Fraud and non-fraud cases are different from one another, and hence the tax and penalty amount with its provisions are also different. Let's find out what are the implications of both fraud and non-fraud cases in GST.
First, let's understand what consists the nature of the offense. The nature of the offense will be then judged as fraud and non-fraud cases. The instances are:
- Determination of Tax not paid
- Determination of Tax short Paid
- Determination of amount erroneously refunded
- ITC wrongly availed
- ITC wrongly utilized
The incidences mentioned above may be because of some bonafide reason which is said to be a non-fraud case or it may be a deliberate attempt to evade tax and hence will be said to be a fraud case.
Section 73 and 74 of the CGST ACT deals with the related provisions. Let' s have a birds-eye view of the provisions dealing with these sections, before analyzing them in detail.
|
Cases |
Section 73 |
Section 74 |
|
Position of non-payment or short payment |
Bonafide case |
Willful intentions, fraudulent and suppression cases to evade the tax amount |
|
Scheme of Voluntary Payment available |
Yes |
Yes |
|
Voluntary Payment- Before issuance of SCN |
Tax Amount + Interest Amount |
Tax Amount + Interest Amount + Penalty Amount (15% of tax) |
|
Voluntary Payment- Within 30 days of serving SCN |
Tax Amount + Interest Amount + Penalty Amount (25% of tax) |
|
|
Voluntary Payment- After 30 days of serving SCN but before the final order |
Tax Amount + Interest Amount + Penalty Amount (10% of tax amount or Rs 20,000* whichever is higher) |
Tax Amount + Interest Amount + Penalty Amount (50% of tax) |
|
Voluntary Payment- Within 30 days of the final order |
||
|
Voluntary Payment- Beyond 30 days of the final order |
Tax Amount + Interest Amount + Penalty Amount (100% of tax) |
|
|
Time Limit of issuance of SCN |
At least 3 months prior to the last date for passing the final order |
At least 6 months prior to the last date for passing the final order |
|
Time Limit to pass Final Order |
3 years from the due date of the corresponding final return |
5 years from the due date of the corresponding final return. |
*(Rs 10,000 as per CGST Act + Rs 10,000 as per SGST Act = Rs 20,000)
SECTION 73 OF THE CGST ACT
Section 73 deals with non-fraud cases. Show cause notice is issued under this section when it appears to the proper officer that the tax was evaded by mistake and does not involve any willful intentions.
In such SCN the proper officer communicates through a statement stating details of the tax dues for the periods along with the interest and penalty if any. It is obvious that the SCN also states the grounds based on which the demand has been raised.
Time Limit for issuing the Final Order and the SCN
The person who is said to be involved in evading taxes due to reasons not involving willful intention will be served the final order within 3 years from the due date of furnishing the annual return for the financial year to which the tax dues are payable.
The SCN discussed above shall be issued by the proper officer at least 3 months prior to the time limit of passing the final order.
Where an SCN is issued the person can furnish a declaration. He may state that he is of the view
that he is not liable to pay the whole or part of the amount as mentioned in the SCN. The PO after considering the representation pass an order determining the amount liable.
For Example, let's say in the FY 2020-21, there exists some tax due payable due to any of the reasons mentioned above. The due date of filing the annual return for FY 2020-21 is 31st December 2021. The final order under Section 73 can be served within 3 years from the due date of the annual return, i.e it can be served till 31st December 2024. The SCN shall be issued within 3 months prior to the time limit of passing the final order, i.e it shall be issued by 30th September 2024.
Quantum of interest and penalty
The interest payable is covered in Section 50 of the Act. As notified by Notification No 13/2017 CT dated 28.06.2017, the interest rate is 18% p.a.
The quantum of penalty added shall be 10% of the tax due amount of Rs 10,000 whichever is higher. It should be noted that Rs 10,000 is multiplied by two, because of two acts CGST and SGST Act. The fixed amount mentioned is only for the CGST Act. Thus, the penalty amount shall be 10% of the tax due or (Rs 10,000 X 2) Rs 20,000 whichever is higher.
For Example: If the tax due is Rs 10 Lakh, then the amount of penalty will be Rs 1 lakh or Rs 20, 000 whichever is higher, which is Rs 1 Lakh.
Waiving off Penalty in certain cases
The provisions allow relief concerning the payment of a penalty in two cases.
Case 1: The law also provides an opportunity for voluntary payment before the issuance of the SCN. In such a case the person with tax due payment can pay the dues along with the interest. In such a case the department does not issue an SCN and the person is not required to pay the penalty amount.
However, in case of short or partial voluntary payment, the proper officer can issue an SCN for such amount which falls short of the amount payable.
Case 2: If the person with tax dues pays the amount of due along with the interest within 30 days of the issue of the SCN, then the amount of penalty is waived off and all the procedures relating to the said SCN will be concluded.
SECTION 74 OF THE CGST ACT
Section 74 deals with fraud cases. Show cause notice is issued under this section when it appears to the proper officer that the tax was evaded by reasons of fraud, willful intentions, or any suppression of facts to evade the tax payment.
In such SCN the proper officer communicates through a statement stating details of the tax dues for the periods along with the interest and penalty if any. It is obvious that the SCN also states the grounds based on which the demand has been raised.
The main difference lies between Section 73 and Section 74 is the intention of fraud. If the proper officer is of the view that the offense involves willful intension to evade tax or the intention involves suppression of facts, the officer shall issue the notice under Section 74 of the Act. The onus to prove that the intention involves fraud lies on the proper officer.
Persons aggrieved by the proper officer' s stand can file an appeal to the appellant authority under Section 107 of the Act.
Time Limit for issuing the Final Order and the SCN
The person who is said to be involved in evading taxes due to reasons involving willful intention will be served the final order within 5 years from the due date of furnishing the annual return for the financial year to which the tax dues are payable.
The SCN discussed above shall be issued by the proper officer at least 6 months prior to the time limit of passing the final order.
Where an SCN is issued the person can furnish a declaration. He may state that he is of the view that he is not liable to pay whole or part o the amount as mentioned in the SCN. The PO after considering the representation shall pass an order determining the amount liable.
For Example: Let' s say in the FY 2020-21, there exists some tax due payable due to any of the reasons mentioned above. The due date of filing the annual return for FY 2020-21 is 31st December 2021. The final order under Section 74 can be served within 5 years from the due date of the annual return, i.e. it can be served till 31st December 2026. The SCN shall be issued within 6 months prior to the time limit of passing the final order, i.e it shall be issued by 30th June 2026.
Quantum of interest and penalty
The interest payable is covered in Section 50 of the Act. As notified by Notification No 13/2017 CT dated 28.06.2017, the interest rate is 18% p.a.
The quantum of penalty is equivalent to the tax specified in the notice.
For Eg; If the tax due is Rs 10 Lakh, then the amount of penalty will also be Rs 10 lakh.
Waiving off Penalty in certain cases
The provisions allow relief concerning the payment of a penalty in the following cases.
Case 1: The law also provides an opportunity for voluntary payment before the issuance of the SCN. In such a case, the person with tax due payment can pay the dues along with the interest and penalty equal to 15% of the tax amount based on his assessment.
Therefore, the person before the issuance of SCN shall pay
- Tax Amount
- Interest Amount
- A penalty equal to 15% of the tax amount
However, in case of short or partial voluntary payment, the proper officer can issue an SCN for such amount which falls short of the amount payable.
Case 2: If the person with tax dues pays the amount due along with the interest within 30 days of the issue of the SCN, then the amount of penalty payable will stand to an amount of 25% of the tax amount.
Therefore, the person before the issuance of SCN shall pay
- Tax Amount
- Interest Amount
- A penalty equal to 25% of the tax amount
Case 3: Where the person pays the amount liable after the issuance of SCN but within 30 days from the date of the final order, then the amount payable will include tax, interest, and penalty amount equivalent to 50% of the tax amount.
Therefore, the person before the issuance of SCN shall pay
- Tax Amount
- Interest Amount
- A penalty equal to 50% of the tax amount
For Example: Let' s say for the FY 2020-21 there exists some tax payable for which the proper officer has issued an SCN on 20th April 2026. The person pays the amount due within 30 days of the issue of the SCN, i.e within 20th May 2026. In this case, the person shall be liable to pay along with the tax and interest amount the penalty amount equivalent to 25% of the tax amount due.
In the same example, if the tax amount due is Rs. 10,00,000, the penalty amount keeps n increasing with delaying in the payment of the amount due. Let's illustrate this with the following table.
|
Case |
Date of Payment of Amount Due |
Tax Amount (Rs.) |
Penalty (Rs.) |
|
Case 1: Payment of amount due before the issuance of the SCN |
05th April 2026 |
10,00,000 |
1,50,000 |
|
Case 2: Payment made within 30 days of the issuance of the SCN |
15th May 2026 |
10,00,000 |
2,50,000 |
|
Case 3: Payment made after 30 days of issuance of SCN but within 30 days of issuing Final order |
25th October 2026 |
10,00,000 |
5,00,000 |
|
Case 4: Payment made after 30 days of issuing Final Order |
5th November 2026 |
10,00,000 |
10,00,000 |
(We have assumed that the final order was issued on 30th September 2026.)
Hence, we can see that the amount payable keeps on increasing with every delay in the payment of the dues.
Disclaimer: This article is written in simple language for easy understanding. You may refer to the relevant Notification, Circular, Rules, and Acts for legal steps. Discrepancies if any may be brought to the notice of the author. Thank you
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