroneous refund, the entire proceeding shall have to be dropped.
• In cases, where the show cause in terms of  section 74(1) of the  Act was issued for tax short paid or not paid tax or wrongly availed or utilized input tax credit or on account of erroneous refund within 2 years and 9 months from the due date of furnishing of the annual return for the said financial year, to which such demand relates to, or from the date of erroneous refund, as the case may be, the entire amount of the said demand in the show cause notice would be covered under re-determined amount.

Where the show cause notice under sub-section (1) of section 74 was issued for multiple financial years, and where notice had been issued before the expiry of the time period as per sub-section (2) of section 73 for one financial year but after the expiry of the said due date for the other financial years, then the amount payable in terms of section 73 shall be re-determined only in respect of that financial year for which show cause notice was issued before the expiry of the time period as specified in sub-section (2) of section 73.