1. Introduction: Levy of tax is mandated by law under GST, its recovery is an important administrative function under law. Though the focus is on self-assessment and voluntary payment of tax, there bound to be certain disputes and other factors resulting in non-payment, delayed payment of tax. In civil society the demand of tax before its recovery is more humane touch to the process, these processes ultimately aimed at proper recovery of tax for larger social good. The verification, scrutiny, audit, review of returns and records are well recognised methods in tax administration.
2. Legal provisions under GST for demand and recovery: Chapter XV comprising sections 73 to 84 lay down the procedure in demand and recovery of GST. Tabular representation may help to understand the broad spectrum of the process:
| Section | Details |
| 73 | Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts. |
| 74 | Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts. |
| 75 | General provisions relating to determination of tax. |
| 76 | Tax collected but not paid to Government. |
| 77 | Tax wrongfully collected and paid to Central Government or State Government. |
| 78 | Initiation of recovery proceedings |
| 79 | Recovery of tax. |
| 80 | Payment of tax and other amount in instalments. |
| 81 | Transfer of property to be void in certain cases |
| 82 | Tax to be first charge on property |
| 83 | Provisional attachment to protect revenue in certain cases. |
| 84 | Continuation and validation of certain recovery proceedings. |
3. Section 73 and 74 have many similarities on recovery procedure, though the circumstances under which the proceedings are initiated are totally different. The time limit is higher under section 74 considering the serious nature of circumstances like “….by reason of fraud or any wilful misstatement or suppression of facts.” Following table summarises the details:
| Particulars | Section 73 | Section 74 |
| Situation of proposing GST demand of tax interest, penalty etc. | When tax is not paid or short paid or wrong availment or utilization of ITC or refund is erroneously refunded for reason other than fraud or wilful misstatement or suppression of facts to evade tax | For reason of fraud or wilful misstatement or suppression of facts to evade tax |
| Time limit for issuance of SCN | 3 month prior to issuance of order | 6 month prior to issuance of order |
| Time limit for Passing of order | Within 3 year from the due date for furnishing of annual return for financial year to which tax has not paid or short paid or wrong availment or utilization of ITC relates to or 3 years from the date of erroneous refund | Within 5 year from the due date for furnishing of annual return for financial year to which tax has not paid or short paid or wrong availment or utilization of ITC relates to or 5 years from the date of erroneous refund |
4. The following points are important to the proceedings:
a. Proper officer- only proper officer, not all can initiate proceedings. Jurisdiction in terms of administrative instructions determine the position of proper officer.
b. Tax period- any period i.e. any one month, number of months, any months in different financial years with in the limited period of 3 or 5 years.S.73(3)/74(3).
c. Person chargeable with tax- the scope is widened by no restriction to registered person or taxable person. Even persons not registered are covered here. In case of HUF, Firms, LLP, Corporate bodies the persons responsible will be liable to take note of the SCN and reply to that.
d. Voluntary payment is always encouraged for easy and speedier closure of proceedings. To incentivise such compliance, no penalty or lesser penalty are proposed as per the situation mentioned in the section.
e. Tax, interest and penalty are recoverable under these provisions.
5. Voluntary tax payment related provisions are as follows:
| Section 73 | Section 74 |
| Proper officer shall not serve any notice/statement on receipt information with respect to payment of tax along with application interest on the basis of his own ascertainment or as ascertained by proper officer. Such payment must be made before service of notice /statement | Proper officer shall not serve any notice/statement on receipt information with respect to payment of tax along with application interest and 15% of tax as penalty on the basis of his own ascertainment or as ascertained by proper officer. Such payment must be made before service of notice /statement |
| If the applicable pay tax along with applicable interest within 30 days from the date of issuance of notice/statement, then the penalty shall not be applicable and all the proceeding in the respect shall be deemed to be concluded | If the applicable pay tax along with applicable interest and 25% of tax as penalty within 30 days from the date of issuance of notice/statement ,then the penalty shall not be applicable and all the proceeding in the respect shall be deemed to be concluded |
6. Issue of show cause notice SCN and related issues: Show Cause Notice (SCN) is the first stage of litigation under GST. SCN is to be issued proposing demand of tax, interest, fees, or penalty and is required to be issued for taking action with respect to payment of tax collected by any person which has not been deposited with the govt. Under GST, the department is required to issue SCN when-
a. Tax is not paid or short paid or
b. Tax is erroneously refunded or
c. Input tax credit is wrongly availed or utilized or
d. Any demand of tax, interest, fee or penalty is to be proposed as a result of inquiry or audit.
Validity of SCN must be verified in pursuance of Section 75 of the Act. Section 75 prescribe situations like pending/further adjudication proceedings and time line restrictions with respect to issue of SCN. SCN must be issued within the time limit as prescribed u/s section 73 or 74 of the Act. It should be issued along with document relied upon by Department. Interesting to note that section 75(2) permits proceedings to be continued under 73(1) even if the SCN issued under 74(1) fail to establish the allegation of fraud or any wilful misstatement or suppression of facts to evade tax has not been established. The SCN must be specific with respect to allegation and should not suffer from vagueness and arbitrariness.
7. Penalty payable under section 73 and 74: Penalty payable under proceedings vary depending on the level of voluntary compliance. Early response to proceedings and early payment of tax and interest (u/s 50) entail the chargeable person certain concessions in levy of penalty. In a nutshell the details are as follows:
| Time line for compliance | Sec 73 | Sec 74 |
| Before service of notice 73(5)/74(5) | No penalty | 15% of tax amount |
| Within 30 days of issue of show cause notice 73(8) /74(8) | No penalty | 25% of tax amount |
| After considering the representations in proceedings 73(9) / 74(11) | 10% of tax amount or 10,000/- the higher one | 50% of tax amount (within 30 days) 100% of tax amount after 30 days |
8. Self-assessed tax to be paid: 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 [LC Infra Projects (P) Ltd vs Union of India, WP No 28876 of 2019 High Court of Karnataka- held that issue of SCN is mandatory for recovery of interest/s 50]
9. Where any penalty is imposed under section 73 or 74, no penalty shall be imposed for same act or omission on the same person under any other provision of this Act. Limitation as per section 75(13).
10. General provisions for demand of tax: Section 75 make general provisions relating to demand of tax made under section 73 and 74.
a. Computing period of issuance of SCN or order- 3 years’ u/s 73(10) or 5 years’ u/s 74(10)-linked to due date of annual return of financial year.
b. Order in pursuance of directions of appellate authority or tribunal or court-within 2 years from the date of communication from such authority. Sec 75(3).
c. Opportunity of personal hearing or adjournment-If favourable order is issued by the authority no need of hearing. Or else opportunity of hearing and not more than 3 adjournments may be granted before passing orders on the basis of records.
d. Contents of Order- Order should contain the relevant facts and basis of decision. The amount of tax, interest and penalty demanded shall not exceed the amount specified in the notice. Payment of interest is automatic.
e. Conclusion of Proceedings-Order shall be passed within 3 years or 5 years, linked to due date of annual return of financial year.
f. The exclusion of time under adjudication proceedings, stay etc., shall be considered as per section 75(11).
11. Section 74- applicable situations: Proceedings under Section 74 calls for greater responsibility on the part of department as well as taxable person. It also invokes extended period for 5 years, conclusion of proceedings as against lower period of 3 years under section 73. The applicability rests on following conditions:
a. by reason of fraud, or
b. any wilful-misstatement or
c. suppression of facts to evade tax,
FRAUD-The dictionary meaning is “wrongful or criminal deception intended to result in financial or personal gain”. A person or thing intended to deceive others, typically by unjustifiably claiming or being credited with accomplishments or qualities also describe fraud. The basic element of fraud is deceit. As per Section 25 of the Indian Penal Code (“the Code”) fraudulently is defines as: “A person is said to do a thing fraudulently if he does that thing with the intent to defraud but not otherwise”. According to the section 17 of Indian contract act 1872, fraud means making a suggestion, as a fact, which the person making does not believe to be true. Fraud also means active concealment of fact with a view to deceive the exchequer. Intension to evade duty is built in to the act of fraud. Fraud is against to public policy. The trace of fraud in GST proceedings make take variety of forms, designs and may involve one or more parties.
WILFUL-MISSTATEMENT– Wilful means with intent to evade GST. Every misstatement need not be wilful. Wilful is deliberate or intentional. The dictionary meaning is “having or showing a stubborn and determined intention to do as one wants, regardless of the consequences.” A false statement will be termed as wilful if it is intentional or deliberate. Misstatement must be wilful to invoke extended period of limitation.
SUPPRESSION OF FACTS TO EVADE TAX– Suppression means not providing information which the person is legally required to provide but deliberately not stated. Explanation 2. To section 74 states –For the purposes of this Act, 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. Intension to evade tax is not mere failure to pay tax, it must be something more like deliberately avoiding payment of duty. If all facts are disclosed to department, extended period is not applicable.
12. Tax collected but not paid to Government: Section 76 provides that if any person who has collected from any other person an amount as tax or purporting to be tax has not paid the amount to Government, he shall deposit the amount. Various aspects under section 76 are captured here under:
a. Amount shall be collected as tax- merely billed is not collected, actual payment by the other person to the bill results in collection.
b. Demand if a person does not deposit or pay it- there is no time limit to issue SCN.
c. Interest payable on delay in deposit.
d. Personal hearing and order.
e. Time limit for passing the order is within one year from the date of issue of notice.
f. Disposal of amount deposited with the Government Sub section (9) permits appropriation of such amount against assessed liability. Government Sub section (10) permits refund the amount to person who has borne the incidence.
13. Tax wrongfully collected and paid to Central Government or State Government: Section 77 (similar section 19 under IGST) contemplates a situation where a mix up of payment of SGST/UTGST/CGST and IGST may happens by mistake. Details are as follows:
| GST category | Wrongly classified and paid | Remedy | Consequences |
| IGST | SGST/UTGST/CGST | Refund of the amount | To pay IGST- No interest. |
| SGST/UTGST/CGST | IGST | Refund of the amount | To pay SGST/UTGST/CGST- No interest |
The law makers did not provide for adjustment amongst central and state tax authorities. That would have given big relief to tax payers.
14. Initiation of recovery proceedings: Recovery of tax is an important administrative function. If the persons pay tax determined as per proceedings/ adjudication, question of recovery does not arise. In practical life various reasons cause either delay in payment or the persons not responding to the call for payment. Section 78 provides a period of THREE MONTHS from the date of service of such order for payment, failing which recovery proceedings shall be initiated. Proper officer has power to demand tax in a shorter period in the interest of revenue.
15. Recovery of tax: Section 79 provides for manner of recovery of tax due to the Government. In nutshell the various methods may be summarised as follows:
a. Deduction from any money payable to person.
b. Recovery through detaining and selling goods.
c. Recovery from any other person who is required to pay any amount to the defaulter- Garnishee order.
d. Distrain property of the person.
e. As arrears pf land revenue.
f. Recovery through Magistrate.
g. Authorities can use one or more methods.
h. Recovery from bond if provided.
i. Recovery out of inter head refund amount against inter head due amount i.e. CGST/IGST against SGST and vice versa. Section 20 of IGST empowers equal and parallel powers.
16. Payment of tax and other amount in Instalments: Section 80-This facility is a kind of benevolence bestowed upon the taxable person. This facility has to be sanctioned by Commissioner upon request from taxable person. This facility grants some time to arrange resources and pay in instalments. This can be narrated in capsule form as follows:
a. Commissioner is empowered to sanction payment by instalments.
b. Reasons to be recorded in writing for sanction.
c. Monthly instalments not exceeding 24 months.
d. Interest shall be payable.
e. This facility is not available for tax self-assessed by the person.
f. Facility available for demand confirmed u/s 73,74 and 75- tax, interest, penalty and fine.
g. Commissioner may impose conditions.
h. Default in payment of any instalment will result in entire amount payable forthwith.
17. Preventive measures for recovery of Tax: Section 81,82, and 83 lay down provisions to secure tax due to Government by legal mandate under GST.
| Section | Description | Details |
| 81 | Transfer of property to be void in certain cases | Ø Void if done with intention to defraud to Govt.
Ø Exception if made for adequate consideration in good faith with noticing pendency of such proceedings |
| 82 | Tax to be first charge on property | Ø Save as otherwise provided under IBC code ( exception) |
| 83 | Provisional attachment to protect revenue in certain cases | Ø Commissioner may exercise attachment
Ø During pendency of any proceedings Ø Attach provisionally |
18. Continuation and validation of certain recovery proceedings. Section 84 provides that when any demand of tax, interest or penalty has been confirmed against the taxable person and recovery proceedings are being taken the proceedings will be continued even where amount is enhanced in appeal revision or other proceedings and in case of reduction of demand such reduced amount to be recovered. Appropriate authority for recovery shall be so instructed by Commissioner.
19. Conclusion: Government revenue is well protected under various circumstances. The procedures are laid down so as to remove any ambiguity when there are changes in officers due to transfer or change of jurisdiction. The attachment proceedings coupled with recovery from third parties who are due to pay to the chargeable person in arrears are further safety measures.
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