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^[2(91)] 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 chargeable with tax

which has not been so paid or which has been so 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/ss (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

Notwithstanding with anything contained in this Act, the Government may, on the recommendations of the Council, by notification, extend the time limit specified in, or prescribed or notified under, this Act in respect of actions which cannot be completed or complied with due to force majeure.

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 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.

^[1][Rule 142(1A)

The [2][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)

[3][communicate] the details of any tax, interest and penalty as ascertained by the said officer, in Part A of 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 [4][, 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 the service of notice or statement,

person chargeable with tax makes payment of the

tax and interest in accordance with the section 73(5) or 74A(8)(i), or

tax, interest and penalty in accordance with section 74(5) or 74A](9)(i), or

where any person makes payment of tax, interest, penalty or any other amount due in accordance with the provisions of the Act

^[5][whether on his own ascertainment or, as communicated by the proper officer u/sr (1A)]

[6][he shall inform the PO of such payment in GST DRC-03

and an acknowledgement, in GST DRC–04 shall be made available to the person]

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 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[7][(3)

Where the person chargeable with tax

makes payment of

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 GST DRC-05 concluding the proceedings in respect of the said notice.]

Section 73(9)

The PO shall

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

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 52 [ECO liable to collect TCS] or

u/s 62 or 63 or 64 or

u/s 73 or 74 or 74A or 75 or 76 [Determination of tax not paid or short paid or erroneously refunded or IT wrongly availed or utilised] or

u/s 122 or 123 or section 124 or 125 or 127 or 129 or 130, [Penalty for certain offences]

shall be uploaded in GST DRC-07,

specifying therein the amount of ^[8][tax, interest and penalty, payable by the person concerned]

Rule 142(4)

The representation referred to in section 73(9) or 74(9) or 74A(6) or 76(3) or

the reply to any notice issued under any section whose summary has been uploaded in GST DRC-01 u/sr (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 section 73(11), penalty is payable in case self-assessed tax or any amount collected as tax has not been paid within a 30 days from the due date of payment of such tax.

2. It may be noted that a SCN 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 ITC 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 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[9][(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 Investigation]

22-09-2021

F. No. 1(2)/DTT/L&J/Misc./2019-20/77-79 dated 01-02-2022

It has been brought to the notice of the competent authority that in several instances non speaking and vague SCNs are being issued in violation of provisions of GST Act and Rules made thereunder. In view of the above, it is important that proper diligence is made before issuance of SCNs by the PO.

SCN should comprise of the following, though there may be variation from case to case:

a) It should be issued only after proper inquiry/ investigation i.e. when the facts used are ascertained and allegations are prima facies made out

b) It should be strictly in the format & manner prescribed under GST Act and rules made thereunder

c) It should be clear on facts and legal provisions. Alleged violation of the provisions of law and other anomalies should be clearly brought out in SCN.

d) Copies of the documents to be submitted or compliance to be made by the noticee should be specifically mentioned in the SCN.

e) Possibilities of additional evidence being needed or additional anomalies being detected should be kept open during the pendency of the proceedings and should also be mentioned in the notice itself.

f) Copies of the details giving reason for SCN should be attached with SCN and PO should not depend only on the drop down menus on the GSTIN portal.

g) The prima facie amount due, if any needs to be quantified and should be manifestly specified in the notice itself. Possibility of raising additional demand should be kept and mentioned in the notice itself.

h) It should be clearly mentioned that whether the noticee wishes to be heard in person, apart from filing a written representation, in the matter.

i) The authority to which SCN is answerable, should be specifically stated along with ward, designation, e-mail id etc.

j) All SCNs should be disposed off within statutory timelines.

All the Proper officers shall strictly, and without fail, adhere to the above guidelines while issuing SCNs. Zonal incharge are also requested to ensure & monitor the compliance of the above guidelines.

Vide Circular No. 3/3/2017 – GST dated 03-03-2017, Superintendent of Central Tax empowered to issue notice/ order u/s 73 [Para 4(viii)]

Para 4 of Circular No. 31/05/2018 – GST

all officers up to the rank of Additional/Joint Commissioner of Central Tax are assigned as the proper officer for issuance of show cause notices and orders under subsections (1), (2), (3), (5), (6), (7), (9) and (10) of sections 73 and 74 of the CGST Act.

Further, they are so assigned under the IGST Act, 2017 as well, as per section 3 read with section 20 of the said Act.

Para 6.

The central tax officers of Audit Commissionerates and Directorate General of Goods and Services Tax Intelligence (hereinafter referred to as “DGGSTI”) shall exercise the powers only to issue show cause notices. A show cause notice issued by them shall be adjudicated by the competent central tax officer of the Executive Commissionerate in whose jurisdiction the noticee is registered. In case there are more than one noticees mentioned in the show cause notice having their principal places of business falling in multiple Commissionerates, the show cause notice shall be adjudicated by the competent central tax officer in whose jurisdiction, the principal place of business of the noticee from whom the highest demand of central tax and/or integrated tax (including cess) has been made falls.

Para 7

Notwithstanding anything contained in para 6 above, a show cause notice issued by DGGSTI in which the principal places of business of the noticees fall in multiple Commissionerates and where the central tax and/or integrated tax (including cess) involved is more than Rs. 5 crores shall be adjudicated by an officer of the rank of Additional Director/Additional Commissioner (as assigned by the Board), who shall not be on the strength of DGGSTI and working there at the time of adjudication. Cases of similar nature may also be assigned to such an officer.

Para 8

In case show cause notices have been issued on similar issues to a noticee(s) and made answerable to different levels of adjudicating authorities within a Commissionerate, such show cause notices should be adjudicated by the adjudicating authority competent to decide the case involving the highest amount of central tax and/or integrated tax (including cess).

Para 5 of Circular No. 31/05/2018 – GST

Whereas, for optimal distribution of work relating to the issuance of show cause notices and orders under sections 73 and 74 of the CGST Act and also under the IGST Act, monetary limits for different levels of officers of central tax need to be prescribed. Therefore, in pursuance of clause (91) of section 2 of the CGST Act read with section 20 of the IGST Act, the Board hereby assigns the officers mentioned in Column (2) of the Table below, the functions as the proper officers in relation to issue of show cause notices and orders under sections 73 and 74 of the CGST Act and section 20 of the IGST Act (read with sections 73 and 74 of the CGST Act), up to the monetary limits as mentioned in columns (3), (4) and (5) respectively of the Table below:-

Officer of Central Tax

Monetary limit central tax evasion (including cess)

for issuance of SCN and passing of orders u/s 73 and 74

Monetary limit of integrated tax evasion (including cess) for issuance of SCN and passing of orders u/s 73 and 74 of CGST Act made applicable to matters in relation to integrated tax vide section 20 of the IGST Act

Monetary limit of central tax and integrated tax evasion (including cess) for issuance of SCN and passing of orders u/s 73 and 74 of CGST Act made applicable to integrated tax vide section 20 of the IGST Act

Superintendent of Central Tax

Not exceeding Rs. 10 lakhs

Not exceeding Rs. 20 lakhs

Not exceeding Rs. 20 lakhs

Deputy or Assistant Commissioner of Central Tax

Above Rs. 10 lakhs and not exceeding Rs. 1 crore

Above Rs. 20 lakhs and not exceeding Rs. 2 crore

Above Rs. 20 lakhs and not exceeding Rs. 2 crore

Additional or Joint Commissioner of Central Tax

Above Rs. 1 crore without any limit

Above Rs.2 crore without any limit

Above Rs.2 crore without any limit