As we know, in GST, Tax is paid on self-assessment basis. Self-Assessment means determination of tax liability by registered person on his own and files the return accordingly. Now, there may be the cases, when tax is not paid or short paid on some transactions or erroneously refunded or input tax credit wrongly utilized by registered person intentionally or un-intentionally.

Now CGST Act Covers two situations in cases of determination of GST demand:-

1. Determination of GST demand for tax not paid, short paid, erroneously refunded or input tax credit Wrongly utilized un-intentionally (for the reason other than fraud, willful misstatement, Suppression of facts with intent to evade the tax). (Section-73)

2. Determination of GST demand for tax not paid, short paid, erroneously refunded or input tax credit Wrongly utilized intentionally (for the reason of fraud, willful misstatement , suppression of facts with intent to evade the tax). (Section-74)

Above can be summarized as :-

1. Determination of GST demand for reason other than fraud etc (Section-73):-

(i). in this case, proper officer will issue a Show cause notice (SCN), along with summary in form GST DRC-01 specifying amount of tax, interest and penalty payable and requiring him to show cause why he should not pay the amount specified in notice. (if appeared to officer that tax not paid, short paid, erroneously refunded, or input tax credit wrongly utilized for reason other than fraud etc.)

Show cause notice under this section is required to be issued at least three months prior to issuance of final demand order. Final order under this section is required to be issued within 3 years from the due date of filling annual return of a financial year for which tax not paid, short paid, erroneously refunded or input tax credit wrongly availed utilized relates. For example, if no tax is paid on some transaction (supply), with no intention to evade tax in FY 2017-18 and due date of filling Annual return for FY 2017-18 is 31st December, 2018. Now, demand order under this section can be made upto 31st December, 2021 and SCN for determination of this demand is required to be issued at least three month prior to issuance of demand order i.e 1st October 2021. SCN for this year can be issued anytime upto 01st October, 2021.

Now, if person agrees with grounds on which SCN is issued, he may pay the demand within 30 days of issue of SCN notice and in such a case, he will be required to pay Tax and interest only and no penalty is payable. After Payment assesse is required to inform officer in form GST DRC-03 for the above payment and acknowledgement will be issued in FORM GST DRC-05 concluding all proceeding in respect of that notice. If registered person pays the amount within 30 days of SCN, then all the proceeding in respect of SCN deemed to be concluded.

(ii). During proceeding, if officer founds that no tax is paid or short paid or input tax wrongly availed for any period other than for which SCN is issued, he may issue in respect of that period a statement along with Summary in form GST DRC-02, specifying tax, interest and penalty payable, instead of issuing SCN under section 73. Such serving of statement for other period is deemed to be service of notice issued under section 73.

(iii). The assesse has option to pay tax and interest on his own ascertainment or as determined by officer on request of assesse, before issue of SCN under this section or issue of statement instead of notice. In this case also, only tax and interest is payable and no penalty is payable. After payment registered person will inform officer in form GST DRC-03 and officer will issue acknowledgement in form GST DRC-04. After payment under this option, officer will not issue SCN in respect of that portion which is paid.

If officer thinks amount paid is less than as was required to pay, officer will proceed to issue SCN for balance amount.

(iv). If demand is not agreed by registered person as specified in SCN, the proper officer will consider the representation of registered person . Representation shall be in form GST DRC-06.

(V) After considering representation, officer will issue final demand order in form GST DRC-07 and determine the amount of tax, interest and penalty payable by person (Penalty equivalent to 10% of tax or Rs. 10000/- whichever is higher)

Summary of Penalty implication u/s 73:-

Pay Tax Plus Interest Amount of Penalty
Before Issuance of SCN No Penalty
Within 30 days of issue of SCN No Penalty
In any other case (if not paid above) 10% of Tax or Rs. 10000/- whichever is higher

2. Determination of GST demand in case of fraud etc. (Section-74):-

In this case also, proper officer will issue SCN along with summary in form GST DRC-01 for tax, interest and penalty payable (equivalent to tax), and requiring him to show cause why he should not pay the amount specified in notice. (in case it appeared to officer that tax not paid, short paid, erroneously refunded or input tax wrongly utilized relates to fraud, willful misstatement or suppression of facts with intent to evade payment of tax)

Points discussed in Section 73 equally applicable for Section 74 also except for following differences:-

(i). SCN under this section is required to be issued at least 6 months prior to issuance of demand order under this section and demand order under this section is required to be issued with in a period of 5 years from the due date of filling annual return for the financial year for which tax not paid, short paid etc relates.

(ii). Penalty implication for this section is as follows, which is different from Section 73, as this is the case of, “Intentionally evasion of Tax” :-

Payment of Tax, Interest and Penalty Amount of Penalty
Before issuance of SCN 15% of Tax Amount
Within 30days of issuance of SCN 25% of Tax Amount
Within 30 days of communication of demand order 50% of Tax Amount
In any other case 100% of Tax Amount

3. General Provisions for determination of GST demand u/s 73 & 74 :-

(i). The adjudication proceeding deemed to be concluded if demand order is not passed within 3 or 5 years as specified in section 73 and 74.

(ii). The amount of Tax, interest and penalty demanded in order shall not be in excess of amount specified in SCN and NO demand shall be confirmed  on grounds other than specified in SCN.

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Location: NEW DELHI, New Delhi, IN
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