Applicability of Sec 73 or Sec 74, Goods and Services Tax - GST

[Krishna Murthy]

Sir,

In one situation, the proper officer has issued show cause notice to a case where GSTR 3B has been filed belatedly paying applicable taxes well before issue of show cause notice. However, interest on the same has not been paid. Does this situation give rise to application of Sec 73 or Sec 74. In my view there cannot be a application of Sec 73 or Sec 74 since, as per 73(1) or 74(1) there should be tax due (non payment, short payment or excess refund or excess ITC) to the department to attract the said sections.

So it is very clear that if there is no tax due on the date of show cause notice there cannot be a situation to issue the same under Sec 73 or Sec 74. Is this view correct? Please comment.

Of course, in the above situation, there can be recovery of interest u/s 79 read with Sec 75(12). But application of Sec 73 or 74 does not arise.

Posts / Replies

[Himansu Sekhar]

no it will not be a case of interest on gross liabillity. The range officer will carry out assessment under sec. 62. If you do not pay the tax then commencement of proceedongs will start under sec 73 or 74. section 73 or 74 commences with issuance of scn. investigations covered under ch. xix as mentioned in sec 36. section 73 or 74 are for determination after complete on of procedures under sec 59' 60, 61,62,70 etc.

[KASTURI SETHI]

Sh.Krishna Murthy Ji,

"So it is very clear that if there is no tax due on the date of show cause notice there cannot be a situation to issue the same under Sec 73 or Sec 74. Is this view correct? Please comment."

Your view is correct.

[Alkesh Jani]

Dear Experts,

Prima facie I agree with the views, but there can be other view also and is debatable.

As it is clearly mention in the provision "tax along with interest" which means on failure to pay tax interest becomes integral part of tax, so if interest is not paid, one can argue that it is short of payment.

Other argument can be where issuance of notice is mention, instead of word "tax" "an amount" is mentioned, so the amount may include "Tax and Interest". So non-payment of interest is not fulfilling the conditions laid down under Section 73 i.e. along with interest.

Section 75 comes into action only when tax, interest, penalty is quantified, under Section 73 or 74.

The above view is just for discussion and knowledge purpose.

Thanks

[Krishna Murthy]

Sir, the words used in 74(1) is interest payable there on, which means that there should be a tax payable determined in the show cause notice and interest should be on such tax. The words there on implies that there should be some determination of tax payable as a result of audit or verification etc.

[Alkesh Jani]

Shri

Please read the section 73, it is noticed that where any tax is not paid or short paid etc.” …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.” The tax is quantified as “amount” because tax is payable as per Section 49 of the Act. Once the tax payable is not paid the amount equivalent to tax is payable (amount of tax is not the “Tax”). So it becomes clear that amount specified in the notice, means tax, interest and penalty. Section 73 is held as provision for assessment and assessment includes “Self-assessment”.

In case of Section 74, which is for fraud, suppression etc. it is determined in case of scrutiny, search, investigation etc. therefore, interest payable thereon.

Thanks.

[KASTURI SETHI]

Dear Experts,

With due respect to all, my views are as under :-

For more clarification we have to go back to pre-GST era. In Central Excise Act, there was a separate Section 11 AA for recovery of interest and Section 11 A for recovery of Central Excise duty. Similarly, in Service Tax law, there was a separate Section 75 of the Finance Act for recovery of Service Tax and a separate Section 73 for recovery of Service Tax. The words, 'amount specified' also existed therein. The words, 'amount specified' do not include interest and penalty. These words include only Service Tax. In CGST Act, there are separate Sections for recovery of tax, interest and penalty.

If tax is recovered under Section 73 or Section 74 of CGST Act, interest will be applicable on gross liability instead of net cash liability.

[NEERAJ KUMAR, RANCHI]

Dear Mr Krishnamurti, In CGST there is not need to issue SCN for interest. If demand of tax is confirmed or self declared , interest can be recovered directly.

[Krishna Murthy]

Sir, in continuation to the above discussion, in the above situation even if it is concluded that Sec 73 or 74 is applicable, show cause notice can be issued to the extent of interest alone since tax was already paid at the time of filing GSTR 3B. Am i correct. This query is specifically asked in view of penalty imposed in the Sec. Since, penalty is certain percentage of tax, is there any chance of imposing penalty on whole tax for non payment of interest alone.

In my view, only interest amount alone should form of show cause notice and penalty if any should also be proposed on percentage of interest depending on time limits (after date of SCN or after date of Order) mentioned in the Section. Correct me if I am wrong.

[ABHISHEK TRIPATHI]

Dear Krishna Murthy Sir,

You views are absolutely right. Totally in agreement with your understanding.

Interest is by default according to Sec. 50. Explicitly 75(12) states that the interest (which is determined in accordance with Sec. 50) remains unpaid then department shall recover it under Sec. 79 proceeding.

The interest mentioned under section 73 and 74 – In my view, interest is there for the convenience of the Noticee as well as the department. While adjudicating the notice, it's better to have all liabilities in one place, hence, the determination is for tax, interest and penalty.

If the notice doesn't even mention ‘interest’ or adjudication is only for tax and penalty then also you cannot get away from the rigors of interest liability. [See. 75(9)]

For interest, SCN (if any) should be under Section 50. And thereafter recovery proceeding. Other view, there is no adjudication of interest liability, interest is a by default liability. Even, it may be argued that do we even need SCN for Interest? If no adjudication is involved then why show cause the noticee, the department may directly send you the amount of interest payable and on default initiate recovery proceeding. With a caveat that the noticee is not contesting the tax/ITC liability.

Excellent observation made by Alkesh Sir. My views on that:

73(7) says if the 'amount' actually payable under 73(5) falls short then the department may Issue notice under 73(1). The question being what is the amount u/s. 73(5), is it tax/ITC along with interest or only tax/ITC? [Mind you ITC is missed u/s. 73(5)]

In my view, it is only tax/ITC. For two reasons, (i) 75(5) says ‘amount of tax’ along with interest, which means the amount they want to convey is only tax, and (ii) Notice u/s. 73 (1) is restrictedto tax/ITC, because even 73(1) says that interest is payable u/s. 50. On a conjoint reading of these two reasons, my view, it is only restricted to tax/ITC. This 73(7) is the situation when you have wrongly determined the tax liability and then department thinks that still taxes to be recovered then they will proceed under 73(7) and issue a notice under 73(1).

[KASTURI SETHI]

SH.ABHISHEK TRIPATHI JI,

Sir, I really relished your interpretation and analysis. Agreed in toto.

[Alkesh Jani]

Shri

The efforts made is really applicable. If the heading of each section which gives the clear context is to be taken into consideration.

There are different situation where different Section can be invoked. The heading of Section 75 "75. General provisions relating to determination of tax.-..." means the provisions is to be followed for determination. This section can be procedural or mechanical provision. further simplifying after following this provision Section 73 or Section 74 can be invoked.

Section 75(12) clearly speaks for the situation i.e. filing of return under Section 39. Even Section 79 heading is for recovery of tax.

Section 73 is charging provision and has to be interpreted strictly. In other words all the conditions laid down is required to be fulfilled. 73(5) says tax to be paid along with interest and to inform the officer in writing. If any of the condition is not fulfilled than it cannot be said that tax is paid.

For example, if there is liability of tax is of ₹ 100 and 30 towards interest assuming the interest is not paid and only amount of tax is paid. Then show cause may contain "as to why the amount of ₹ 100 should not be appropriated towards tax liability and why Interest amounting to ₹ 30 should not be recovered."

In the above the tax of ₹ 100 and interest of ₹ 30 the total amounts to ₹ 130 and if only ₹ 100 is paid it is short of amount.

This view is for discussion only.

Thanks

[Alkesh Jani]

Please read "appreciable" instead of "applicable. Typing error may please be corrected.

[Krishna Murthy]

Respected Experts, in the case of M/S. RAJKAMAL BUILDER INFRASTRUCTURE PRIVATE LIMITED THROUGH DIRECTOR MAHENDRA H PATEL VERSUS UNION OF INDIA reported in 2021 (3) TMI 1139 has held that DRC 01 cannot be issued for recovery of interest on delayed payment of tax. By this it means that where tax alone is paid in GSTR-3B, and interest there on is due then it cannot be a case where SCN can be issued. Please comment on this.

[ABHISHEK TRIPATHI]

Dear Krishna Sir,

DRC-07 is a summary of the order. If we follow the logic of not serving DRC-01 then the same applies to DRC-07.

Logic for DRC-01: Section 50 is not mentioned under rule 142(1)(a).

Whether 142(5) for DRC-07 has section 50 in it? No right.

relevant extract:

16. Rule 142 makes it clear that the order referred in sub-­rule (5) shall be treated as the notice for recovery.

17. From the aforesaid, we have reached to the conclusion that the notice should have been issued in Form GST DRC 07. The Notice should specify the amount of tax, interest and penalty payable by the person chargeable with tax.

[SHARAD ANADA]

Jarkhand HC in the case of Godavari commodities Ltd. Vs. Union of India - 2019 (12) TMI 275 - JHARKHAND HIGH COURT