Demand of Tax Under GST By Tax Authorities

Failure to pay tax by the GST laws may lead to the initiation of provisions for demand and recovery under GST.GST is payable on a self-assessment basis, meaning the taxpayer must determine their tax liability. If the taxpayer's assessment is incorrect, such as underpaying taxes, not paying any tax, improperly using input tax credit, or ITC has been mistakenly refunded, then in such situations, demands will be raised by GST authorities.

Types of Demand under GST

The GST officials can issue GST demand notices for short payment or non-payment of GST in the following two different situations:

1. When there is no reason for fraud or wilful misstatement or suppression of facts.
2. When there is a reason for fraud or wilful misstatement or suppression of facts.

GST Demand when there is No Fraud or Misrepresentation

A demand notice under Section 73 of the GST Act is issued in cases where there is no indication of fraud, wilful misstatement or suppression of facts, i.e., without any intention to evade tax:

• Tax is unpaid/short paid or,
• Refund is wrongly made or,
• The input tax credit has been wrongly availed/utilised

The GST officer, will issue a notice to the taxpayer explaining the reasons. They will be required to pay the due amount, interest, and penalties.

Time Limit for Issue of Notice and Adjudication under Section 73

The proper officer must issue the show-cause notice at least three months before the prescribed time limit. Once the notice above has been issued within the stipulated time frame, the proper officer can provide a statement detailing any unpaid tax, incorrect refunds, etc., for periods not covered in the notice. It is not necessary to issue a separate notice for each tax period.

The proper officer will have to issue a demand order within 3 years from the due date of filing the annual return for the year in respect of which the main offense is committed and in case of erroneous refund the demand order can be issued within 3 years from the date of erroneous refund.

Voluntary Payment

An assessee has the option to voluntarily pay taxes along with interest before the issuance of a notice or statement and inform the departmental officer in writing. If the departmental officer is satisfied, they will refrain from issuing a notice regarding the same.

Penalty

As per Section-73(8), if the taxpayer settles all dues within 30 days from the date of the notice, the penalty will not be applicable. All proceedings related to the notice shall be deemed to be closed.

If any amount of self-assessed tax or any amount collected as tax has not been paid within a thirty days from the due date of payment, a penalty equivalent to ten percent of the tax amount or ten thousand rupees, whichever is higher, is applicable to the person liable.

GST Demand when there is a Fraud

A demand notice under Section 74 of the GST Act is issued in cases where there is indication of fraud, wilful misstatement or suppression of facts, i.e., with an intention to evade tax:

• Unpaid/short paid tax or,
• Wrong refunds or,
• Wrongly availed/utilised input tax credit

The GST officer, will issue a show cause notice to the taxpayer explaining the reasons. The taxpayer will be required to pay the due amount along with interest and penalties.

Time Limit for Issue of Notice and Adjudication under Section 74

The officer must issue a notice for the recovery of tax at least six months before the time limit. Once the aforementioned notice has been issued within the stipulated time frame, the proper officer can provide a statement detailing any unpaid tax, incorrect refunds, etc., for periods not covered in the notice. It is not necessary to issue a separate notice for each tax period.

If there is any non-payment, short payment or if input tax credit has been wrongly availed or utilized due to fraud, willful misstatement or suppression of facts, the case should be adjudicated within five years from the date of filing the annual return for the relevant financial year & in case of erroneous refund, the demand order can be issued within 5 years from the date of erroneous refund.

Voluntary Payment

An assessee can voluntarily pay taxes along with interest and a 15% penalty before the issuance of a notice or statement and must inform the departmental officer about the same in writing. If the departmental officer is satisfied, they will refrain from issuing a notice regarding the same.

Penalty under Section 74 of GST Act

Section 75 of GST Act

Section 75 of the CGST Act deals with general provisions related to the determination of tax and demand under GST. The following are some of the important provisions under Section 75 of the GST Act.

Stay of Notice

If the service of notice or issuance of an order is stayed by an order of the Court or Appellate Tribunal, the period of such stay will be excluded while computing the three-year or five-year time limit for the issuance of notice or adjudication.

No Fraud or Wilful Misrepresentation

If any Appellate Authority, Appellate Tribunal or Court concludes that the notice issued under Section 74 is not sustainable because the charges of fraud, willful misstatement or suppression of facts to evade tax have not been established, the officer shall determine the tax payable as if the notice were issued under Section 73.

Time Limit for Passing Order

Where any order is required to be issued following the direction of the Appellate Authority, Appellate Tribunal or a court, such order should be issued within two years from the date of communication of the said direction.

Opportunity for Being Heard

An opportunity for a hearing should be granted in cases where a written request is received from the person liable for tax or penalty, or where any adverse decision is contemplated against such person.

Maximum Adjournments Allowed

If the person liable for tax shows sufficient cause, the proper officer shall grant them time and adjourn the hearing, stating the reasons in writing. However, such adjournment shall not be granted to a person more than three times during the proceedings.

Limitations

The amount of tax, interest, and penalty demanded in the order shall not exceed the amount specified in the notice, and no demand shall be confirmed on grounds other than those specified in the notice.

If a penalty is imposed under section 73 or section 74, no further penalty for the same act or omission shall be imposed on the same person under any other provision of this Act.

If the order is not issued within three years as stipulated in subsection (10) of section 73 or within five years as stipulated in subsection (10) of section 74, the adjudication proceedings shall be deemed concluded.

Applicability of Interest

Interest on the tax that is short-paid or not paid shall be payable, whether or not specified in the order determining the tax liability.

FAQ’s

Q1. What is Section 73 of the CGST Act?
Ans. A demand notice under Section 73 of the GST Act is issued in cases where there is no indication of fraud, wilful misstatement or suppression of facts, i.e., without any intention to evade tax in a way of tax is unpaid/short paid or refund is wrongly made or the input tax credit has been wrongly availed/utilised.

Q2. What is Section 74 of the CGST Act?
Ans. A demand notice under Section 74 of the GST Act is issued in cases where there is indication of fraud, wilful misstatement or suppression of facts, i.e., with an intention to evade tax in a way of Unpaid/short paid tax or Wrong refunds or Wrongly availed/utilised input tax credit.

Q3. What is the penalty under Section 73 of the CGST Act?
Ans.

Q4. What is the penalty under Section 74 of the CGST Act?
Ans.

Q5. What does Section 74(5) of the CGST Act mean?
Ans. Section 74(5) of the CGST Act allows taxable can voluntarily pay taxes along with interest and a 15% penalty before the issuance of a notice or statement and also inform the departmental officer about the same in writing.

Q6. What does Section 73(5) of the CGST Act mean?
Ans. Taxpayers have the option to voluntarily pay taxes along with interest before receiving any notice or statement from the departmental officer. They also inform the officer in writing about their voluntary payment.

Q7. What is a GST Demand Notice?
Ans. A GST Demand Notice is a formal communication issued by the tax authorities to demand payment of outstanding tax along with any applicable interest and penalties. It is issued after the taxpayer has been served with a Show Cause Notice (SCN) and has been given an opportunity to respond.

Q8. What does Section 73(9) of the CGST Act entail?
Ans. Section 73(9) of the CGST Act stipulates that after considering any representation made by the person liable to pay the tax, the proper officer shall determine the amount of tax, interest and penalty. The penalty shall be an amount equal to ten percent of the tax due or ten thousand rupees, whichever is higher, and shall issue an order accordingly.

Q9. What is Section 73(10) of the CGST Act?
Ans. Section 73(10) of the CGST Act states that the proper officer must issue a demand order within three years from the due date of filing the annual return for the relevant year or within three years from the date of erroneous refund.

Q10. What does Section 73(8) of the CGST Act mean?
Ans. As per Section-73(8), if the taxpayer settles all dues within 30 days from the date of the notice, the penalty will not be applicable. All proceedings related to the notice shall be deemed to be closed.

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