Validity of DRC-01 Received U/S 73 Dated 28/09/2023 for FY 2017-18 by a Composite Dealer, Goods and Services Tax - GST

[KAMAL SETHI]

Dear Friends

I am seeking your opinion on the validity of a DRC-01 notice u/s 73 received on 28/09/2023 concerning the FY 2017-18. The key details and timeline are as follows:

1. The notice pertains to payment of tax due on stock held in July 2017-18 when the dealer migrated from the regular VAT scheme to the Composite Scheme.
2. As per Section 73(1) and Section 73(10) of the CGST Act, 2017, a show cause notice must be issued at least three months prior to the time limit of three years from the due date for furnishing the annual return for the relevant financial year. For FY 2017-18, the due dates for the annual return were 5th & 7th Feb, implying the order can be issued up to 4th & 6th Feb respectively.
3. However, with Notification No. 13/2022-Central Tax dated 5th July, 2022 the time limit specified under sub-section (10) of section 73 for issuing an order for FY 2017-18 was extended to 30th September, 2023.
4. With the above notification, the deadline for issuing the SCN under section 73(1) was automatically extended to 30th June, 2023.

Given that the DRC-01 was issued on 28/09/2023, it seems to be notice is issued beyond extended deadlines. However, I would like your expert opinion on the validity of this notice and any potential nuances or overlooked aspects that may be beneficial to our case like applicability of time limit in case of composite dealer or applicability of section 74.

Thank you for your time and expertise.

Posts / Replies

[Padmanathan Kollengode]

Pls see Notification NOTIFICATION NO. 09/2023 – CENTRAL TAX dated 31-03-2023

S.O.1564(E).— In exercise of the powers conferred by section 168A of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereinafter referred to as the said Act) read with section 20 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), and section 21 of the Union territory Goods and Services Tax Act, 2017 (14 of 2017) and in partial modification of the notifications of the Government of India, Ministry of Finance (Department of Revenue), No. 35/2020-Central Tax, dated the 3rd April, 2020 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 235(E), dated the 3rd April, 2020 and No. 14/2021-Central Tax, dated the 1st May, 2021 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 310(E), dated the 1st May, 2021 and No. 13/2022-Central Tax, dated the 5th July, 2022, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 516(E), dated the 5th July, 2022, the Government, on the recommendations of the Council, hereby, extends the time limit specified under sub-section (10) of section 73 for issuance of order under sub-section (9) of section 73 of the said Act, for recovery of tax not paid or short paid or of input tax credit wrongly availed or utilised, relating to the period as specified below, namely:–

(i) for the financial year 2017-18, up to the 31st day of December, 2023;

(ii) for the financial year 2018-19, up to the 31st day of March, 2024;

(iii) for the financial year 2019-20, up to the 30th day of June, 2024.

[Amit Agrawal]

I concur with Shri PadmanathanJi and query raised is duly answered by him that there is no delay in issuance of SCN in given case.

However, I do not think I understood the cause of SCN. What do you mean by 'The notice pertains to payment of tax due on stock held in July 2017-18 when the dealer migrated from the regular VAT scheme to the Composite Scheme'?

Are you referring to Section 18(4) of the CGST Act, 2017 or issue involved is something else?

Can you please elaborate the cause of SCN?

These are ex facie views of mine and the same should not be construed as professional advice/suggestion.

[KAMAL SETHI]

Thank you, Padmanathan ji and Amit Sir for your insights. SCN was issued concerning the stock held on July 1st, 2017. However, the corresponding ITC for that stock was zero as of June 30th, 2017. Given that the dealer has chosen to transition into the composite scheme, he is now liable to pay GST on that particular stock. May I inquire if there is any available remedy to address the said SCN

[Padmanathan Kollengode]

Sir,

you mean to say there were x nos. of stock held by you on 1-7-2017 and you have not taken any ITC on thos stock as transitional credit.

So when you have sold these x nos. stock after 1-7-2017, wont it be part of your turnover on which you would have paid 1% tax under composition scheme?

So what is the cause of the demand arising now?

[KASTURI SETHI]

Sh.Kamal Sethi Ji,

(i) The SCN is not time barred.

(ii) Regarding time limitation for issuance of SCN under Sections 73 (10) and 74(10), have you gone through Board's Instruction No. 2/2021-22/GST-Investigation, dated 22-9-2021 ?

[KASTURI SETHI]

My views are as under :-

(i) GST laws are silent on the issue.

(ii) In my view, in this scenario, in case stock lying as on 30.6.17 suffered VAT, GST is not required to be paid on that stock because it will amount to double taxation.

(iii) GST is payable on that stock only if VAT was not paid.

(iv) As per FAQ dated 5.7.17, VAT credit was not allowed to be carried forward in TRAN-1 and 2. Otherwise also Composition Scheme does not allow ITC.

Disclaimer : These are my personal views for education purpose and not meant for legal and court proceedings.