PAYEMENT OF PENALTY UNDER SECTION 73 AND SECTION 74 OF ‘CGST ACT, 2017’

[Mr. M. GOVINDARAJAN]

Section 73 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides 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 mis-statement or suppression of facts.

Section 74 of the Act provides 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 willful mis statement or suppression of facts.

Show cause notice

Section 73 (1) and Section 74(1) provide 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, [(section 73(1)]
• by reason of fraud, or any willful-misstatement or suppression of facts to evade tax,[(Section 74(1)]

the proper officer shall issue a show cause 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.

Payment of penalty before issue of notice

The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to 15% of such tax 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.  The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

Penalty paid after issuance of notice

Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to 25% of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.

Reply to the notice and order

Under Section 73(1) or 74(1) the taxable person shall give reply to the show cause notice issued to him within the time stipulated in the said show cause notice to the proper officer.  The Proper Officer, on receipt of the reply to the show cause notice from the taxable person 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.  The proper officer shall issue the order within a period 5 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 five years from the date of erroneous refund.

Payment within 30 days of the order

Where any person served with an order pays the tax along with interest payable thereon under section 50 and a penalty equivalent to 50% of such tax within 30 days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.

If the payment is not made within 30 days from the date of order, then the taxable person shall pay the tax as confirmed in the order along with the interest as prescribed in the order and also the penalty confirmed in the said order.  If the same is not paid then the Department may proceed to recover the above said dues from the taxable person by anyone of the methods prescribed under the Act and the rules made thereunder.

Explanation to Section 74

The explanation to Section 74 (which shall also apply to Section 73) provides that where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122 and 125 are deemed to be concluded.

No waiver of penalty

There is no waiver of penalty imposed under section 74. Section 128 provides for waiver of penalty.  This section provides that   the Government may, by notification, waive in part or full, any penalty referred to in section 122 or section 123 or section 125 or any late fee referred to in section 47 for such class of taxpayers and under such mitigating circumstances as may be specified therein on the recommendations of the Council.  As such there is no waiver of penalty imposed under section 74 and the taxable person shall pay the entire amount.

Appeal

Any person aggrieved by the order of the proper person may file appeal to the First appellate Authority within 30 days from the date of receipt of the order.  Even if he fails before the First Appellate Authority, he can file appeal before the GST Tribunal.  Since the GST Tribunal has not yet constituted the taxable person may file a writ petition before the High Court having jurisdiction.

Discussions to this article

[Sadanand Bulbule]

Dear Sir

Well analysed article. Congratulations.

Queries:

There are circumstances involving issue of fake invoices without supply or goods resulting in the availment of fraudulent ITC. But due to lack of tangible evidences, the adjudication proceedings under Section 74 of the CGST Act is practically not possible to initiate and conclude. Under such extreme situations, what would be amount of penalty leviable under Section 122 for issue of such fake invoices? Is it Rs.10000/- under each Act or equal to availment of such ITC ?

What exactly constitutes "availment" of ITC  and " utilisation" of ITC to invoke Section 122?

You are kindly requested to clarify these queries.

 Gratitude & warm regards.