One of the fundamental legal principles is that an element of certainty must be brought to the legal proceedings. The law of limitation is based on this principle. Any action under any law has to be taken within the limitation period prescribed otherwise uncertainty would prevail eternally. The provisions of limitation period gain all the more importance in the legislation dealing with indirect taxes, where the tax burden is to be passed on to the next level at every stage. Therefore, a tax law must have a limitation period, beyond which demands cannot be raised.

Next, it has been seen many times that tax dues are not paid correctly by the taxpayers. In most of these cases, such non-payment is due to the bonafide belief of the person that his activities do not attract any tax liability under the GST law; or he is entitled to certain exemption, etc., whereas in some cases, such non-payment is deliberate with an intention to evade payment of such tax. To minimize the inadvertent short payment of taxes, the concept of ‘matching’ the details of ‘outward supplies’ of supplier with the details of ‘inward supplies’ of recipient has been introduced in the GST law by the Government.

Under GST law, Input Tax Credit (“ITC”) would auto populate in GSTR 2A on basis of sales summary filed by seller in GSTR 1. In order to claim ITC, purchaser was supposed to file purchase summary in GSTR 2 by accepting, rejecting, modifying the details of ITC auto populated in its GSTR 2A. In case of any missing details of invoice, he was also allowed to add the details of missing invoice in GSTR 2A and was allowed provisional claim of ITC subject to acceptance of same by the seller. In case seller fails to accept the same, the ITC so allowed earlier will be disallowed and purchaser will have to pay the same along with interest.

Unfortunately, the process of filing GSTR 2 never started and has been suspended by the Government. Due to suspension of filing GSTR 2, sometimes mismatch arise regarding ITC claimed by the purchaser in their GSTR 3B and ITC auto populated in GSTR2A on basis of sales summary filed by seller in GSTR 1. Another reason of mismatching is non-filing of return by the seller. It is submitted that as the returns were not filed and payments were not made by seller, then adjudication authorities start issuing notices for payment of difference between ITC claimed as per GSTR 3B & ITC as reflecting in GSTR 2A on basis of sales summary filed by seller in GSTR 1.

It is submitted that there may arise some instances where the tax was not paid correctly by taxpayer. To deal with such situations, the GST law contains elaborate provisions for the recovery of tax under various situations. Chapter XV of the Central Goods and Services Tax Act, 2017 (“CGST Act, 2017”) [Sections 73 to 84] and Chapter XVIII [Rules 142 to 161] of the Central Goods and Services Tax Act, 2017 (CGST Rules, 2017”) contains various provisions relating to demands and recovery. There are parallel provisions in SGST laws of various States. The demand and recovery proceedings will be made either by Central GST Officer or State GST Officer depending on their jurisdiction over particular taxable person.

Section 73 and Section 74 of CGST Act, 2017 deal with the manner in which the tax liability of a person should be determined in case of short payment/ non- payment   of   tax/   erroneous   refund/   wrong availment/ utilisation of ITC. The incidence of short payment/non-payment of tax or erroneous refund or wrong availment/utilisation of ITC may be because of an inadvertent bonafide mistake (i.e. Normal Cases) or it may be a deliberate attempt (i.e. Fraud Cases) to evade the tax. Since the nature of offence is totally different in both the incidences, hence, under GST law, separate provisions for recovery of the tax and the amount of penalty have been made to deal with such type of cases. Besides these, there are provisions to encourage voluntary compliance such as no penalty or lesser penalty if the tax dues along with interest, are paid within the specified time limit/ incidence. Further, while a lesser time limit is available to the Revenue to raise the demand in normal cases, it would have a longer limitation period available to raise the demand in fraud cases.

Show Cause Notice (‘SCN’)

 SCN is a document served by the department on a person asking him to explain with reasons as to why a particular course of action should not be taken against him. It is similar to an opportunity given to a person who is proposed to be charged with violation of law by giving him sufficient opportunity to submit his view point as to why he should not be proceeded against for the alleged violation. In order to adhere to the principles of ‘natural justice’, before raising any tax demand, a notice has to be issued, asking the person chargeable with tax to show cause as to why the specified amount of tax should not be demanded from him.

It is a time-tested principle of natural justice (audi alteram partem meaning ‘let the other side be heard’) that no person can be adjudged guilty without being given an opportunity to answer charges against such person. And to hear a person, such person should be “put at notice” which clearly states various aspects about the charges or allegations in such notice so that the person can understand the allegations and answer them. In GST, as with every legislation, this notice is called “show cause notice” and this SCN is a mandatory requirement for raising demands.

The issuance of SCN grants an opportunity to such person to defend himself before adjudication. The person to whom such notice has been issued can contest the demand by filing a reply to the show cause notice and also by appearing before the adjudicating authority personally. After considering the reply filed by the person as well as the submissions made during the personal hearing, the adjudicating authority shall pass a speaking order, either confirming the tax demand or dropping the same.

The ‘Proper Officer’ (being one who is authorized under Section 5 of the CGST Act, 2017 to carry out this function under the law) shall serve notice on the said person requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 of the CGST Act, 2017 and a penalty leviable as per the provisions of the Act.

Time limit to issue SCN under Section 73 (in Normal Case)

Section 73(2) when read with Section 73(10) of the CGST Act, 2017, spells out the time limit for passing the adjudication order along with the time limit for issuance of SCN. The extracts of such provisions are as under-

“(2) The Proper Officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.

 (10) The Proper Officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date or erroneous refund.”

The date within which a SCN shall be issued has been made dependent on the due date of passing of the order. It prescribes that SCN shall be issued at least 3 months before the due date of passing of adjudication orders. The order referred herein has to be passed within 3 years from the due date for furnishing the Annual Return for the Financial Year to which the tax not paid/short paid/ITC wrongly availed/utilised relates to or within 3 years from the date of erroneous refund. Thus, the time-limit for issuance of SCN is 2 years and 9 months from the due date of filing Annual Return for the Financial Year to which the demand pertains or from the date of erroneous refund.

Time limit to issue SCN under Section 74 (in Fraud Case)

Section 74(2) when read with Section 74(10) of the CGST Act, 2017, spells out the time limit for passing the adjudication order along with the time limit for issuance of SCN. The extracts of such provisions are as under-

“(2) The Proper Officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

 (10) The Proper Officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date or erroneous refund.”

The date within which a SCN shall be issued has been made dependent on the due date of passing of the order. It prescribes that SCN shall be issued at least 6 months before the due date of passing of adjudication orders. The order referred herein has to be passed within 5 years from the due date for furnishing the Annual Return for the Financial Year to which the tax not paid/short paid/ITC wrongly availed/utilised relates to or within 5 years from the date of erroneous refund. Thus, the time-limit for issuance of SCN is 4 years and 6 months from the due date of filing Annual Return for the Financial Year to which the demand pertains or from the date of erroneous refund.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes

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