GST Procedure related to demands and recovery

INTRODUCTION

Like in any other tax collection system, in GST regime also there may be situations where:

• no tax was paid
• taxes were short paid
• there was non-levy or short levy
• there fund granted was erroneous
• the availment / utilization of input tax credit was wrong
• there was fraudulent evasion of tax.

In all such situations, a demand has to be raised and recovery proceedings initiated on the taxpayer for the various situations mentioned above. These proceedings relating to demand and recovery start with the issuance of a show cause notice by the taxman on the taxpayer and these conclude by issuance of an adjudication order, and subsequent recovery of tax, fine, penalty, etc., as applicable.

Demands have been categorised into two categories, i.e., normal period demands which can extend up to 3 years from the date of filing of annual return. Such demands which shall be without an element of allegation of fraud, wilful misstatement, or suppression of facts to evade tax shall require to be show caused at least 3 months prior to 3 years of time limit period with adjudication being time bound and shall be required to be completed within a period of 3 years by the Adjudicating Authority.

Second category of demand shall be for an extended period which can go up to 5 years from annual return and such demands can be invoked on grounds of fraud, wilful misstatement, or suppression of facts to evade tax. Such demands will attract a mandatory penalty of 100% of du ty amount. Unlike Central Excise the words "intent" is missing with ex pression "to evade", but same may not have much effect, as the same is inbuilt in fraud, wilful misstatement, and suppression.

The incidence of short payment of tax or erroneous refund or wrong availment of input tax credit may be because of an inadvertent bona fide mistake (normal cases) or it may be a deliberate attempt (fraud cases) to evade the tax. Since the nature of offence is totally different in both, therefore, separate pro visions for recovery of the tax and the amount of penalty have been made to deal with such type of cases. Besides these, there are provisions to encourage voluntary compliance such as no penalty or lesser penalty.

ENCOURAGING VOLUNTARY COMPLIANCE

The incidence of short payment and non-payment of tax, wrong availment of Input Tax Credit, etc. may be because of an inadvertent bona fide mistake (Normal Cases) or it may be a deliberate attempt (Fraud Cases) to evade the tax. Since the nature of offence is totally different in both the incidences, separate provisions for recovery of the tax and the amount of penalty have been made to deal with such type of cases. Besides these, 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. The table below gives a comprehensive chart of provisions for voluntary compliance:

Thus, there are incentives for the person who accepts tax liability and readily discharges the same. The law provides an opportunity for the payment of tax, interest and a nil or nominal penalty (depending on the nature of offence) before the issuance of notice and emphatically stipulates that in all such cases, no. notice shall be issued and consequently there shall be no other consequences for any default.

FURTHER ACTIONS

In spite of these opportunities, if it becomes inevitable to issue a show cause notice and thereafter pass an order, the GST Act ensures timely completion of all these procedures by providing a fixed timeline for issuance of notice and order.

GENERAL DISCIPLINES RELATING TO DETERMINATION OF TAX

1. Opportunity of personal hearing shall be given to the taxpayer.
2. Adjournment maximum 3 times to each party.
3. Amount demanded in order must not exceed the amount mentioned in SCN
4. Interest is payable whether or not determined in the Order.
5. Officer issuing Order must be different from him who issued SCN.
6. Adjudication proceedings deemed to be concluded if not decided within stipulated time period.
7. Where the service of notice is stayed by an order of a Court or Appellate Tribunal, the period of such stay shall be excluded.
8. Order passed by the Proper Officer shall be a Speaking Order.
9. The Interest shall create automatic charge whether or not specified in the order determining the tax liability.
10. Direct recovery proceedings U/s 79 shall be initiated for any pending self-assessed tax liability along with interest in accordance with the returns furnished either GSTR-1 or GSTR-3B.

SOME RELEVANT CASE LAWS

EXTENDED PERIOD

• Where Notice does not allege suppression, etc with intent to evade, extended period (U/s 74) cannot be invoked. - Jagron Machine Tools vs CCE, [1993 (65) ELT 300 (CEGAT - New Delhi)]
• Extended period of Limitation would not apply, if assessee had bona fide belief. - Mitul Engineering Services vs CCE, [ (2011) STT 289 (CESTAT - New Delhi)] and Sunil Metal Corpn. Vs CCE, [ (2010) STT 473 (CESTAT - Ahmedabad Branch)]

PERSONAL HEARING

• The Supreme Court observed that personal hearing enables the concerned authority to watch the demeanour of the witness etc and also clear up his doubts during the course of the arguments. - Automative Tyre Manufacturers Asson. Vs Designated Authority, [ (2011) 263 ELT 481 (Supreme Court)]
• A Personal Hearing is not required in an application for a stay. - Union of India vs Jesus Sales Corporation, [ (1996) 83 ELT 486 (Supreme Court)]

PRINCIPLES OF NATURAL JUSTICE & SCN

• SCN should necessarily comply with the Principle of Natural Justice. - East India Commercial Co. Ltd. Vs Collector of Customs, [ (1983) 13 ELT 1342 (Supreme Court)]
• Where Show-Cause Notice is not issued, demand of tax and interest is not sustainable. - Diamond Cables vs CCE, [ (2005) 1 STT 91 (CESTAT - Mumbai)]

NOTICE ONLY ON EMAIL

• Notice sent on email, but not uploaded on GSTN is not valid. - Akas Garg vs State of Madhya Pradesh, [TS(DB)-GST-HC(MP)-2020-724]
• The SCN/Order communicated to petitioner by email and not uploading on Website of the revenue is no communication as per the law. - Ram Prasad Sharma vs Chief Commissioner, [ (2021) 124 taxmann.com 280 (High Court - Madhya Pradesh)]

LETTERS ARE NOT NOTICE

• Letters issued in the form of suggestion or advice cannot be regarded as SCN. - Metal Forgings vs UOI, [ (2002) 146 ELT 241 (Supreme Court)]
• Notice must be in Writing. In case of absence of a Notice in Writing the Principles of Natural Justice had not been applied. - Voltas Ltd. Vs CCE, [ (2000) 121 ELT 802 (CEGAT - Bangalore)]

NO NOTICE = NO DEMAND

• Demand will not sustain without issueance of Show Cause Notice. - Prabhat For

NO NOTICE = NO PENALTY

Assessee can't be forced to pay penalty if show cause notice is not issued. - D. Rama Kotiah & Co. vs State of Andhara Pradesh, [ (2019) 111 taxmann.com 536 (High Court - Telangana)]

MEMO BEFORE SCN

Vide Notification No. 49/2019-Central Tax, dated 9-Oct-2019, Rule 142of CGST Rules has been amended to provide for service of Form GST DRC-01A providing the details of tax, interest and penalty as ascertained by the officer before service of any SCN. If the assessee partially pays such tax, interest or penalty or the assesee needs to make some submissions, the assesee will be required to file the details in Part B  of Form GST DRC-01A.

DOCUMENT IDENTIFICATION NUMBER (DIN)

Generation and quoting of DIN on any communication issued by the Officers of the CBIC to the tax payers and other concerned persons. - Circular No. 122/41/2019-GST dated 05-Nov-2019 read with Circular No. 128/47/2019-GST dated 23-Dec-2019

MONETARY LIMITS TO ISSUE SCN'S

CBIC have prescribed the monetary limits within for issuance of Show Cause Notices as per Circular No. 31/05/2018-GST, dated 09-Feb-2018 which is as follows:

CONCLUSION

As per Section 2 of the CGST Act'2017, the term assessment means "Determination of Tax Liability" under this act and includes self-assessment, re-assessment, provisional assessment, summary assessment and Best Judgement Assessment. Summary assessment and best judgement assessment have to be done by the Proper Officer and after computation demand have to be made. But the Provisions of Demand of GST starts with the issuance of Show Cause Notice under section 73 (Normal case within 3 year), under Section 74 (Fraud cases within 5 years) and ends with issuance of Adjudication Order. Show Cause Notice in all cases should follow the Principal of Natural Justice and provide an opportunity of being heard to the assessee before passing of any adverse order.1