SCN, Orders and Penalty Process under Section 73 & 74 of CGST Act 2017

Issuance of Show cause Notice, & order and payment of penalty with  the process involved under Section 73 and Section 74 of the CGST Act 2017

Under Section 73 of the CGST act 2017 Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilfull-misstatement or suppression of facts to evade tax, he shall serve notice, on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, 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 and a penalty payable under the provisions of this act or the rules made thereunder. Time limit for issuance of such show cause notice, is 2 years and 9 months from due date of filing annual return and Time limit for issuance of order under Section 73 (10) is– 3 years from due date of filing of annual return. Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 before issuance of show cause notice, or within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice, shall be deemed to be concluded. However, where the person pays the dues after 30 days of issuance of Order then the proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent of tax or ten thousand rupees, whichever is higher, due from such person. and issue an order.

Under Section 74 of the CGST act 2017 Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilfull misstatement or suppression of facts to evade tax, he shall serve notice, on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilized input tax credit, 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 and a penalty equivalent to the tax specified in the notice,. Time limit for issue of SCN – 4 years and 6 months from due date of filing annual return and Time limit for issuance of order – 5 years from due date of filing of annual return. If the person does not make all the payment including interest penalty if any before the issuance of show cause notice, then penalty @15% of the tax amount has to be paid. If the person makes payment of the demanded amount including interest and penalty within 30 days after the issuance of show cause notice, then penalty @25% of the tax amount has to be paid. If the person makes payment of the demanded amount including interest and penalty after 30 days of the issuance of order, then penalty has to be paid @50% of the tax amount. In any other case penalty @ 100% of the tax amount has to be paid.

The process flow diagram is provided hereunder:

The proper officer shall serve, along with the (a) notice, issued under section 73 or section 74 a summary thereof electronically in FORM GST DRC-01, (b) statement under sub-section (3) of section 73 or sub-section (3) of section 74, a summary thereof electronically in FORM GST DRC-02, specifying therein the details of the amount payable

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The proper officer may, before service of notice, to the person chargeable with tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.

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Where, before the service of notice, or statement, the person chargeable with tax makes payment of the tax and interest in accordance with the provisions of sub-section (5) of section 73 or, as the case may be, tax, interest and penalty in accordance with the provisions of sub-section (5) of section 74, or where any person makes payment of tax, interest, penalty or any other amount due in accordance with the provisions of the act, whether on his own ascertainment or, as communicated by the proper officer under sub-rule (1A), he shall inform the proper officer of such payment in FORM GST DRC-03 and the proper officer shall issue an acknowledgement, accepting the payment made by the said person in FORM GST DRC-04.

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Where the person referred to in sub-rule (1A) has made partial payment of the amount communicated to him or desires to file any submissions against the proposed liability, he may make such submission in Part B of FORM GST DRC-01A.

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Where the person chargeable with tax makes payment of tax and interest under sub-section (8) of section 73 or, as the case may be, tax, interest and penalty under sub-section (8) of section 74 within thirty days of the service of a notice, under sub-rule (1), or where the person concerned makes payment of the amount referred to in sub-section (1) of section 129 within 7 days of the notice, issued u/s 129(3) but before issuance of order under the said sub section, he shall intimate the proper officer of such payment in FORM GST DRC-03 and the proper officer shall issue an order in FORM GST DRC-05 concluding the proceedings in respect of the said notice,

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The representation referred to in sub-section (9) of section 73 or sub-section (9) of section 74 or sub-section (3) of section 76 or the reply to any notice, issued under any section whose summary has been uploaded electronically in FORM GST DRC-01 under sub-rule (1) shall be furnished in FORM GST DRC-06.

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A summary of the order issued under section 52 or section 62 or section 63 or section 64 or section 73 or section 74 or section 75 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 shall be uploaded electronically in FORM GST DRC-07, specifying therein the amount of tax, interest and penalty, as the case may be, payable by the person concerned.

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The order referred to in sub-rule (5) shall be treated as the notice, for recovery.

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Where a rectification of the order has been passed in accordance with the provisions of section 161 or where an order uploaded on the system has been withdrawn, a summary of the rectification order or of the withdrawal order shall be uploaded electronically by the proper officer in FORM GST DRC-08.

Conclusion: Navigating the complexities of tax enforcement under the CGST Act requires a comprehensive understanding of Sections 73 and 74. By adhering to timelines, responding to notices, and fulfilling payment obligations, taxpayers can mitigate risks and ensure compliance with GST regulations. Stay informed, stay compliant!