GST law authorizes the proper officer to determine and demand the following amounts:
1. Tax not paid (S. 73 & S.74)
2. Tax Short paid (S. 73 & S.74)
3. Tax erroneously refunded (S. 73 & S.74)
4. Input Tax Credit Wrongly Availed (S. 73 & S.74)
5. Input Tax Credit Wrongly Utilized (S. 73 & S.74)
6. Tax Collected but not paid (S. 76)
7. Tax Collected under Wrong head (S.77)
Burden of proof in case a person claim that he is eligible for input tax credit under GST shall lie on the person who claims it. Hence an onerous duty is caste on the taxpayer to prove his credits failing which presumption of wrong availment or wrong utilization can be drawn. However in all other cases tax authorities need to prove that tax has not been paid or short paid or erroneously refunded.
Following cases can give rise to process of determination of tax or input tax credit u/s 73 and 74:
The determination of tax or Input tax credit can arise due to following reasons
|By Reason of Fraud or any willful-mis statement or suppression of facts [Section 74]||By Reason other than Fraud or any willful-mis statement or suppression of facts [S. 73]|
|1. Tax not paid
2. Tax Short paid
3. Tax erroneously refunded
4. Input Tax Credit Wrongly Availed
5. Input Tax Credit Wrongly Utilized
|1. Tax not paid
2. Tax Short paid
3. Tax erroneously refunded
4. Input Tax Credit Wrongly Availed
5. Input Tax Credit Wrongly Utilized
“Fraud and justice never dwell together” (Frans et jus nunquam cohabitant)
Fraud is defined in section 17 of Contract Act as under :
“Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent1 , with intent to deceive another party thereto of his agent, or to induce him to enter into the contract:—
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Explanation.—Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak , or unless his silence is, in itself, equivalent to speech.
Intention to evade duty is built into the words ‘fraud’ and ‘collusion’ –Cosmic Dye Chemical v. CCE 95 STC 604
The Court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever. – Lazarus Estate v. Berly
Fraud is proved when it is shown that a false representation has been made
(i) knowingly or
(ii) without belief in its truth or
(iii) recklessly, careless whether it be true or false.
Suppression of a material document would also amount to a fraud – Ashok Leyland Ltd.
In CC v. Essar Oil Ltd. (2004) 172 ELT 433 (SC), all important case law on ‘fraud’ was discussed, and it was observed, “By ‘fraud’ is meant an intention to deceive; whether it is from any expectation of advantage to party itself or from the ill will towards other is immaterial. ‘Fraud’ involves two elements, deceit and injury to the person deceived. Injury will include any harm whatever cause to any person in body, mind, reputation or such others
Misrepresentation itself amounts to fraud – Devendra Kumar v. State of Uttaranchal (2009) 9 SCC 363.
However, mere silence is not fraud, unless it is the duty of the person to speak or silence itself is equivalent to speech.
A false statement becomes ‘wilful’ if it is deliberate or intentional. It is not wilful if the statement is accidental or inadvertent. A statement will not be misstatement only because full facts were not disclosed. ‘Wilful’ means ‘with intent to evade duty’ – Cosmic Dye Chemical v. CCE 95 STC 604
Misstatement must be wilful to invoke extended period of limitation – Continental Foundation Jt Venture v. CCE 216 ELT 177 (SC)
The expression “suppression” shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer [Explanation 2 to section 74]
There can be no suppression of facts if facts which are not required to be disclosed are not disclosed – . Ranka Wires (2015) 322 ELT 410 (SC).
Supreme Court in Rainbow Industries v. CCE – 1994 (74) ELT 3 (SC) have held that in order for the extended period to apply, two ingredients must be present – wilful suppression, mis-declaration etc., and the intention to evade duty Same view in Tamil Nadu Housing Board v. CCE – 1995 74 ELT 9 (SC). In this case, it was held that the powers to extend period from one year to 5 years are exceptional powers and hence have to be construed strictly.
Intention to evade payment of duty is not mere failure to pay duty. It must be something more, i.e. that assessee must be aware that duty was leviable and he must deliberately avoid payment of duty. ‘Evade’ means defeating the provision of law of paying duty. It is made more stringent by the use of word ‘intent’. In other words, the assessee must deliberately avoid payment of duty payable under the law. Where there was scope of doubt whether duty was payable or not, it is not ‘intention to evade duty’. – Tamilnadu Housing Board v. CCE 1994 (74) ELT 9 (SC). In this case, it was held that the powers to extend period from one year to 5 years are exceptional powers and hence have to be construed strictly.
If all facts have been disclosed to department, extended period is not applicable – Nestler Boilers (P.) Ltd. v. Collector – 1990 (50) ELT 613 (CEGAT)
Suppression means not providing information which the person is legally required to state, but is intentionally or deliberately not stated.
Hon. Supreme Court, in Collector v. Chemphar Drugs 40 ELT 276 has held that mere inaction or failure on part of manufacturer will not amount to suppression of facts. Conscious or deliberate withholding of information when the manufacturer knew otherwise, is required to be established, before saddling the manufacturer with liability for extended period
In the case of Padmini Products v. CCE – 1989 (43) ELT 195 (SC) it has been held by Apex Court that mere non-declaration is not sufficient to invoke larger period but some more positive act is required. It was held that mere failure or negligence on part of manufacturer to take licence or pay duty in case where there was scope for doubt as to whether goods were dutiable or not, could not attract the extended limitation. In this case, the assessee did not obtain excise licence under belief that the goods are exempt from duty. There was scope of doubt regarding liability of duty. Hence, demand for period beyond period of one year (that time six months) was set aside – followed in Jaiprakash Industries v. CCE 146 ELT 481 (SC 3 member bench); Cadila Laboratories v. CCE 152 ELT 262 (SC); Gopal Zarda Udyog v. CCE 2005 (188) ELT 251; Uniworth Textiles v. CCE (2013) 31 taxmann.com 67.
Extended period of five years is not applicable for any omission on part of assessee, unless it is a deliberate attempt to escape from payment of duty. When facts were known to the department, extended period of five years is not applicable – Pushpam Pharmaceuticals Co. v. CCE 78 ELT 401 (SC)
The following process is followed for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized:
|Tax and Interest and applicable penalty paid||By Reason of Fraud or any willful mis statement or suppression of facts [Section 74]||By Reason other than Fraud or any willful mis statement or suppression of facts [S. 73]|
|Before Issue of Show Cause Notice [S. 73(5) and 74(5)]||NIL||15% of the tax|
|With in 30 days from the issue of Show Cause Notice [S. 73(8) and 74(8)||NIL||25% of the tax|
|With in 30 days from the date of Communication of Order [S. 74(11)]||Higher of the
a) 10% of tax or
b) Rs. 10,000/-
[S.73(9) and S. 122(2)(a)]
|50% of Amount of Tax|
|After 30 days from the date of Communication of Order
[S. 73(9) and S. 122(2)]
|Higher of the
a) 100% of tax due or
b) Rs. 10,000/-
[S. 74(9) and S. 122(2)(b)]
|Immunity from Penalty under other sections
Where any penalty is imposed under section 73 or section 74, no penalty for the same act or omission shall be imposed on the same person under any other provision of this Act [S.75(13)] like u/s. 122, 125, 129 and 130
The interest on the tax short paid or not paid shall be payable whether or not specified in the order determining the tax liability [S. 75(9)]
|Maximum Time period allowed||By Reason of Fraud or any willful mis statement or suppression of facts [Section 74]||By Reason other than Fraud or any willful mis statement or suppression of facts [S. 73]|
|For Order of Determination of tax not paid or short paid or ITC wrongly availed or mis utilized or||5 years from due date for furnishing of annual return for the financial year to which determination of tax etc. relates
5 years from date of erroneous refund
|3 years from due date for furnishing of annual return for the financial year to which determination of tax etc. relates
3 years from the date of erroneous refund
|For Issue of Show Cause Notice||At least 6 Months prior to:
5 years from due date for furnishing of annual return for the financial year to which determination of tax etc. relates [S. 74(10)]
5 years from date of erroneous refund
|At least 3 months prior to:
3 years from due date for furnishing of annual return for the financial year to which determination of tax etc. relates [S. 74(10)]
3 years from the date of erroneous refund
|The adjudication proceedings shall be deemed to be concluded, if the order is not issued within three years as provided for in sub-section (10) of section 73 or within five years as provided for in sub-section (10) of section 74.[S. 75(10)]|
In calculation of above time limits for issue of show cause notice as well as issue of order for determination of tax etc., if the service of notice or issuance of order has been stayed by order of Court or Appellate Tribunal, the period of stay shall be excluded while calculating the time limits and hence the time for issuance of notice or order shall stand extended. [S. 75(1)]
Where the Authority or the Appellate Authority finds that advance ruling pronounced by it has been obtained by the applicant or the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio. In such case, The period beginning with the date of such advance ruling and ending with the date of order of vacation of advance ruling shall be excluded while computing the period of issuing show cause notice [3months/6 months prior to 3years/ 5 years] and period for order of determination [3year/5 years] (as specified in sub-sections (2) and (10) of section 73 or sub-sections (2) and (10) of section 74)
It may happen that issue on which show cause notice is issued may be the same on which revenue has already lost its case before Appellate Authority or Appellate Tribunal or High Court.
Now in such other case the department goes for further appeal before Appellate Tribunal or High Court or Supreme Court because it is prejudicial to the interest of revenue and wishes to keep the impugned case for which show cause notice has been issued alive till the matter is decided by higher Court or Tribunal. Hence in such a case period between the date of decision of
Shall be excluded while calculating the time limits and hence the time for issuance of notice or order shall stand extended. [S. 75(11)] Show cause notice is transferred to “Call book” in such cases.
Where the Appellate Authority is of the opinion that any tax has not been paid or short-paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised, no order requiring the appellant to pay such tax or input tax credit shall be passed unless the appellant is given notice to show cause against the proposed order and the order is passed within the time limit specified under section 73 or section 74.
An opportunity of being heard shall be granted [S. 75(4)]
Adjournment [S. 75(5)]
The proper officer shall, if sufficient cause is shown by the person chargeable with tax, grant time to the said person and adjourn the hearing for reasons to be recorded in writing: No such adjournment shall be granted for more than three times to a person during the proceedings
Speaking Order [S. 75(6)]
The proper officer, in his order, shall set out the relevant facts and the basis of his decision.
The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice
Every taxable person shall discharge his tax and other dues under this Act or the rules made thereunder in the following order, namely:––
(a) self-assessed tax, and other dues related to returns of previous tax periods;
(b) self-assessed tax, and other dues related to the return of the current tax period;
(c) any other amount payable under this Act or the rules made thereunder including the demand determined under section 73 or section 74.
Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.
The proper officer may serve on the person liable to pay such amount a notice requiring him to show cause as to
The proper officer shall issue an order within one year from the date of issue of the notice. Where the issuance of order is stayed by an order of the court or Appellate Tribunal, the period of such stay shall be excluded in computing the period of one year. The proper officer, in his order, shall set out the relevant facts and the basis of his decision.
The proper officer shall, after considering the representation, if any, made by the person on whom the notice is served determine the amount due from such person and thereupon such person shall pay the amount so determined.. The proper officer shall issue an order within one year from the date of issue of the notice.
In addition to amount along with penalty, the impugned person shall be liable to pay interest from the date such amount was collected by him to the date such amount is paid by him to the Government
|Tax Paid by Registered Person||Subsequently Held to be||Refund of||Interest|
|Central tax and State Tax or
Central tax and Union Territory Tax
On transaction considered to be Intra State Supply
|Inter state Supply||Central Tax and State tax or
Central Tax or Union Territory Tax [S. 77(1)]
|No Interest on payment of Integrated Tax [S. 19(2)]|
On transaction considered to be Inter State Supply
|Intra State Supply||Integrated Tax [S. 19(1)]||No Interest on Payment of Central Tax and State/UT Tax [S. 77(2)]|
As per Circular 3/3/2017-GST dated 05-07-2017, Superintendent is empowered to deal cases u/s 73, where charge of fraud, willful mis statement or suppression of facts is not there. However in case of fraud , willful mis statement or suppression of facts u/s 74, only Deputy Commissioner/ Assistant Commissioner can deal. Also for dealing cases of amount collected representing tax not paid to the government Deputy Commissioner/ Assistant Commissioner is empowered.
Any decision, order, summons, notice or other communication under the Act or the rules made thereunder shall be served by any one of the following methods, as specified in section 169(1) of CGST Act:
|(a)||by giving or tendering it directly or by a messenger including a courier to the addressee or the taxpayer or to his manager or authorized representative or an advocate or a tax practitioner holding authority to appear in the proceeding on behalf of the taxable person or to a person regularly employed by him in connection with the business, or to any adult member of family residing with the taxable person, or|
|(b)||by registered post or speed post or courier with acknowledgement due, to the person for whom it is intended or his authorized representative, if any at his last known place of business or residence, or|
|(c)||by sending a communication to his e-mail address provided at the time of registration or as amended from time to time, or|
|(d)||by making it available on common portal, or|
|(e)||by publication in a newspaper circulating in the locality in which the taxable person or the person to whom it is issued is last known to have resided, carried on business or personally worked for gain, or|
|(f)||if none of the modes aforesaid is practicable, by affixing it in some conspicuous place at his last known place of business or residence, and if such mode prescribed is also not practicable for any reason, then by affixing a copy thereof on the notice board of the office of the concerned officer or authority who or which passed such decision or order or issued such summons or notice|
Every decision, order, summons, notice or any communication shall be deemed to have been served on the date on which it is tendered or published or a copy thereof is affixed.
When such decision, order, summons, notice or any communication is sent by registered post or speed post, it shall be deemed to have been received by the addressee at the expiry of the period normally taken by a registered letter in transit unless the contrary is proved.
The service of any notice, order or communication shall not be called in question if the notice, order or communication, as the case may be, has already been acted upon by the person to whom it is issued or where such service has not been called in question at or in the earliest proceedings commenced, continued or finalised pursuant to such notice, order or communication
Payment of tax in pursuance of order passed under the Act to be made with in 3 months from the date of service of order, failing which recovery proceedings shall be initiated. The period may be reduced below 3 months also in appropriate cases. [S.78]. State tax officer can also recover the amount payable under Central tax. If the amount payable under state tax and central tax is not fully recovered, the amount recovered shall be credited to central tax and state tax proportionately [S. 79(3) and 79(4)].
One or more of following modes may be adopted for recovery by Proper officer [Deputy Commissioner/Assistant Commissioner (Circular 3/3/2017 dated 5-7-17)]:
Amount payable may be deducted from money owing , under control of proper officer, to person charged. Proper Officer may also require any other specified officer to execute the same in respect of money owing under control of specified officer. The requirement to specified officer shall be communicated in DRC-09 [S. 79(1)(a) and R. 143]. Specified officer here includes officer of State Tax. Officers of Local Authority or Board or corporation owned or controlled, wholly or partly by government can also be so required. [S. 79(1)(a) and R. 143]
Recovery made be made by detaining and selling goods, under control of proper officer, belonging to person charged. Proper officer shall prepare inventory and estimate market value of goods and proceed to sell so much of the goods as may be required for recovering the amount payable along with administrative expenses incurred on recovery process. Goods shall be sold through process of auction including e-auction for which a at least 15 days notice shall be issued in FORM GST DRC-10 clearly indicating the goods to be sold and the purpose of sale. However perishable goods may be sold forthwith . Pre bid deposits to be returned to the unsuccessful bidders, forfeited in case the successful bidder fails to make the payment of the full amount. Notice to bidder to pay the amount with in 15 days to be given in DRC-11 . On full payment possession of goods shall be transferred to successful bidder and certificate in DRC-12 shall be issued. If defaulter pays the amount under recovery and expenses of recovery before the issue of auction notice, the proper officer shall cancel the auction process. Where no bid is received or auction is noncompetitive due to lack of adequate participation or low bids, the proper officer shall cancel auction and proceed for re auction [S. 79(1)(b) and Rule 144]
Recovery by Notice in writing to Person from whom money is due to or from whom money may become due to or who holds money for or on account of or who may subsequently hold money for or on account of person charged. Recovery to be made only when money becomes due and not before it so becomes due. Further if amount payable by person charged is less than money due from third party then, third party shall be required to pay only the amount as is sufficient to pay the dues of person charged or else third party shall be required to pay whole of amount due. Every person including banking company company, insurer or post office to whom notice is given shall be bound to comply such directions or else shall be deemed to be defaulter under the law and shall be personally liable for default amount. Time period of notice may be changed from time to time. Third party may also prove to the satisfaction of proper officer that no amount was due to taxable person and then provisions of recovery shall not apply to third party. For recovery from third party a notice shall be issued in DRC-13 and on payment discharge of liability certificate in DRC-14 shall be given. If amount is receivable by virtue of Court decree , Proper office shall send request to Court in DRC-15, the Court shall execute the attached decree and credit the net proceeds for settlement of amount recoverable [S. 79(1)(c) and R. 145, 146]
Distraining any movable or immovable property and detaining the same. If still the amount remains unpaid the proper officer may cause the property to be sold and recover the amount. [S. 79(1)(d)]
i) Prepare list of Movable and Immovable properties belonging to defaulter
ii) Estimate the value of properties as per prevalent market price
Attachment or Distraint
iii) Issue and order of attachment or distraint and a notice for sale in DRC-16 prohibiting any transaction with regard to such movable and immovable property as may be required for the recovery of the amount due
iv) Copy of order of attachment or distraint shall be sent to concerned
-Revenue Authority or
-Transport Authority or
-Any such authority
To place encumbrance on impugned movable or immovable property , to be removed on orders of proper officer only.
v) Manner of attachment or distraint
|Immovable Property||Order of attachment or distraint to be affixed and remain affixed till confirmation of salw|
|Movable Property||– Seize the property
– Hand over custody to proper officer or officer authorized by him
vi) -If there is Claim or objection to attachment or distraint on the ground of property not being liable to attachment or distraint
– Proper officer shall investigate the claim or objection and
– May postpone the sale till the time he thinks fit
vii) Evidence shall be adduced to prove that on date of attachment or distraint order that person making claim had interest or was in possession of impugned property
viii) Where upon investigation proper officer is satisfied that on the date of order of attachment or distraint
– Property was not in possession of defaulter or
– Property was not in possession of any other person on defaulter’s behalf or
– Property was in possession of defaulter not on his own account or as his own property but wholly or partly on account of or in trust of any other person
Proper officer shall make an order for release of property wholly or the extent he thinks fit.
ix) If the proper officer is not so satisfied or property was in occupancy of a tenant or other person who was paying rent to him, the proper officer shall reject the claim and proceed with process of sale
Property shall be sold through process of auction including e-auction for which a at least 15 days notice shall be issued in FORM GST DRC-17 clearly indicating the property to be sold and the purpose of sale. However perishable or hazardous property may be sold forthwith . Pre bid deposits to be returned to the unsuccessful bidders, forfeited in case the successful bidder fails to make the payment of the full amount. Notice to bidder to pay the amount with in 15 days to be given in DRC-11 . On full payment possession of goods shall be transferred to successful bidder and certificate in DRC-12 shall be issued. If defaulter pays the amount under recovery and expenses of recovery before the issue of auction notice, the proper officer shall cancel the auction process. Where no bid is received or auction is on competitive due to lack of adequate participation or low bids, the proper officer shall cancel auction and proceed for re auction
Where the property to be sold is a negotiable instrument or a share in a corporation, the proper officer may, instead of selling it by public auction, sell such instrument or a share through a broker and the said broker shall deposit to the Government so much of the proceeds of such sale, reduced by his commission, as may be required for the discharge of the amount under recovery and pay the amount remaining, if any, to the owner of such instrument or a share. This procedure for shares etc overrides all other provisions of recovery
Proper officer may prepare a certificate DRC-18 signed by him and send it to Collector or Deputy Commissioner of district where person charged owns any property or resides or carries on any business. The amount specified in certificate shall be recovered like land revenue.
Application to Magistrate in DRC-19 can be made to recover the amount specified in application to be recovered like fine imposed by Magistrate.
The amounts so realised from the sale of goods, movable or immovable property, for the recovery of dues from a defaulter shall,-
(a) first, be appropriated against the administrative cost of the recovery process;
(b) next, be appropriated against the amount to be recovered;
(c) next, be appropriated against any other amount due from the defaulter under the Act or the Integrated Goods and Services Tax Act, 2017 or the Union Territory Goods and Services Tax Act, 2017 or any of the State Goods and Services Tax Act, 2017 and the rules made thereunder; and
(d) any balance, be paid to the defaulter.
Normally above modes shall come into plunge only after expiry of period of 3 months from date of order or reduced period specified by proper officer, but in order to protect interest of revenue, Commissioner may order provisional attachment of any property including bank account belonging to taxable person during pendency of proceedings u/s 62,63, 64, 67, 73 and section 74. However, Such order shall abate after expiry of one year from the date of order.
On application Commissioner may allow payment in maximum 24 monthly installments with interest. . No appeal can be made against the order of Commissioner not allowing or allowing payment in lesser installments [S. 121(d)]