Introduction
All of us must be aware that the State Governments had issued Show Cause Notices in form DRC-01 under section 73/74 read with rules 100(2) & 142(i)(a) of CGST rules. You must have also noticed that only the State Tax Officers have issued such notices and not the officers having Central Jurisdiction.
Now the question is that how to respond these notices and whether such notices are correct or sustainable. In this article I have tried to explain as to how to address them. Before commenting anything on compliance to these notices, it will be advisable to discuss the provisions regarding assessment and other relevant provisions. This article guides on addressing these notices, delving into relevant provisions and assessment types.
1.1 In terms of Section 2(ii) of the Act “assessment means determination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment”. As we see the definition of assessment is inclusive definition and starts with the words determination of tax liability and includes various types of assessments under different sections.
The CGST Act contemplates the following types of assessment.
1) Self-Assessment (Section 59)
2) Processional Assessment (Section 60)
3) Scrutiny of returns filed by registered taxable persons (Section 61)
4) Assessment of No-filler of returns (Section 62)
5) Assessment of un-registered person (Section 63)
6) Summary assessment in certain special cases (Section 64)
1.2 Section 61 deals with the powers vested in the proper officer to scrutinize the returns filed by registered persons with a view to verify the correctness of the returns, it is considered to be a pre-adjudication process. Only the proper officer under whose jurisdiction tax payer is registered and filing return is authorized to scrutinize returns. Any cross empowered officer is not vested with authority under section 61 to scrutinize.
1.3 When a return furnished by a registered person is selected for scrutiny, the Proper Officer scrutinizes the same with reference to the information available with him, and in case of any discrepancy, he shall issue a notice to the said person in FORM GST AMST-10, under rule 99(1), informing him of such discrepancy and seeking his explanation thereto. The proper officer shall quantify the amount of tax, interest and any other amount payable in relation of such discrepancy, wherever possible.
An explanation shall be furnished by the registered person, in reply to the aforesaid notice, within a maximum period of 30 days from the date of service of the notice or such further period as may be permitted by the proper officer.
The registered person may accept the discrepancy mentioned in the notice issued under rule 99(1), and pay the tax, interest and any other amount arising from such discrepancy and inform the same OR furnish an explanation for the discrepancy in Form GST ASMT- 11 to the proper officer. Where the explanation furnished by the registered person or the information submitted under Rule 99(2) is found to be acceptable, the Proper Officer shall inform the registered person in Form GST ASMT-12.
In case, an explanation is not furnished OR the explanation furnished is not satisfactory, OR after accepting discrepancies, the registered person fails to take corrective measures in his returns for the month in which the discrepancy is accepted by him, the proper officer, may, take recourse to any of the following provisions:
1. Initiate departmental audit as per section 65 of the Act.
2. Initiate special audit as per section 66 of the Act.
3. Initiate inspection, search and seizure as per section 67 of the Act.
4. Issue show cause notice under section 73 and 74 of the CGST Act.
1.4 The first stage in return scrutiny denotes a prima facie scrutiny, in order to ascertain whether the information furnished by the assessee in returns is prima facie valid and not internally inconsistent or inadequate. The second stage appears to be a detailed assessment calling for records and determination of tax liability under sections 73 to 75. While doing so, the proper officer is entitled to exercise the powers vested in him under section 67 of the Act, which deals with the power of inspection, search and seizure.
From the language employed in section 67, it appears that these powers are required to be exercised not in a routine manner, but only under circumstances when there is reasonable belief regarding suppression or intention to evade tax.
1.5 It’s important to note that section 61(3) empathetically provides that in case the explanation given by the tax payer in response to discrepancies informed by the Proper Officer, if found acceptable, the registered person shall be informed accordingly in Form GST ASMT-12 and no further action shall be taken in this regard.
2. Section 73
2.1 Section 73 specifically covers determination of Tax and demand in case where there is no involvement of fraud, willful statement or suppression of facts under the circumstances.
a) Tax not paid or
b) Tax Short paid or
c) Import Tax wrongly availed or
d) Import Tax wrongly utilized or
e) Tax erroneously refunded
2.2 As per section 73(2) the notice under subsection (1) is to be issued at least Three Months prior to the time limit specified in sub-section (10) for issuance of order.
2.3 The order u/s 73(9) is to be issued within Three Years from the due date for furnishing of annual return for the relevant FY or within Three Years from the date of erroneous refund. As per notification No. 09/23 Central Tax dated 31.03.2023, time limits for issue of order u/s 73(10) were extended as under.
| 2017-18 | 31.12.2023 |
| 2018-19 | 31.03.2024 |
| 2019-20 | 30.06.2024 |
The above time limits have been further extended as under vide Notification No 56/2023-Central Tax Dt. 28/12/2023.
| 2018-19 | 30-04-2024 |
| 2019-20 | 31-08-2024 |
The orders of extending the time limits are issued u/s 168-A of CGST Act which provides as under
2.4 Section 168A Power of Government to extend time limit in special circumstances:-
(1) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, by notification, extend the time limit specified in, or prescribed or notified under, this Act in respect of actions which cannot be completed or complied with due to force majeure.
(2) The power to issue notification under sub-section (1) shall include the power to give retrospective effect to such notification form a date not earlier than the date of commencement of this Act.
Explanation :- For the purposes of this section, the expression “force majeure” means a case of war, epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature or otherwise affecting the implementation of any of the provisions of this Act.}
It has come to notice that such notification extending the time limits have been challenged in High Courts on the ground that the circumstances mentioned in Section 168-A do not exist which may necessitate the extension of time limits.
2.5 CBIC in its circular No 183/15/2022-GST dt 27.12.2022 have issued clarification to deal with difference in ITC availed in Form GSTR-3B as compared to that detailed in form GSTR-2A for F.Y 2017-18 and 2018-19
3. From the reading of relevant sections and the abovementioned discussion we can make the following observations.
i) Recently bulk notices have been issued in DRC-01 u/s 73(1) for F.Y 2018-19 on the basis of discrepancy in the returns i.e. mismatch in ITC as per GSTR-3B and GSTR-2A. In such cases the proper course of action should have been to issue notice u/s 61 (Scrutiny of Returns). The State Government after missing the opportunity to issue notices u/s 61 have resorted to issue of Show Cause Notices in DRC-01 u/s 73/74 of the CGST Act .
ii) Show Cause Notice in Form DRC-01 can be issued only after a proper enquiry. In the present circumstances the SCN in DRC-01 are being issued without following the due process of law which is against the principles of natural justice. SCN is issued when there are certain allegations against the person and u/s 73 it is issued to determine certain demand before adjudication order is passed.
iii) SCN must be issued electronically on the common portal and DIN is to be communicated as per Circular No. 122/2019 and Circular No. 128/2019. It was held in the case of Jak Communications (P.) Ltd. v. Deputy Commercial Tax Officer – [2024] 158 com332 (Madras) that Where notices were uploaded in web portal only and same were not at all physically served to assessee and, thus, assessee was unaware about said notice, impugned assessment order was liable to be set aside
iv) After issuing of show cause Notice if the assesse finds certain undisputed demand the same can be deposited alongwith interest u/s 50. As per section 73(8) no penalty is leviable if the demand is paid within 30 days of issue of SCN and intimation to proper officer is given in Form DRC-03.
v) Recently Honorable Gauhati High Court in the case of PEPSICO HOLDINGS has stayed the proceedings u/s 73 on the ground taken by the petitioner that the SCN was issued without following the due process of law and before any notice for scrutiny of return was issued in ASMT -10 u/s 61.
4) Handling the SCN Do’s and Don’t’s
a) We should bear in mind that SCN is issued only when any allegation is made or some penal action is to be taken, it is not a notice for any enquiry.
b) While responding to the SCN we should first check the validity and sustainability of the proceedings U/S 73 on the ground that no notice was issued in ASMT 10 U/S 61 after that we should reply on merits of the case. We should also refer the clarification of CBIC in Circular No. 183/15/2022/GST in which clarification was issued to deal with difference in ITC.
c) On receipt of SCN we should very carefully read the notice we should not read it simply for the sake of reply. We should see whether the notice is unambiguous. If we find any ambiguity we should not hesitate to clarify from the proper officer. If it is a case of mismatch of ITC we can ask the proper officer to provide the party wise details of the suppliers whose ITC is to be rejected/disallowed and the reason for the same.
d) We should find out the jurisdiction of the assessee whether it is with the State Tax Officer or the Central Officer because SCN can be issued only by the Proper Officer who has jurisdiction over the case.
e) We should verify from the portal whether any notice in ASMT 10 was issued u/s 61 of the CGST Act.
f) After going through the SCN we should first ascertain whether there is any demand which is undisputed. In such a case we should pay the demand alongwith applicable interest u/s 50. In this way we can save the penalty u/s 73.
g) It is noticed that in certain cases the ITC is being denied because the registration of supplier is cancelled retrospectively. In such cases reliance may be placed on the decision of Calcutta High Court in the case of Gargo Traders Vs. Joint Commissioner where in it was held that ITC cannot be denied where registration of the supplier is cancelled retrospectively.
Conclusion: Effectively handling Show Cause Notices under Sections 73-74 of GST requires a meticulous approach. Understanding the legal framework, responding strategically, and staying updated on clarifications are crucial for a favorable resolution. Ensure compliance with procedural requirements and consider professional advice for specific cases.
Disclaimer: The views presented in this article are personal and readers are advised to consult with professionals before taking any action.
Author Bio
Thanks, Sir for writing such an excellent article which is very helpful for responding to GST notices. It can be seen that YOU put a lot of hard work into this.