INTRODUCTION: HOW A SITUATION FOR DEMAND ARISES - Handbook of GST Law & Procedures (CBIC) [October 2024] - GST

CHAPTER V DEMAND AND DETERMINATION THEREOF 1. INTRODUCTION: HOW A SITUATION FOR DEMAND ARISES 1.1 While discharging the tax liability on the supplies, a supplier has to ensure proper compliance of the provisions related to classification of the supply of Goods and Services, applicable rate of tax, valuation of the supply, time of supply, place of supply, admissibility of exemption/concession granted by notification, if any, etc., so as to ensure proper payment of tax on such supplies. 1.2. Any short payment or non-payment of tax, wrong availment/utilization of input tax credit would lead to demand and determination of the amount of tax short-paid or not paid, amount of wrongly availed/utilized input tax credit. Any amount erroneously refunded shall also result in demand of such erroneously refunded amount. 1.3. The provisions of CGST Act, 2017 and CGST Rules, 2017, relevant to demand and determination of tax short paid or not paid, Input Tax Credit wrongly availed or utilized or amount erroneously refunded, are as under Sr. No. Section / Rules Provisions pertaining to 1. 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 2. Section 74 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 3. Section 75 General provisions relating to determination of tax 4. Section 76 Tax collected but not paid to government 5. Section 79 Recovery of tax 6. Section 129 Detention, seizure and release of goods and conveyances in transit 7. Section 161 Rectification of errors apparent on the face of record 8. Rule 142 Notice and order for demand of amounts payable under the Act. 9. Rule 152 Attachment of property in custody of courts or Public Officer 1.4 The relevant provisions, Forms, Circulars, Notification, etc., wherever mentioned, can be seen by clicking ctrl+click on the respective hyperlink, which will open the https://taxinformation.cbic.gov.in page. On clicking GST option on the Menu bar, Information-GST page will appear, below which the option of Act, Rules, Forms, Notification, etc. is provided. The required page of the relevant provision/Form/Circular/Notification can be seen by clicking the appropriate option. 1.5 The taxable event under the Goods and Services Tax (GST) law is supply of goods or services or both. That is, GST is payable when a person supplies goods or services or both to another person. The person supplying goods and/or services, called as supplier , has to pay the tax into the Government account by following the procedure laid down in the CGST Rules, 2017. The person liable to pay tax is commonly referred as taxpayer . 1.6 Under the GST law, self-assessment of the tax payable on supply of goods or services or both is provided under Section 59 of the CGST Act, 2017. Periodical returns, as specified under Section 39 of the CGST Act, 2017 has to be furnished by the taxable person for each tax period by the taxpayer, declaring the details of supplies made, its value, tax payable, input tax credit availed, tax paid, etc. The returns filed by the taxpayer depict the compliance of tax payment for the relevant period. 1.7 Under self-assessment, there is a possibility of short-payment or non-payment of tax or incorrect availment of input tax credit by the taxpayer on account of various factors like incorrect rate of tax applied due to wrong classification of the supply, incorrect valuation, availing inadmissible exemption, availing inadmissible input tax credit, etc. There can be a case of erroneous refund of any amount to the taxpayer, which otherwise was not due to him. Further, there may be cases where, by reason of fraud, or willful-misstatement or suppression of facts, the tax amount has not been paid or short paid or input tax credit has been wrongly availed or utilized, with intent to evade tax, which has eventually led to improper discharge of the tax liability. Most common reasons leading to improper discharge of tax liability are Mismatch in details reported in GSTR-1 Return and GSTR-3B Return; Difference in Input tax credit claims made in GSTR-3B vis-a-vis GSTR-2B/2A; Delay in filing of GSTR-1 and GSTR-3B: Inconsistent declaration in GSTR-1 and e-way bill portal; Inconsistencies in reporting of Exports in GSTR-1 with information available on ICEGATE. For example, Shipping Bill or the Bill of export lodged on ICEGATE but not reported in GSTR-1; Non-payment of GST liability (tax) or the short-payment of the tax with or without the intent to defraud; GST Refund is wrongly made with or without the intent to defraud; The input tax credit is wrongly availed or utilized; Where a business is liable to obtain GST registration but has failed and not discharged the tax and other liabilities under the GST Act; 1.8 The above-mentioned short payment or non-payment of tax or wrongly availed/ utilized input tax credit or erroneous refund can be detected by carrying out verification of the correctness of self-assessed tax, by conducting scrutiny of returns or during the course of Audit conducted on the records of the taxpayer or during enquiry or investigation initiated against the taxpayer. 1.9 CGST Act, 2017, authorizes the Proper Officer to demand and determine the following amounts: (i) A tax which is not paid (Section 73 and Section 74) (ii) A tax which is short paid (Section 73 and Section 74) (iii) A tax which is erroneously refunded (Section 73 and Section 74) (iv) Wrongly availed Input Tax Credit (Section 73 and Section 74) (v) Wrongly utilized Input Tax Credit (Section 73 and Section 74) (vi) A tax which is collected but not paid (Section 76) (vii) A tax which is collected under the wrong head (Section 77). 1.10 Action to be taken under the provisions of GST law for recovery of the amount of tax not paid or short paid or Input Tax Credit wrongly availed/ utilized or amount erroneously refunded involves two major steps to demand such amount by issuing a Show Cause Notice and then to determine the amount of tax, interest and penalty payable by adjudicating the Show Cause Notice, i.e. by passing a Order after following the prescribed procedure. If any short-payment or non-payment of tax or incorrect availment or utilization of input tax credit or erroneous refund of tax to the taxpayer is noticed during the above-mentioned verification, then such short-paid or not-paid tax or wrongly availed input tax credit or erroneous refund of tax shall be demanded from the taxpayer along with applicable interest by following the due process prescribed under the CGST Act, 2017 and the CGST Rules, 2017. 1.11 Section 73 of the CGST Act, 2017 is the relevant legal provision for demand and determination of the tax short-paid or not-paid or wrongly availed input tax credit or erroneously refunded amount, in cases not involving fraud or willful misstatement or suppression of facts. In cases involving fraud or willful misstatement or suppression of facts, such amount has to be demanded and determined under the provisions of Section 74 of the CGST Act, 2017. 1.12 There can be situations where the taxpayer has collected the tax amount from the recipient of goods and/or services, i.e. their customers, but the same is not deposited into the Government account. In such cases, the amount of tax collected but not paid or deposited in the Government account is required to be demanded and determined under Section 76 of the CGST Act, 2017.