New provision from Jan 1: GST officials to make surprise recovery visits - Article at Business Standard dated 23-Dec-2021. In this article It further mentions that, "Come January and the government is empowered to send its recovery officials to your premises to collect GST without notice, if your tax liability shown in the requisite form is less than what invoices, mentioned in the outward supply form, should draw."
Zee News in their article dated 22-Dec-2022 wrote that, "From Jan 1, GST officials can directly recover for mismatch in sales in GSTR-1, 3B. Come January 1, GST officers can directly initiate recovery action against errant businesses that show higher sales in monthly return GSTR-1 but under-report it while tax payment in GSTR-3B."
Introduction
After reading such news items what I understood was that from 1st January 2022, the GST officers can initiate recovery proceedings without any show-cause notice against taxpayers who under-report sales in GSTR-3B compared to GSTR-1. Is this completely True?
No, It's partially correct.
Amendment to Section 75
Relevant Extracts of Sub-Section (12) of Section 75 of CGST Act'2017
"Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79."
Explanation to this Sub-Section (12) of Section 75 of CGST Act'2017 is inserted w.e.f. 1st January,2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021 which is as follows:
"For the purposes of this sub-section, the expression "self-assessed tax" shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39."
Section 37 deals with Details of Outward Supplies i.e. GSTR-1, Section 39 is of Furnishing of GST Return i.e. GSTR-3B etc and Section 73/74 are for Determination of Tax in case of bona-fide cases and mala-fide cases respectively.
As we all aware that we discharge Tax Liability as per GSTR-3B and therefore the Tax Liability was also construed as per GSTR-3B. But with this Explanation, the Tax Liability will now be as per GSTR-1. In case where Tax Liability is higher in GSTR-1 and Less Tax Liability has been discharged then this amendment would come to play its role.
Recovery Mechanism in GST Laws
Section 79 deals with Recovery of Tax. But this recovery is always subject to Section 78 i.e. Initiation of Recovery Proceedings which is as follows:
"Any amount payable by a taxable person in pursuance of an order passed under this Act shall be paid by such person within a period of three months from the date of service of such order failing which recovery proceedings shall be initiated:
Provided that where the proper officer considers it expedient in the interest of revenue, he may, for reasons to be recorded in writing, require the said taxable person to make such payment within such period less than a period of three months as may be specified by him."
When we read this Section 78 it clearly states that recovery proceedings can only be initiated after 3 months from the date of service of order. This Order must be an assessment order which could be issued U/s 73/74 of CGST Act'2017 as the case may be.
Show Cause Notice is Mandatory before Such Recovery
Where ever any such amount of tax, self-assessed by the registered person in his outward supply statement GSTR-1 is found to be short paid or not paid by the said person through his GSTR-3B return in terms of the provisions of sub-section (12) of section 75 of the Act, the proper officer may send a communication (with DIN, in terms of guidelines issued vide Circular No. 122/41/2019-GST dated 5th November 2019) to the registered person to pay the amount short paid or not paid, or to explain the reasons for such short payment or non-payment of self-assessed tax, within a reasonable time, as prescribed in the communication.
If, the concerned person is able to justify the differences between GSTR-1 and GSTR-3B, or is able to explain the reasons of such short-payment or non-payment of tax, to the satisfaction of the proper officer, or pays the amount such short paid or not paid, then there may not be any requirement to initiate proceedings for recovery under section 79.
However, if the said registered person either fails to reply to the proper officer, or fails to make the payment of such amount short paid or not paid, within the time prescribed in the communication or such further period as may be permitted by the proper officer, then the proceedings for recovery of the said amount as per provisions of section 79 may be initiated by the proper officer.
Further, where the said registered person fails to explain the reasons for such difference/ short payment of tax to the satisfaction of the proper officer, then the proper officer may proceed for recovery of the said amount as per provisions of section 79.
Pre-Notice Communication
The Proper Officer may, before issue of Notice (Show Cause Notice) in Form DRC-01, communicate details of tax, interest and penalty ascertained by the GST Officer in past "A" of Form DRC-01A. The provisions of pre-notice communication have been made to enable the taxable person to make payment on own before receipt of proper Show Cause Notice.
This provision of Pre-Notice communication was inserted vide Rule 142(1A) of CGST Rules wef 9-Oct-2019 and amended on 15-Oct-2020 [earlier, the word "may" was "shall"]
Exclusions for Genuine Cases
As GST is a new Law with frequent changes there could be some cases where there may be a genuine reason for difference between the details of outward supplies declared in GSTR-1 and those declared in GSTR-3B.
For example, the person may have made a typographical error or may have wrongly reported any detail in GSTR-1 or GSTR-3B. Such errors or omissions can be rectified by the said person in a subsequent GSTR-1/ GSTR-3B as per the provisions of sub-section (3) of section 37 or the provisions of sub-section (9) of section 39, as the case may be.
There may also be cases, where a supply could not be declared by the registered person in GSTR-1 of an earlier tax period, though the tax on the same was paid by correctly reporting the said supply in GSTR-3B. The details of such supply may now be reported by the registered person in the GSTR-1 of the current tax period.
In such cases, there could be a mismatch between GSTR-1 and GSTR-3B (liability reported in GSTR-1 > tax paid in GSTR-3B) in the current tax period.
Therefore, in all such cases, an opportunity needs to be provided to the concerned registered person to explain the differences between GSTR-1 and GSTR-3B, if any, and for short payment or non-payment of the amount of self-assessed tax liability, and interest thereon, before any action under section 79 of the Act is taken for recovery of the said amount.
Considering these cases CBIC have issued Instruction No. 01/2022-GST dated New Delhi: 07.01.2022 to deal with such cases.
No Penalty if tax paid with Interest within 30 days of SCN
GST Laws promote voluntary compliance. There are provisions to encourage voluntary compliance, such as no penalty or lesser penalty, if the tax dues along with interest are paid within the specified time limit. Therefore, in cases of bona-fide mistakes/error if the amount is paid along with interest before issue of SCN of within 30 days of issuance of notice all proceedings deemed to be concluded and no penalty shall be payable.
Conclusion
Thus, after going through above mentioned discussion the apprehension of unauthorised visits of the GST officials to the premises of the taxpayers for such recoveries is totally unfounded. Before taking any recovery action due opportunity would be provided to taxpayers to explain the difference in GSTR-1 and GSTR-3B in cases where bona-fide errors are committed in reporting details of outward supplies in GSTR-1. CBIC have already issued suitable guidelines to field formations for proper implementation of above provisions.
Request & Appeal
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