The word ‘adjudication’ has not been defined anywhere in the Central Goods and Services Tax (2017)[1]. However, under the section 2(91)[2] and section 2(4)[3] of the same, the act defines the two very important terms – Proper officer and Adjudicating authority, respectively. The powers granted into these two bodies are to perform any act required by them under this act. These acts include the process involved in the act of adjudication, which in other words can be defined as resolving a dispute legally/judicially and concluding based on the evidence provided by both the parties. It is to be noted that the need for adjudication arises when such departmental bodies observe any irregularities regarding GST issues. Few examples of such irregularities that requires the authority to issue a show cause notice are – ITC wrongly availed or wrongly utilized, tax not paid or short paid are some that are mentioned under the section 73[4] & 74[5] of the act and tax collected but not paid and tax collected under wrong head as mentioned under the section 75[6] and 76[7] respectively. The idea of this article is to briefly go through each aspect of adjudication under the GST law, starting from ‘pre-adjudication’ process and finishing at the last stage of provision of appeal available to the adjudicated order, in the light of various sections, relevant updates and case laws introduced.
To understand the act adjudication from the very bottom, the process of ‘pre-adjudication’ should be taken into consideration first and foremost. It shall be noted that the stage pre-adjudication begins with the scrutiny of returns submitted by the registered persons, as mentioned in the section 61 of the act[8]. The recent GST instruction notice issued by CBIC, dated 22.03.2022[9] can be observed to be very crucial with respect to Standard Operating Procedure (SOP) that the instruction notice has laid down for the purpose of this ‘scrutiny of return’ in the view of section 61, read with rule 99[10] of the CGST rules of 2017. The said 2022 instruction has aimed to assist the understanding and implementation of section 61 for the financial years 2017-18 and 2018-19. Now, if the proper officer is not satisfied with the explanation given by the registered person against the discrepancy noticed during the course of scrutiny of GST return, or no explanation is received by the officer within 30 days or the time limit as mentioned by him, necessary actions will be taken against the registered person(s), or in other words the process of adjudication will initiated. Proper officer then will take the following action(s) as deemed necessary as per the facts present in a particular case. Starting from section 65[11] for the need to audit by the tax authorities, then under the section 66[12] can order for a special audit to be conducted. Under the section 67[13] of the act, police officers are provided with powers to initiate inspection, search and seizure of the registered person(s). Moreover, the powers vested under the sections 73 and 74 of the CGST act to the proper officers are quite crucial in the understanding of act of adjudication. When a person did not pay the tax, or short paid it, or erroneously refunded or ITC is wrongly availed or utilised; if any of such act(s) is done by the person with reason of fraud, willful-misstatement or suppression of facts, then actions can be taken under the section 74, or else actions may be taken by the proper officer under the section 73 of the act. The registered person may himself identify and pay the short payment amount along with the interest without the officer issuing any notice or may pay the same after issuance of notice within 30 days. Interest here refers on the disputed tax amount that had yet not been paid since the original tax amount paid in the financial return.
Failure to adherence to this, shall constitute the penalty charges (10% and 25% of the tax under s.73 and s.74 respectively) to be paid by the registered person as well. However, with respect to imposition of penalty, section 126[14] lays downs general discipline with regards to application of penalty. One of the key provisions of it is the sub-section 6[15], according to which the section imposing penalty should not have a defined amount or percentage of penalty in that particular section or else it will not be governed under guidelines mentioned in section 126. Following this exception, the principles of section 126 will not be applicable to section 73 and 74. This is because it clearly specifies fixed percentage of penalty to be imposed (10% & 25%). Lastly, the actions allowed for the police officers are mentioned in the section 75 and 76, however these may or may not be against the registered person(s) specifically. Proper officer following such actions, for the purposes of recovery of such taxes, section 78[16] and 79[17] of the act forms the parent provisions laying down the procedure for the same.
Moving on, with respect to the actions taken by the proper officer, the matter is then adjudicated by the competent officer in whose jurisdiction the notice is registered[18], based on the reply to show cause notice sent by the assessee and other available or produced evidence. The scope of this competent/proper officer has been narrowed by the recent circular no. 169 on 12.03.2022[19], that followed the notification dated 11.03.2022[20] wherein it has been declared that the GST audit and investigating officers adjudicating powers do not have the power to adjudicate the notices anymore. The only authority they have in the matter now is to issue notices. Moreover, on 05.04.2022 the Delhi High Court also limited the role of competent authority in the case of Swastik Plastics v. Commissioner of DGST[21], wherein it stated that the adjudication order cannot be passed by the same authority conducting the investigation/search/seizure. This has been ordered to eliminate the possibility of presence of biasness. Since otherwise, let us say that the authority investigating a person X, will also be then adjudicating the matter of X based on the investigation done by themselves. Hence, this may lead to unfair legal proceeding for the assessee.
Furthermore, after the adjudication order is passed, the last stage with respect to the adjudicating process is the presence of provision of appeal. The assessee has the right to appeal against the order passed by the adjudicating authority or appellant authority etc. However, such right comes with a limitation under the CGST act of 2017. That is, the right to appeal will be granted to him only after he satisfy the condition of not only paying the full amount of tax accepted by him that he is liable for as per the impugned order, but also after paying 10% of the remaining tax amount that is in dispute, as per the section 107(6)[22]. This amount is known as ‘pre-deposit’. Even though the purpose of this provision is to provide some amount of protection/security against the remaining tax amount due by the assessee to the central government, from the point of view of assessee however it appears to be quite biased. Imagine a hypothetical situation wherein a person is alleged to be liable to pay tax of ₹10cr more, out of the total tax paid by him while filing for the annual financial return. In a case where, appeal filed by him concludes him to be not liable for such amount, forcing him to pay ₹1cr (10% of the disputed amount) to even give him the opportunity to appeal in the first place, is not only unfair, but also may hamper his company’s financial stability and hence overall performance till the final order has been passed.
Likewise, the power to appeal against an order also rest with the commissioner[23] under the GST law. In a case where commissioner himself feel that the order delivered by the appellant authority, adjudicating authority or the revisional authority is not legal or proper, he may as well file for a review application (appeal). Mentioning the grounds for such review, the commissioner may direct his subordinate officer to file for an appeal to appellant authority[24] in case the order of the adjudicating authority needs to be reviewed, and appeal to Tribunal[25] in case where the order of either appellant authority or revisional authority needs to be reviewed.
In consideration of all the information discussed above, it can be concluded that process of adjudication begins with identifying irregularities while scrutinizing the financial return by the proper officer or the adjudicating officer, then issue show cause notice and necessary actions follow. Adjudicating order by the competent authority then follows and the provision to appeal to both assessee and commissioner can be observed as the last stage, if necessary to conclude the process of adjudication with respect to GST issues in India.
[1] Central Goods and Services Tax 2017
[2] Central Goods and Services Tax 2017, s 2(91)
[3] Central Goods and Services Tax 2017, s 2(4)
[4] Central Goods and Services Tax 2017, s 73
[5] Central Goods and Services Tax 2017, s 74
[6] Central Goods and Services Tax 2017, s 75
[7] Central Goods and Services Tax 2017, s 76
[8] Central Goods and Services Tax 2017, s 61
[9] Central Board of Indirect Taxes and Customs, GST Policy Wing, CBIC-20006/4/2022-GST, ‘Instruction No. 02/2022-GST’, 22.03.22<https://www.cbic.gov.in/resources//htdocs-cbec/gst/instruction-no-022022-gst-dated-22032022.pdf>
[10] Central Goods and Services Tax 2017, rule 99
[11] Central Goods and Services Tax 2017, s 65
[12] Central Goods and Services Tax 2017, s 66
[13] Central Goods and Services Tax 2017, s 67
[14] Central Goods and Services Tax 2017, s 126
[15] Central Goods and Services Tax 2017, s 126(6)
[16] Central Goods and Services Tax 2017, s 78
[17] Central Goods and Services Tax 2017, s 79
[18] Central Board of Excise and Customs, GST Policy Wing, F. No. 349/75/2017-GST, ‘Circular No. 31/05/2018 – GST’, 09.02.2018 <https://cbic-gst.gov.in/pdf/circularno-31-cgst.pdf>
[19] Central Board of Indirect Taxes & Customs, GST Policy Wing, F. No. CBIC-20016/2/2022-GST, ‘Circular No.169/01/2022-GST’, 12.03.22 <https://cbic-gst.gov.in/pdf/Circular-169-01-2022-GST.pdf>
[20] Central Board of Indirect Taxes and Customs, ‘Notification No. 02/2022-Central Tax’, 11.03.22 <https://cbic-gst.gov.in/pdf/central-tax/NN-02-2022-English.pdf>
[21] W.P.(C) 5680/2022
[22] Central Goods and Services Tax 2017, s 107(6)
[23] Central Goods and Services Tax 2017, s 2(24)
[24] Central Goods and Services Tax 2017, s 107(2)
[25] Central Goods and Services Tax 2017, s 112(3)
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