I. Introduction
Sections 51 to 59 of the Model GST Law deals with demands and recovery of taxes. Sections 108 to 115 deals with liability to pay tax in certain cases such as transfer of business, amalgamation, merger, company in liquidation etc. This paper explains the provisions relating to determination of tax not paid or short paid, or erroneously refunded or where the inputs tax credit has been wrongly or utilised, tax collected but not deposited with the Central or a State government, various modes of recovery of tax, payment of tax in instalments, provisional attachment of property and continuation of recovery proceedings. It also covers the provisions governing the liability to pay taxes in specified circumstances like transfer of business, amalgamation/merger and liability to pay tax in case of liquidation of company, dissolution of partnership firm.
II. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised
2.1 Section 51 of the Model GST Law deals with the powers of proper officer to determine tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised. Section 51 has 4 sub-divisions, namely, (A) determination of tax not paid or short paid or erroneously refunded, wrong availment and utilisation of credit where there is no fraud or willful-misstatement or suppression of facts to evade tax, (B) determination of tax not paid or short paid or erroneously refunded or wrong availment and utilisation of credit where there is fraud or willful-misstatement or suppression of facts to evade tax, (C) general provisions relating to demand of tax, and (D) recovery of interest.
(i) Determination of tax where no fraud, willful-misstatement or suppression of facts involved;
2.2 Where any tax has not been paid or short paid or erroneously refunded, or the input tax credit has been wrongly availed or utilised for any reason other than fraud or willful-misstatement or suppression of facts to evade tax, the proper officer is required to issue a notice of demandunder sub-sec. (1) of sec. 51(A), to the person chargeable with tax to show cause why he should not pay the amount specified in the notice along with interest and penalty. Sub-section (2) of section 51(A) provides for serving a statement, instead of a notice, containing the details of taxes not paid etc. for subsequent periods provided the grounds relied upon are the same as mentioned in the notice issued under sub-sec. (1).
2.3 Before issue of notice under sub section (1) or a statement under sub section (2), a person chargeable with tax, shall have an option to pay the amount of tax along with interest ascertained either on his own or informed by the proper officer, and on such payment, no notice shall be issued with respect to the tax so paid. No penalty is also leviable in such cases. [Sub sec. (3)]. However, this does not preclude the proper officer to proceed to issue the notice where the amount paid under sub section (3) falls short of the amount actually payable. Where the person to whom a notice has beenunder sub section (1) issued, pays the tax along with interest within 30 days of issue of notice, no penalty shall be payable and all proceedings in respect of such notice shall be deemed to be concluded.
2.4 Where any person to whom a notice under sub section (1)or statement under sub sec.(2) issued do not come forward to pay the tax along with interest , the proper officer shall proceed to determine the amount of tax, interest and penalty, after considering representation, if any, made by such person and issue an order within the time limit prescribed under sub section (7) i.e. within 3 years from the due date or the actual date, whichever is earlier, for filing of Annual Return for the year to which such short paid tax or input tax credit or erroneous refund relates. Unlike the existing provisions under central laws which provide separate time limit for issue of notice and issue of an adjudication order, the Model GST Law provides a combined time period of 3 years both for issue of notice and issue of adjudication order in cases involving no suppression.
(ii) Determination of tax where fraud, willful-misstatement or suppression of facts involved
2.5 Where any tax has not been paid or short paid or erroneously refunded, or the input tax credit has been wrongly availed or utilised involving fraud or willful-misstatement or suppression of facts to evade tax, the proper officer is required to issue a notice of demandunder sub-sec. (1) of sec. 51(B), to the person chargeable with tax to show cause why he should not pay the amount specified in the notice along with interest and penalty. Sub-section (2) of section 51(B) provides for serving a statement, instead of a notice, containing the details of taxes not paid etc. for subsequent periods provided the grounds relied upon are the same as mentioned in the notice issued under sub-sec. (1).
2.6 Before issue of notice under sub section (1) or a statement under sub section (2), a person chargeable with tax, shall have an option to pay the amount of tax along with interest and fifteen percent penalty, ascertained either on his own or informed by the proper officer, and on such payment, no notice shall be issued with respect to the tax so paid.However, this does not preclude the proper officer to proceed to issue the notice where the amount paid under sub section (3) falls short of the amount actually payable. Where the person to whom a notice has beenunder sub section (1) issued, pays the tax along with interest with twenty five percent penalty within 30 days of issue of notice all proceedings in respect of such notice shall be deemed to be concluded.
2.7 Where any person to whom a notice under sub section (1)or statement under sub sec.(2) issued do not come forward to pay the tax along with interest and penalty , the proper officer shall proceed to determine the amount of tax, interest and penalty, after considering representation, if any, made by such person and issue an order within the time limit prescribed under sub section (7) i.e. within 5 years from the due date or the actual date, whichever is earlier, for filing of Annual Return for the year to which such short paid tax or input tax credit or erroneous refund relates. The Model GST Law provides a combined time period of 5 years both for issue of notice and issue of adjudication order in cases involving suppression.Where any person served with an order issued under sub-section (6) pays the tax along with interest and a penalty equivalent to fifty percent of such tax within thirty days of the communication of order, all proceedings in respect of the said tax shall be deemed to be concluded.
(iii) General provisions relating to demand of tax
2.8. Where the service of notice or issuance of order is stayed by an order of a Court or Tribunal, the period of such stay shall be excluded in computing the period of three /five years. Where any Appellate Authority or Tribunal or Court holds that the notice issued under sub-section B (1) or B (2) is not sustainable for the reason that the charges of fraud or any wilful mis-statement or suppression of facts to evade tax has not been established,the proper officer has to determine the tax payable for the period of three years, deeming as if the notice were issued under sub-section A (1) or A .
2.9. Personal hearing to be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person. On sufficient cause being shown by the person issued with notice, the proper officer may grant adjournment of hearing for a maximum number of 3 times.
2.10. The proper officershall set out the relevant facts and the basis of his decision. Under no circumstances, the amount of tax, interest and penalty demanded in the order shall be in excess of the amount specified in the notice and no demand shall be confirmed on grounds other than the grounds specified in the notice.
2.11. Where the Appellate Authority or Tribunal or Court modifies the amount of tax determined by the proper officer, the amount of interest and penalty shall stand modified accordingly, taking into account the amount of tax so modified.Interest on the tax short paid or not paid shall be payable whether or not specified in the order determining the tax liability.
2.12. The Model GST Law provides for deemed conclusion of the adjudication proceedings if the order is not issued within three years as provided for in sub-section A (7) or within five years as provided for in sub-section B (7).
III. Tax collected but not deposited with the Central or a State Government
3.1.1 Every person who has collected from any other person any amount as representing the tax under this Act, shall deposit the said amount to the credit of the Central or a State Government, regardless of whether the supplies in respect of which such amount was collected are taxable or not.
3.1.2. Where such amount is not deposited to the credit of the Central or a State Government, the proper officer shall serve on the person liable to pay such amount a notice requiring him to show cause why the said amount should not be paid by him and why a penalty equivalent to the amount specified in the notice should not be imposed on him. After considering the representation, if any, the proper officer shall proceed to demand the amount by issuing an order. In addition to paying the amount, such persons shall be liable to pay interest. No order shall be passed without granting an opportunity of being heard in person. Such order needs to be issued within one year from the date of issue of notice.
3.2. The amount paid to the credit of the Central Government or a State Government under sub-section (1) or sub-section (3) could be adjusted against the tax payable, if any by the person. Where any surplus is left after the adjustment, the amount of such surplus may either be credited to the Fund or, refunded to the person who has borne the incidence of such amount, subject to provisions of Section 38.
IV. Tax wrongfully collected and deposited with the Central or a State Government
4. A taxable person who has paid CGST/SGST (in SGST Act) on a transaction considered by him to be an intra-state supply, but which is subsequently held to be an inter-state supply, shall, upon payment of IGST, be allowed to take the amount of CGST /SGST (in SGST Act) so paid as refund subject to the provisions of section 38.
V. Modes of recovery of tax
5.1. Where any amount payable by a person under this Act is not paid by the person, the proper officer shall proceed to recover the amount by one or more of the following modes;
5.1.1. The proper officer may deduct or may require any other specified officer to deduct the amount so payable from any money owing to such person.
5.1.2. The proper officer may recover or may require any other specified officer to recover the amount so payable by detaining and selling any goods belonging to such person.
5.2.1. The proper officer may, by a notice in writing, require any other person from whom money is due or may become due to such person or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central or a State Government.
5.2.2. In case the person to whom a notice issued as mentioned in 5.1.3 above, fails to make the payment in pursuance thereof to the Central or a State Government, he shall be deemed to be a defaulter in respect of the amount specified in the notice and all the consequences of this Act or the rules made thereunder shall follow.
5.2.3. Any person making any payment in compliance with a notice issued shall be deemed to have made the payment under the authority of the person in default and such payment being credited to the appropriate Government shall be deemed to constitute a good and sufficient discharge of the liability of such person to the person in default to the extent of the amount specified in the receipt.
5.2.4. Where a person on whom a notice is served under sub-clause (i) proves to the satisfaction of the officer issuing the notice that the money demanded or any part thereof was not due to the person in default or that he did not hold any money for or on account of the person in default, nothing contained in this section shall be deemed to require the person on whom the notice has been served to pay to the credit of the appropriate Government any such money.
5.3. The proper officer may, on an authorisation by the competent authority, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; if the dues remains unpaid for a period of thirty days after any such distress, he may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and pay the surplus amount, if any, to such person.
5.4. The proper officer may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector of the district in which such person owns any property or resides or carries on his business and on receipt of such certificate, the Collector shall proceed to recover from such person the amount specified as if it were an arrear of land revenue.
5.5. Where any amount of tax, interest or penalty is payable by a person to the credit of the Central Government under this Act remains unpaid, the proper officer of SGST, during the course of recovery of SGST arrears, may recover the amount from the said person as if it were an arrear of SGST and credit the amount so recovered to the account of the Central Government.
5.6. Where any amount of tax, interest or penalty is payable by a person to the credit of the State Government under this Act remains unpaid, the proper officer of CGST, during the course of recovery of CGST arrears, may recover the amount from the said person as if it were an arrear of CGST and credit the amount so recovered to the account of the State Government.
VI. Payment of tax and other dues in instalments.
6. The [Commissioner/Chief Commissioner] may extend the time for payment or allow payment of any amount due under the Act, other than the amount due as per the liability self-assessed in any return, by such person in monthly instalments not exceeding twenty four, subject to payment of interest under section 36 with such restrictions and conditions as may be prescribed. However, where there is default in payment of any one instalment on its due date, the whole outstanding balance payable on such date shall become due and payable forthwith and recovered without any further notice.
VII. Transfer of property to be void in certain cases
7. Where a person, after any tax has become due from him, creates a charge on or parts with the property belonging to him or in his possession by way of sale, mortgage, exchange, or any other mode of transfer whatsoever of any of his properties in favour of any other person with the intention of defrauding the Government revenue, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the said person. Such charge or transfer, however shall not be void if it is made for adequate consideration and without notice of the pendency of such proceeding under this Act or with the previous permission of the proper officer.
VIII. Tax to be first charge on property
8. Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a taxable person on account of tax, interest or penalty which he is liable to pay to the Central or a State Government shall be a first charge on the property of such taxable person.
IX. Provisional attachment to protect revenue in certain cases
9. Where during the pendency of any proceedings under section 46, section 47, section 48 or section 51, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may by order in writing attach provisionally any property belonging to the taxable person in such a manner as may be prescribed. Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).
X.Continuation of certain recovery proceedings
10.1. Where any notice of demand for tax, interest, and penalty is served upon any taxable person and any appeal, revision is filed or other proceedings initiated in respect of such dues, then, where dues are enhanced in appeal/revision/proceeding, the Commissioner shall serve upon the person another notice of demand only in respect of the amount by which such dues are enhanced and any recovery proceeding in relation to the dues covered by the notice of demand served on such person before the disposal of such appeal/revision/proceeding may without service of any fresh notice of demand, be continued from the stage at which such proceedings stood immediately before such disposal.
10.2. Where the dues are reduced in appeal/revision/proceeding, it shall not be necessary for the Commissioner to serve upon the taxable person a fresh notice of demand. The Commissioner shall give an intimation of such reduction to the person or the appropriate authority with whom the recovery proceeding is pending. Any recovery proceedings initiated on the basis of demand served upon him prior to the disposal of such appeal/revision/proceeding may be continued in relation to the amount so reduced from the stage at which such proceedings stood immediately before such disposal.
XI. Liability to pay in certain cases
(i) Transfer of Business
11.1.1. Where any person liable to pay tax, transfers his businessin whole/part, by sale, gift, lease, leave and license, hire, or in any other manner, then such person and the person to whom the business is transferred shall jointly and severally be liable to pay the tax, interest or penalty due from the taxable person up to the time of such transfer, whether such dues has been determined before such transfer, but has remained unpaid or is determined thereafter.
11.1.2. Whether the transferee/lessee of the business carries on such business either in his name or in some other name, he shall be liable to pay tax on supplies effected by him from the date of such transfer and if he is an existing taxable person, apply within the prescribed time for amendment of his certificate of registration.
(ii) Amalgamation / Merger of companies
11.2.1. Where by an order of Court/Tribunal or of the Central Government amalgamation/merger of two or more companies takes effect from a date earlier to the date of such order,the companies who have supplied or received any goods and/or services to or from each other during the period commencing from the date on which the order takes effect till the date of the order, such transactions of supply and receipt shall be included in the turnover of supply or receipt of the respective companies and shall be liable to tax accordingly.
11.2.2. Notwithstanding anything contained in the order, for the purposes of this Act, the two or more companies shall be treated as distinct companies up to the date of such order and registration certificates of the said companies shall be cancelled,with effect from the date of such order
(iii) Liquidation of company
11.3.1.Every person appointed by an order of the Court/Tribunal as receiver of any assets of a company (liquidator) shall within thirty days of his appointment, give intimation of his appointment to the Commissioner. Commissioner to notify the liquidator within 3 months from the date on which he receives intimation of the appointment of the liquidator, the amount of tax, interest or penalty which is payable by the company
11.3.2. When any company is wound up and any tax or other dues determined whether before or after liquidation that remains unrecovered, every person who was a director of the company during the period for which the tax was due, shall jointly and severally be liable for payment of dues unless he proves to the satisfaction of the Commissioner that such non-recovery is not attributed to any gross neglect, misfeasance or breach of duties on his part in relation to the affairs of the company.
(iv) Partners of a firm
11.4. Partners of any firm shall jointly and severally liable for payment of any tax, interest or penalty. Firm/partner shall intimate the retirement of any partner to the Commissioner by a notice in writing – liability to pay tax, interest or penalty up to the date of such retirement, whether determined on that date or subsequently, shall be on such partner. If no intimation is given within one month from the date of retirement, the liability of such partner shall continue until the date on which such intimation is received by the Commissioner
(v) Guardians / Trustees
11.5. Where the business in respect of which any tax is payable is carried on by any guardian / trustee / agent of a minor or other incapacitated person on behalf of and for the benefit of such minor/incapacitated person, the tax, interest or penalty shall be levied upon and recoverable from such guardian / trustee / agent.
(vi) Court of Wards
11.6. Where the estate of a taxable person owning a business in respect of which any tax, interest or penalty is payable is under the control of the Court of Wards/Administrator General / Official Trustee / Receiver or Manager appointed under any order of a Court, the tax, interest or penalty shall be levied and recoverable from such Court of Wards/Administrator General / Official Trustee / Receiver or Manager to the same extent as it would be determined and recoverable from a taxable person.
(vii) Special provisions in certain cases
(a) Death
11.7. Where a person liable to pay tax dies, then, if the business is continued by his legal representative or any other person, such legal / any other person shall be liable to pay tax, interest or penalty due from such person. If the business is discontinued whether before or after his death, his legal representative shall be liable to pay out of the estate of the deceased to the extent to which the capable of meeting the charge, tax, penalty or interest due from such person, whether such dues have been determined before his death but has remained as unpaid or is determined after his death
(b) Partition of Hindu Undivided Family / Association of Persons
11.8. Where a taxable person is liable to pay tax is HUF or AOP and the property of HUF / AOP is partitioned among various members or groups of members, each member shall jointly and severally be liable to pay the tax, interest or penalty due from the taxable person up to the time of partition whether such dues has been determined before partition but has remained unpaid or is determined after the partition
(c) Dissolution of a firm
11.9. Where a taxable person liable to pay tax is a firm and the firm is dissolved, then every person was partner shall jointly and severally be liable to pay the tax, interest or penalty up to the time of dissolution whether such tax, interest or penalty has been determined before the dissolution but has remained unpaid or is determined after dissolution
(d) Guardian / Trustee
11.10. Where a taxable person liable to pay tax is the guardian of a ward on whose behalf the business is carried on by the guardian or a trustee who carries on the business under a trust for a beneficiary, if the guardianship or trust is terminated, the ward or, as the case may be, the beneficiary shall be liable to pay the tax, interest or penalty due from the taxable person up to the time the termination of the guardianship or trust whether such dues have been determined before the termination of the guardianship or trust but has remained as unpaid or is determined thereafter
(viii) Other Cases
Where a firm / AOP / HUF has discontinued the business, the tax payable by such entity up to the date of discontinuance may be determined as if no such discontinuance has taken place.Every person who was at the time of discontinuance, a partner of firm/member of AOP/HUF notwithstanding such discontinuance shall be liable jointly and severally for the payment of tax, interest or penalty whether determined prior to or after such discontinuance as if every such partner/member were himself a taxable person. Where a change has occurred in the constitution of a firm or an association of persons, the partners of the firm or the members of the association as it existed before and as it exists after the reconstitution, shall without prejudice to the provisions of sec.111, jointly and severally be liable to pay the due from such firm or association for any period before its reconstitution.
