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Demand under GST and the recovery provisions will be initiated if there is a failure to pay the tax in compliance with the Goods and Services Tax (GST) laws.
1st February 2021
Union Budget 2021 Outcome
1. Seizure and confiscation of goods and conveyances in transit are now made a separate proceeding from the recovery of tax from Section 74.
2. Self-assessed tax referred to under section 75 of the CGST Act shall also cover the outward supplies/sales as reported in the GSTR-1 under Section 37 of the CGST Act, but which has been missed out while reporting in the GSTR-3B under Section 39.
3rd April 2020
The time limit for completion or compliance has been extended to 30th June 2020, where the time limit falls between the period from 20th March 2020 to 29th June 2020. The compliance includes issue of any GST notice and reply to any GST notice falling due in between the above dates.
GST is payable on a self-assessment basis. If the assessee pays the tax on self-assessment correctly then there will not be any problem.
If there is any short payment or wrong utilisation of input tax credit, then the GST authorities will initiate demand and recovery provisions against the assessee. Provisions of demand under the GST Act and the consequent recovery provisions are similar to the provisions of the erstwhile Service Tax and Central Excise laws. Further sections of the article will give you an overview of the demand and recovery provisions.
| Particulars | When there is no fraud (Section 73) | When there is a fraud (Section 74) | Comments |
| Show cause notice | Yes | Yes | — |
| Max. time limit | 3 years | 5 years | Time is calculated from the due date of filing the annual return for the year to which the demand relates or date of refund. |
| The time limit for SCN | 3 months before the expiry of 3 years | 6 months before the expiry of 5 years | Hence, 3 or 5 years, as the case may be, is the maximum time limit for issuing the order of GST demand payment. |
| Penalty | 10% of tax | 25% of tax | — |
This provision applies to the following cases when for any reason other than fraud, i.e., without any motive to evade tax:
The proper officer (i.e., GST authorities) will serve a show-cause notice on the taxpayer. They will be required to pay the amount due, along with interest and penalty.
The proper officer is required to issue the show-cause notice 3 months before the time limit. The maximum time limit for the order of payment is 3 years from the due date for filing of annual return for the year to which the amount relates.
Once the above notice has been issued, the proper officer can serve a statement, with details of any unpaid tax/wrong refund etc. for other periods not covered in the notice. A separate notice does not have to be issued for each tax period.
A person can pay tax along with interest, based on his own calculations (or the officer’s calculations), before the notice/statement is issued and inform the officer in writing of the same. The officer will not issue any notice in this case. However, if the officer finds that there is a short payment, they can issue a notice for the balance amount.
If the taxpayer pays all their dues within 30 days from the date of the notice, then the penalty will not be applicable. All proceedings (excluding proceedings u/s 132, i.e., prosecution) regarding the notice will be closed.
The tax officer will consider the taxpayer’s representation and then calculate interest and penalty. The penalty will be 10% of tax subject to a minimum of Rs. 10,000. The tax officer will issue an order within three years from the due date for filing of relevant annual return.
| Paid all dues | Penalty amount |
| Before notice | No penalty |
| Within 30 days from notice | No penalty |
| After 30 days from notice or issue of order | A higher of 10% of the demanded tax or Rs.10,000, is the penalty |
Let us understand how the penalty works in non-fraud cases with this instance of a taxpayer who did not deposit their tax for a particular month. For example-
| Action/Consequences | Period/Date |
| Tax period when he did not deposit the tax | Amount relates to October 2020, i.e., FY 2020-21 |
| Due date to file annual returns for the year to which the amount relates | The last date of filing the annual return of FY 2020-21 is 31st December 2021 |
| The maximum time limit for an order is 3 years from the due date of annual returns | 3 years from the date given above falls on 31st December 2024 |
| Issue the order within three years | The last date for issuing is 31st December 2024 |
| Issue the show cause notice at least 3 months before the time limit | The last date of issuing the show cause notice is 30th September 2024 |
Mr Gnan received a notice of a shortfall in tax paid via GSTR-3B for January 2021 due to erroneous data entry in the GSTR-1. He received a show-cause notice on 13th January 2022 as to why he should not be subject to tax on the differential amount. The show-cause notice is issued within the given time limit of three months before the expiry of three years from the due date of annual returns filings.
This section applies to cases of tax evasion involving:
This results in:
In such cases, the proper officer will serve a show-cause notice to the taxpayer. The taxpayers will be required to pay the amount due along with interest and penalty.
For cases of fraud, the proper officer is required to issue the notice 6 months before the time limit. The maximum time limit is 5 years from the due date for filing of annual return for the year to which the amount relates.
Once the above notice has been issued, the proper officer can serve a statement, with details of any unpaid tax/wrong refund, etc. for other periods not covered in the notice. A separate notice need not be issued for each tax period.
If the person pays the tax along with interest and a 15% penalty based on their own calculations (or the officer’s calculations) before the notice/statement is issued and informs the officer in writing, then the officer will not issue any notice.
However, if the officer finds that there is a short payment, they can issue a notice for the balance amount. If the taxpayer pays all their dues and a penalty of 25% within 30 days from the date of the notice, then all proceedings (excluding proceedings under Section 132, i.e., prosecution)regarding the notice will be closed.
The tax officer will consider the taxpayer’s representation and then calculate interest and penalty and issue an order. The order must be issued within five years from the due date for filing the relevant annual return. [For wrong refunds the order must be issued within five years from the date of the wrong refund].
If the taxpayer pays all their dues and a penalty of 50% within 30 days from the date of order, then all proceedings (including prosecution) regarding the notice will be closed.
| Paid all dues | Penalty amount |
| Before notice | 15% of the demanded tax is the penalty |
| Within 30 days from notice | 25% of the demanded tax is the penalty |
| After 30 days from the order | 50% of the demanded tax is the penalty |
| For other cases (Section 122) | 100% of the demanded tax is the penalty |
For example- Let us understand how the penalty works in fraudulent cases with this instance of a taxpayer who did not deposit their tax for a particular month.
| Action/Consequences | Period/Date |
| Tax period when he did not deposit the tax | Amount relates to October 2020, i.e., FY 2020-21 |
| Due date to file annual returns for the year to which the amount relates | The last date of filing the annual return of FY 2020-21 is 31st December 2021 |
| The maximum time limit for an order is 5 years from the due date of annual returns | 5 years from the date given above falls on 31st December 2026 |
| Issue the order within five years | The last date for issuing is 31st December 2026 |
| Issue the show cause notice at least 6 months before the time limit | The last date of issuing the show cause notice is 30th June 2026 |
Mrs Disha Patil received a notice of a shortfall in tax paid via GSTR-3B for 23rd July 2019 due to fake input tax credit claims noticed by the tax authorities. He received a show-cause notice on 13th April 2021 as to why he should not be subject to tax on the differential amount. The show-cause notice is issued within the given time limit of six months before the expiry of five years from the due date of annual returns filing, i.e., 31st March 2021 for FY 2019-20
Pending cases where the decision was against the interest of revenue might be appealed to a higher authority. For these, the period between the date of the decision (aggrieved order) and the date of appeal decision of higher authority) will be excluded from the period of 3 or 5 years.
Penalty u/s 122 is not applicable in these cases. Once any penalty is imposed under sections 73 or 74, then no penalty under any of the GST sections is applicable.
This stands for cases (fraud or non-fraud) where:
Only the penalty under Sections 73 and 74 will be applicable. Other penalties under Section 122 will not be applicable in these 3 cases. However, charges for offences under Section 132 facing prosecution will not be dropped.
The interest charged for the tax shortfall is 18% per annum where the tax is short paid or liability is short-assessed. Also, where the input tax credit is only availed but not utilised, this is the interest charge.
However, the interest charged for availing and utilising input tax credit in excess of what is available is 24% per annum, as per Section 50 of the CGST Act.
For further understanding, read our articles:
Avoid government notices
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