Summary: This advisory note explains the penalty provisions under Section 73 of the GST Act for non-fraud cases involving short payment of tax, excess availment of Input Tax Credit (ITC), or similar discrepancies. It highlights various stages of proceedings, including issuance of Form DRC-01A (intimation), Form DRC-01 (show cause notice), and Form DRC-07 (demand order). No penalty is payable if the taxpayer voluntarily pays the tax and applicable interest before issuance of an intimation, after receipt of intimation but before a show cause notice, or within 30 days from the date of the show cause notice. However, if payment is made after the 30-day period or after a demand order is issued, a penalty equal to 10% of the tax amount or Rs. 10,000, whichever is higher, becomes applicable. The note also emphasizes that taxpayers should first verify whether any actual discrepancy exists before making payments, as no tax liability means no penalty liability.
1. Coverage of this article:
a. In this article, I am discussing about the penalty provisions which is given us 73 of GST Act in case of non-fraud cases.
b. I am covering the penalty provisions in case when an intimation is issued in Form DRC: 01A, a notice is issued in Form DRC: 01, an order is passed in Form DRC: 07, before issuance of intimation, after issuance of intimation but before issuance of notice along with some other scenarios.
c. Other practical scenarios that will be helpful for readers.
2. Intimation in Form DRC: 01A Part: A:
Under section 73(5), an officer can issue intimation before issuance of show cause notice.
3. Show cause notice in Form DRC: 01:
An officer can issue notice us 73(1) in DRC: 01 in case of non-fraud cases.
4. Scenarios related to penalties:
a. Penalty before issuance of intimation
b. Penalty after issuance of intimation but before issuance of notice
c. Penalty after issuance of notice & paid within the specified period
d. Penalty after issuance of notice but not paid within the specified period
e. Penalty after issuance of order in DRC: 07
5. Penalty before issuance of intimation:
a. U/s 73 there will be no penalty if registered person pay the taxes along with applicable interest before issuance of intimation because there is no willful fraud or misstatement. But officer will levied the penalty if he issued the notice.
b. Bare Act: The person chargeable with tax may, before service of notice under subsection (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.
6. Penalty after issuance of intimation before issuance of SCN:
U/s 73 there will be no penalty if registered person pay the taxes along with applicable interest as mentioned in the intimation because there is no willful fraud or misstatement. But officer will levied the penalty if he issued the notice.
7. Penalty after issuance of notice & paid within the specified period:
a. U/s 73 there will be no penalty if registered person pay the taxes along with applicable interest as mentioned in the notice within the 30 days from the date of SCN because there is no willful fraud or misstatement. But officer will levied the penalty if demand paid after 30 days.
b. Bare Act: Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.
8. Penalty after issuance of notice but not paid within the specified period:
a. U/s 73 there will be a penalty of 10% of tax amount or 10,000 whichever is higher if registered person pay the taxes along with applicable interest as mentioned in the notice after expiry of 30 days from the date of SCN.
b. Bare Act: The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten percent of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.
9. Penalty after issuance of order in DRC: 07:
a. U/s 73 there will be a penalty of 10% of tax amount or 10,000 whichever is higher if registered person pay the taxes along with applicable interest as mentioned in the demand order.
b. Bare Act: The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten percent of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.
10. Comparison of all scenarios:
| S No | Scenarios | Penalty us 73 of GST |
| 1 | Penalty before issuance of intimation | No penalty |
| 2 | Penalty after issuance of intimation but before issuance of notice | No penalty |
| 3 | Penalty after issuance of notice & paid within the 30 days from the date of SCN | No penalty |
| 4 | Penalty after issuance of notice & paid after 30 days from the date of SCN | 10% of tax or 10000 “Higher” |
| 5 | Penalty after issuance of order in DRC: 07 | 10% of tax or 10000 “Higher” |
11. Note:
a. You will be liable to pay the penalty when there is excess availment of ITC or short payment of output tax liability or any other reason.
b. You no need to pay the tax, interest & penalty as mentioned in notice.
c. Firstly, you will identify whether there is an actual discrepancy. If yes, then compute the penalty amount & pay along with taxes & interest.
12. Practical scenario 1:
a. Suppose a notice has been issued by the officer & raised the demand of tax of Rs 1,00,000 along with interest of 7,000 & penalty of 10,000. It is related to excess input claimed in GSTR-3B.
b. As per analysis, there is no excess ITC claimed. Hence, there is no requirement to pay the taxes, interest and penalty.
c. If tax payable is zero then there will be no liability of penalty.
13. Practical scenario 2:
a. Suppose a notice has been issued by the officer & raised the demand of tax of Rs 1,00,000 along with interest of 7,000 & penalty of 10,000. It is related to excess input claimed in GSTR-3B.
b. As per analysis, we have claimed the excess ITC of Rs 50,000. Then we will pay the tax of Rs 50,000 along with the interest of 3,500 & penalty of 10,000.
c. Penalty amount is 10,000 which is higher of 10% of 50,000 or 10,000.
d. If tax payable is zero then there will be no liability of penalty.
14. Refer to the article:- Advisory Note on GST: Section 74A Penalties- Key Insights for Professionals:
15. Relevant Notification: Notification No. 09/2023–Central Tax Dated: 31st March, 2023
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Disclaimer: The views and opinions expressed in this article are those of the author. This article is intended for general information purposes only and does not constitute professional advice. Readers are strongly advised to consult a qualified professional for guidance specific to their individual situation before making any financial, legal, or tax-related decisions. The author shall not be held liable for any loss or damage of any kind incurred as a result of the use of this information or for any actions taken based on the content of this article.
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