Today I will discuss how to handle show cause notice u/s 73, 74 & 76 of CGST Act, 2017 in simplified manner-

Show cause notice (SCN) – is a document served by department as an opportunity to person to explain with reasons as to why particular course of action should not be taken against him. No person can be proved guilty without given an opportunity of being heard.

It is a basic and absolutely necessary part of proceedings in tax system.

There are multiple cases where show cause notice can be issued eg cancellation of registration, rejection of refund claim etc.

Show cause notice under section 73-

Section 73 talks about 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 mis-statement or suppression of facts.

– the Proper Officer 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 and a penalty Levi able as per the provisions of the Act.

    • Time Limit-Section 73(2) when read with Section 73(10), spells out the time limit for passing the adjudication order along with the time limit for issuance of show cause notice.
    • The adjudication order needs to be passed within three years from the due date for furnishing of annual return for the financial year to which the tax relates to or within three years from the date of erroneous refund.
    • Show cause notice shall be issued at least 3 months before the due date of passing of adjudication orders i.e 2 years and 9 months from due date of Annual Return
      • First Opportunity of Zero penalty-
        • The Officer will serve an intimation vide Part A of Form GST DRC – 01A asking the person to remit the tax along with interest. Details about the tax demand will be stated briefly in Part A.
        • This is a mandatory facility that must be allowed before SCN so that the taxpayer who turns down this opportunity also gives up the concession that goes along with this facility, the concession being that in cases covered by section 73, if tax demanded along with interest is paid ‘before SCN’ then,penalty payable will be ‘nil’.
        • Payment is not made in full-In case, the assessee has made only partial payment and he is not accepting the remaining liability or he is disputing the entire liability, he can respond in
          Part B of the same form GST DRC-01A.
    • Second Opportunity of Zero Penalty-
    • After having turned down the facility allowed under section 73(3) when the show cause notice is issued, the taxpayer is allowed a ‘second’ opportunity to pay tax demanded along with interest in Form GST DRC-03 within 30 days of issue of show cause notice and inform the proper officer in writing of such payment.
    • The officer upon receipt of such information, shall give an intimation of conclusion of proceedings in Form GST DRC-05 and all the proceedings in respect of the said notice except proceedings under Section 132 shall be deemed to be concluded. Here too, penalty payable will be ‘nil.
  • Imposition of penalty- In case taxpayer not availed both opportunities then the proper officer will proceed to take up the adjudication process and then determine penalty equivalent to ten per cent of tax or ten thousand rupees, whichever is higher,

Show cause Notice under Section 74-

Section 74 talks about determination of

  • tax not paid or short paid or
  • erroneously refunded or
  • input tax credit wrongly availed or utilised for any reason
  • by reason of fraud or any wilful-misstatement or suppression of facts to evade tax, the Proper Officer shall serve a notice on the said person requiring him to show cause as to why he should not be asked to pay the amount specified in the notice along with interest payable thereon under section 50 and with 100% of tax as penalty leviable as per the provisions of the Act.
  • Time Limit-

Section 74(2) when read with Section 74(10), spells out the time limit for passing the adjudication order along with the time limit for issuance of show cause notice. It says that, the adjudication order needs to be passed within five years from the due date for furnishing of annual return for the financial year to which the tax relates to or within five years from the date of erroneous refund.

  • It prescribes that the show cause notice shall be issued at least 6 months before the due date of passing of adjudication orders.
  • First Opportunity but with 15% penalty :
    • The proper officer will serve an intimation vide Part A of Form GST DRC – 01A asking the person to remit the tax along with interest and 15% penalty without serving a show cause notice.
    • Upon remitting of such amounts vide Form GST DRC-03, the taxpayer shall inform the proper officer in writing of such payment. Upon receipt of such information, the proper officer shall give an acknowledgement in Form GST DRC-04 and shall not serve any notice under Section 74(1).

♦ Second Opportunity to get away with 25% penalty :

      • After the issuance of show cause notice, if the taxpayer comes forward and pays the balance amount of tax, interest along with 25% penalty in Form GST DRC-03 within 30 days of issue of show cause notice and informs the proper officer in writing of such
        payment, the officer upon receipt of such information, shall inform the taxpayer that, all the proceedings in relation to the said notice deemed to have been concluded.

♦ Third Opportunity to get away with 50% penalty:

      • After issuance of order in original the tax payer can avail the third chance to get away with 50% penalty. Where the taxpayer comes forward and pays the amount demanded, applicable interest along with 50% penalty in Form GST
        DRC-03 within 30 days of communication of the order and informs the proper officer in writing of such payment, the officer upon receipt of such information, shall give an intimation of conclusion of all the proceedings in
        respect of the said notice.

Show cause notice under section 76-

Section 76 deals with a situation of “tax collected but not paid to Government.

√ Any amount collected “as tax” under the GST Acts, must be remitted Immediately to the Government irrespective of whether the supplies made were taxable or not.

√ Where any amount is required to be paid to the Government as stated above, and which has not been so paid, the proper officer may serve a show cause notice on the person liable to pay such amount requiring him to show cause as to why the said amount as specified in the notice, should not be paid by him and why a penalty equivalent to the amount should not be imposed on him under the provisions of this Act.

√ Time limit-No time limit has been prescribed to issue a show cause notice under this section. Hence, the proper officer can issue a notice at any time whenever he gets the information about the evasion.

√ There is no relief of zero penalty, nil penalty, 15% penalty, 25% or 50% under this section.

√ The proper officer shall issue an order within one year from the date of issuance of such notice under this section.

Queries /doubts related to above mailed at [email protected]

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