Chapter XV of the CGST Act 2017 [Sections 73 to 84] and Chapter XVIII [Rules 142 to 161] of the CGST Rules, 2017 contains various provisions relating to demands and recovery. 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.

Provisions of demands and recovery under CGST Act have also been made applicable to IGST Act vide section 20 of the IGST Act

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 (Normal Cases) or

deliberate attempt (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.

Section 73(1)

Where evasion of tax appears to PO

Where it appears to the proper officer that

any tax has not been paid or short paid or erroneously refunded, or

where ITC has been wrongly availed or utilized

for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts

to evade tax,

Service of notice (SCN)

he shall serve notice on the person

who has not or short paid tax or

to whom the refund has erroneously been made, or

who has wrongly availed or utilised ITC,

SCN would specify tax, interest and penalty

requiring him to show cause as to why he should not pay

the amount specified in the notice

along with interest payable there on u/s 50 [@18%] and

a penalty leviable under this Act or the rules made thereunder.

Notice should state the grounds based on which such demand is raised, so that the person against whom the notice is served is made aware of the basis of the demand.

Rule 142(1)(a)

The proper officer shall serve, along with the notice issued 73

a summary thereof electronically in FORM GST DRC-01,

specifying therein the details of the amount payable.

Limitation period

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. 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.

Section 73(2)

PO shall issue the notice u/s 73(1) at least 3 months prior to the time limit specified in sub-section (10) for issuance of order

Time-limit for issuance of SCN is 2 years and 9 months from the due date of filing Annual Return or from the date of erroneous refund.

Question & Answer

Section 73(10)

The PO shall issue the order u/ss (9)

within 3 years from the due date for furnishing of annual return for the FY to which the tax not paid or short paid or ITC wrongly availed or utilised relates to or

within 3 years from the date of erroneous refund.

Particulars

Date

Due date of Annual Return for FY 2020-21

31/12/2021

Time limit for issue of order u/s 73(10) = 3 yrs from due date

31/12/2024

Time limit for issue of SCN u/s 73(1)

30/09/2024

Section 168A

On the recommendations of the Council, Government has extended the time limit for issue of order u/s 73(10) for following FY

Financial year

Extended Date

N No

2017-18

31/12/2023

09/2023-CT

2018-19

30-04-2024

56/2023-CT

2019-20

31-08-2024

56/2023-CT

The Gauhati High Court (HC) ruled that Notification No. 56/2023-CT was invalid and set it aside. The notification extended the time limit for passing orders u/s 73(10) of the CGST Act. The HC ruled that the notification was invalid for the following reasons: 

• It was issued without the mandatory recommendation of the GST Council 
• There was no corresponding state government notification 
• The CGST Act and State GST Acts do not define "recommendation" 

The HC also ruled that orders passed under Section 73(9) during the extended period are also invalid. 

Section 73(3)

Where a notice has been issued for any period u/ss(1),

the PO may serve a statement, containing the details of

tax not paid or short paid or erroneously refunded or

ITC wrongly availed or utilised

for such periods other than those covered u/ss (1), on the person chargeable with tax.

Where a notice has been issued for any period on a person chargeable with tax, if such person commits such default in some other period also, instead of issuing a detailed notice, a mere

statement containing the details of

tax not paid/short paid/erroneously refunded

ITC wrongly availed/utilized

for such periods, can be issued.

This would expedite the adjudication process by avoiding duplication and reducing repetitive paperwork.

PO is not required to issue a detailed SCN in respect of subsequent period.

Original SCN has to be issued u/s 73(1) only.

Rule 142(1)(b)

The proper officer shall serve, along with the statement u/s 73(3),

a summary thereof electronically in FORM GST DRC-02,

specifying therein the details of the amount payable.

Section 73(4)

The service of such statement shall be deemed to be service of notice on such person u/ss (1),

subject to the condition that the grounds relied upon for such tax periods other than those covered u/ss (1) are the same as are mentioned in the earlier notice.

Service of such statement shall be deemed to be service of notice on such person u/ss (1), only when grounds relied upon for the subsequent tax periods are the same as are mentioned in the earlier notice.

The law provides an opportunity to the person chargeable with tax to pay tax and interest before the issuance of notice.

Section 73(5)

The person chargeable with tax may, before service of notice/statement u/ss (1) or (3),

pay the amount of tax along with interest payable thereon u/s 50

on the basis of his own ascertainment of such tax or

the tax as ascertained by the proper officer and

inform the proper officer in writing of such payment.

Person who is chargeable with tax may voluntarily come forward to pay such tax alongwith interest before the issue of SCN/Statement.

Such voluntary payment can be made even if the mistake is pointed out by the Department, before issue of SCN.

Rule 142(1A) has been inserted wef 09.10.2019 to oblige the PO to communicate the details of tax, interest and penalty to the person prior to issue of SCN u/s 73(1).

Rule 142(1A)

The [1][proper officer may], before service of notice to the person chargeable with tax, interest and penalty, u/s 73(1) or 74(1) or 74A(1)

[2][communicate] the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.]

Rule 142(2A)

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 [3][, and

thereafter the proper officer may issue an intimation in Part-C of GST DRC-01A, accepting the payment or the submissions made by the said person.]

Rule 142(2)

Where before service of notice or statement, person makes payment of the

tax and interest u/s 73(5) or 74A(8)(i)

tax, interest and penalty 74(5) or

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 u/sr 142(1A)

he shall inform the proper officer of such payment in GST DRC-03 and

the proper officer shall issue an acknowledgement, accepting the payment in GST DRC– 04.

Section 73(6)

The proper officer, on receipt of such information,

shall not serve any notice/statement u/ss (1) or (3),

in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

Where such voluntary payment is made, Department shall not serve any SCN/Statement. The matter closes at this stage itself and no penalty is imposed on the person.

Section 73(7)

Where the proper officer is of the opinion that the amount paid u/ss (5) falls short of the amount actually payable,

he shall proceed to issue the notice u/ss (1) in respect of such amount which falls short of the amount actually payable.

Section 73(8)

Where any person chargeable with tax u/ss (1) or (3)

pays the said tax along with interest payable u/s 50

within 30 days of issue of SCN,

no penalty shall be payable and

all proceedings in respect of the said notice shall be deemed to be concluded.

Where such person pays the tax demanded along with interest payable u/s 50 within 30 days of issue of SCN, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

Payment should be made within 30 days of issue of notice but not from service of notice.

Rule 142[4][(3)

Where the person chargeable with tax makes payment of

(i) tax and interest u/s 73(8) or 74A(8)(ii), or

tax, interest and penalty u/s 74(8) or 74A(9  )(ii),

within the period specified therein, or

he shall intimate the proper officer of such payment in GST DRC-03 and the proper officer shall issue an intimation in FORM GST DRC-05 concluding the proceedings in respect of the said notice.]

Section 73(9)

After considering the representation, if any, made by person chargeable with tax

the PO shall determine

the amount of tax, interest and

a penalty equivalent to 10%. of tax or Rs.10,000, whichever is higher,

due from such person and issue an order.

Rule 142(5)

A summary of the order issued u/s 73(9) or 74(9) [5][or 75(12)] or 76(3) [6][or 125]

shall be uploaded electronically in GST DRC-07, specifying therein the amount of tax, interest and penalty payable by the person chargeable with tax.

Rule 142(4)

The representation referred to in section 73(9) or 74(9) or 76(3) or the reply to any notice issued under any section whose summary has been uploaded electronically in GST DRC-01 u/sr 142(1) shall be furnished in GST DRC-06

Rule 142(6)

The order referred to rule 142 (5) shall be treated as the notice for recovery

Section 73(11)

Notwithstanding anything contained in sub-section (6) or (8),

penalty u/ss (9) shall be payable where

any amount of self-assessed tax or

any amount collected as tax

has not been paid within a period of 30 days from the due date of payment of such tax.

As per section 73, where self-assessed tax /tax collected is not paid within 30 days from due date of payment of such tax, penalty equivalent to

10% of tax or

Rs.10,000,

whichever is higher, is payable.

Since section 73(11) overrides section 73(6) and 73(8), in case of any conflict, section 73(11) will prevail.

However, in case of non-payment of self-assessed tax or the amount collected as representing the tax within 30 days, penalty is mandatory and there is no waiver.

Amount collected as representing tax refers to an amount shown as GST in tax invoice even if no tax was payable on that transaction. Thus, if tax was collected in tax invoice, it is to be deposited with the Government even if no tax was actually payable on that transaction.

Circular No. 76/50/2018-GST dated 31.12.2018

Issue-2

Whether penalty in accordance with section 73(11) should be levied in cases where the return in Form GSTR-3B has been filed after the due date of filing such return?

Clarification

1. As per the provisions of section 73(11) of the CGST Act, penalty is payable in case self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.

2. It may be noted that a show cause notice (SCN for short) is required to be issued to a person 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 under the provisions of section 73(1) of the CGST Act. The provisions of section 73(11) can be invoked only when section 73 are invoked.

3. Section 73 are generally not invoked in case of delayed filing of the return in FORM GSTR-3B because tax along with applicable interest has already been paid but after the due date for payment of such tax.

It is accordingly clarified that penalty u/s 73(11) is not payable in such cases.

It is further clarified that since the tax has been paid late in contravention of the provisions of the CGST Act, a general penalty u/s 125 of the CGST Act may be imposed after following the due process of law

Question & Answer

Section 73[7][(12)

The provisions of this section shall be applicable for determination of tax pertaining to the period up to Financial Year 2023-24.]

Circular No. 171/03/2022-GST dated 06-07-2022

Issue-1

Issue of fake invoice will not be covered as supply u/s 7 and no demand can be made u/s 73 or 74 but u/s 122

In case where a registered person “A” has issued tax invoice to another registered person “B” without any underlying supply of goods or services or both, whether such transaction will be covered as “supply” u/s 7 of CGST Act

Whether any demand and recovery can be made from ‘A’ in respect of the said transaction u/s 73 or 74. Also, whether any penal action can be taken against registered person ‘A’ in such cases.

Clarification

Fake invoice will not be covered as supply u/s 7

Since there is only been an issuance of tax invoice by the registered person ‘A’ to registered person ‘B’ without the underlying supply of goods or services or both, therefore, such an activity does not satisfy the criteria of “supply”, as defined under section 7 of the CGST Act.

No demand or recovery can be made u/s 73 or 74

As there is no supply by ‘A’ to ‘B’ in respect of such tax invoice u/s 7, no tax liability arises against ‘A’ for the said transaction, and accordingly, no demand and recovery is required to be made against ‘A’ u/s 73 or 74 in respect of the same.

Besides, no penal action u/s 73 or 74 is required to be taken against ‘A’ in respect of the said transaction.

The registered person ‘A’ shall, however, be liable for penal action u/s 122 (1)(ii) of the CGST Act for issuing tax invoices without actual supply of goods or services or both.

Issue-2

Availment of ITC on fake invoice attracts section 74 but does not attracts section 122

A registered person “A” has issued tax invoice to another registered person “B” without any underlying supply of goods or services or both.

‘B’ avails ITC on the basis of the said tax invoice. B further issues invoice along with underlying supply of goods or services or both to his buyers and utilizes ITC availed on the basis of the above mentioned invoices issued by ‘A’, for payment of his tax liability in respect of his said outward supplies.

Whether ‘B’ will be liable for the demand and recovery of the said ITC, along with penal action, u/s 73 or section 74 or any other provisions of the CGST Act.

Clarification

Since ‘B’ has availed and utilized fraudulent ITC on the basis of the said tax invoice, without receiving the goods or services or both, in contravention of the provisions of section 16(2)(b) of CGST Act, he shall be liable for the demand and recovery of the said ITC, along with penal action, u/s 74, along with applicable interest u/s 50.

Further, as per provisions of section 75(13) of CGST Act, if penal action for fraudulent availment or utilization of ITC is taken against ‘B’ u/s 74 of CGST Act, no penalty for the same act, i.e. for the said fraudulent availment or utilization of ITC, can be imposed on ‘B’ under any other provisions of CGST Act, including u/s 122.

Issue-3

A registered person ‘A’ has issued tax invoice to another registered person ‘B’ without any underlying supply of goods or services or both. ‘B’ avails input tax credit on the basis of the said tax invoice and further passes on the said input tax credit to another registered person ‘C’ by issuing invoices without underlying supply of goods or services or both. Whether ‘B’ will be liable for the demand and recovery and penal action, under the provisions of section 73 or section 74 or any other provisions of the CGST Act.

Clarification

In this case, the ITC availed by ‘B’ in his electronic credit ledger on the basis of tax invoice issued by ‘A’, without actual receipt of goods or services or both, has been utilized by ‘B’ for passing on of input tax credit by issuing tax invoice to ‘C’ without any underlying supply of goods or services or both.

As there was no supply of goods or services or both by ‘B’ to ‘C’ in respect of the said transaction, no tax was required to be paid by ‘B’ in respect of the same. The input tax credit availed by ‘B’ in his electronic credit ledger on the basis of tax invoice issued by ‘A’, without actual receipt of goods or services or both, is ineligible in terms of section 16 (2)(b) of the CGST Act.

In this case, there was no supply of goods or services or both by ‘B’ to ‘C’ in respect of the said transaction and also no tax was required to be paid in respect of the said transaction. Therefore, in these specific cases, no demand and recovery of either input tax credit wrongly/ fraudulently availed by ‘B’ in such case or tax liability in respect of the said outward transaction by ‘B’ to ‘C’ is required to be made from ‘B’ under the provisions of section 73 or section 74 of CGST Act.

However, in such cases, ‘B’ shall be liable for penal action both u/s 122(1)((ii) and section 122(1)(vii) of the CGST Act, for issuing invoices without any actual supply of goods and/or services as also for taking/ utilizing input tax credit without actual receipt of goods and/or services.

SN

Particulars

Doc No

Dated

1.

Kerala state Guidelines on Determination of tax under Section 73 and 74 of the KSGST/CGST Act

FILE No. CT/1444/2021-C9

22-02-2021

2.

Issuance of SCNs in Time bound manner

Instruction no-02/2021 [GST Investgation]

22-09-2021

3.

Indicative guidelines for issuance of SCN – Delhi GST

F. No. 1(2)/DTT/L&J/Misc./2019-20/77-79

01-02-2022