Section 73. 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 misstatement or suppression of facts

The above section is followed by Section 74 which deals with the same issues but with additional conditions.

Section 74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts

Highlights of the above sections

  ♦  Both the sections are triggered if there is a non-payment of tax, short payment of tax, erroneous refund availed, wrong claim of ITC or wrong utilisation of ITC.

  ♦  Section 74 is triggered only if there is a suspicion of fraud, wilful misstatement or suppression of facts.

(For the purpose of this note, the word 'Officer' may be taken to mean 'Proper officer' unless otherwise specified)

A. Power to issue show cause

Section 73(1): Empowers the Proper officer to serve show cause notice on the person chargeable with tax which includes interest and penalty.

Section 74(1): Empowers the Proper officer to serve show cause notice on the person chargeable with tax which includes interest and penalty.

B. Time limit for issue of show cause notice

Section 73(2) : 3 months prior to the time limit specified in section 73(10) (3 years from the due date for filing annual return for the year in which such a tax is due). Hence the time limit for issuance of SCN is 33 months after the due date of filing annual return for the impugned period.

Section 74(2) : 6 months prior to the time limit specified in section 74(10) (5 years from the due date for filing annual return for the year in which such a tax is due). Hence the Time limit for issuance of SCN is 54 months after the due date of filing annual return for the impugned period.

C. Serving of detailed statement by the Proper Officer for other periods

Section 73(3) and 73(4): Empowers the officer to serve a statement which contains details of tax not paid for periods other than the impugned periods. Such a statement would be considered to be a deemed notice for the other periods provided that the grounds for proposed determination of tax are identical.

Section 74(3) and 74(4): Empowers the officer to serve a statement which contains details of tax not paid for periods other than the impugned periods. Such a statement would be considered to be a deemed notice for the other periods provided that the grounds for proposed determination of tax are identical.

D. No notice to be served in certain cases

Section 73(5) and Sec 73(6) : If the taxable person on his own accord (suo motu) or as ascertained by the proper officer pays the entire tax along with the interest as per Section 50 and also intimates the officer (DRC -03), the Officer shall not serve the show cause notice as per Section 73(1) or 73(3).

Section 74(5) : If the taxable person on his own accord (suo motu) or as ascertained by the proper officer pays the entire tax along with the interest as per Section 50 and 15% of tax as penalty and also intimates the officer (DRC-03), the Officer shall not serve the show cause notice as per Section 74(1) or 74(3).

E. SCN for short payment

Section 73(7) : If the proper officer is of the opinion that the amount paid as per Section 73(5) is short paid, such an officer shall proceed to issue SCN as per sub-section (1) only for the amount which remains short paid.

Section 74(7) : If the proper officer is of the opinion that the amount paid as per Section 74(5) is short paid, such an officer shall proceed to issue SCN as per sub-section (1) only for the amount which remains short paid.

F. Conclusion of proceedings in certain cases

Section 73(8): No penalty to be paid where the person pays the entire tax and interest as per Sub-section (1) or (3), within 30 days of issuance of SCN. The proceedings are deemed to be concluded.

Section 74(8): Only 25% of the tax as penalty to be paid where the person pays the entire tax and interest as per sub-section (1) or (3), within 30 days of issuance of SCN. The proceedings are deemed to be concluded.

G. Representation by the taxable person

Section 73(9): The officer shall determine the tax, interest and penalty (10% of the tax or 10,000/- whichever is higher) after considering the representation, if any made by such a person to whom such a tax is chargeable.

Section 74(9): The officer shall determine the tax, interest and penalty after considering the representation, if any made by such a person to whom such a tax is chargeable.

H. Limitation

Section 73(10): The Officer must pass the order within 3 years from the due date of filing annual return for the year to which tax not paid or short paid or ITC wrongly availed or utilised or, as the case may be within 3 years from the date of refund erroneously granted.

Section 74(10): The Officer must pass the order within 5 years from the due date of filing annual return for the year to which tax not paid or short paid or ITC wrongly availed or utilised or, as the case may be within 5 years from the date of refund erroneously granted.

I. Payment of penalty

Section 73(11): Notwithstanding anything in sub- section (6) or (8), penalty as per sub-section (9) will be payable where any amount is self-assessed (accepted in the returns) or any amount collected as tax which is payable, within 30 days from the due date of payment of such tax.

Remission of Penalty

Section 74(11): After the service of order as per Sub-section (9), if the person to whom such order relates to pays the entire tax, interest as also 50% of the tax as penalty pays the entire amount, all proceedings in respect of said tax shall be deemed to be concluded.

Explanation 1 for Sections 73 and 74

For the purpose of the above section, all proceedings shall not include proceedings under Section 132 (punishment for evasion of tax, wrong invoice, wrong claim of ITC etc.).

But where notice is issued under the same proceedings to the main person or others and such a proceeding is concluded, the proceedings against such persons liable to pay penalty under sections 122, 125, 129 and 130 are deemed to be concluded.

Explanation 2 :— The expression "suppression" shall mean non-declaration of facts or information which a taxable person is statutorily required to declare in the return, statement, report or any other document furnished under the Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer.

The above definition is given to overcome the judicial precedents where mere non-declarations of facts or information is not considered 'suppression'. If one was to judiciously examine the meaning of the term 'suppression', since the section by itself is separated from an ordinary determination, it presumes a scenario where additional penal provisions are necessitated. The presence of 'mens rea' or guilty mind has to be established before proceeding to determine tax under this section.

For the purpose of 'Suppression' a wider definition is given wherein mere non-declaration of facts would be sufficient for the officer to proceed to determine tax under this section.

The above discussion can be summarised in the below mentioned table:

Sr. No.	Nature of Case	Time for issuance of Notice	Time for issuance of order
1.	Normal Cases	Within 2 years and 9 months from the due date of filing Annual Return for the Financial Year to which the demand pertains or from the date of erroneous refund	Within 3 years from the due date of filing of Annual Return for the Financial Year to which the demand pertains or from the date of erroneous refund
2.	Fraud Cases	Within 4 years and 6 months from the due date of filing of Annual Return for the Financial Year to which the demand pertains or from the date of erroneous refund	Within 5 years from the due date of filing of Annual Return for the Financial Year to which the demand pertains or from the date of erroneous refund
3.	Any amount collected as tax but not paid	No time limit	Within one year from the date of issue of notice
4.	Non-payment of self assessed tax	No need to issue a show cause notice. Recovery proceedings can be started directly	Penalty, @ 10% of the Tax amount or ₹ 10,000/-, whichever is higher, shall also be payable if the period of non-payment exceeds 30 days from the due date of payment of tax

 

Sr. No.	Action by Tax-payer	Amount of Penalty - Normal Cases	Amount of Penalty - Fraud Cases	Remarks
1.	Tax amount, along with the interest, paid before issuance of Notice	No Penalty and no Notice shall be issued	15% of the Tax amount and no Notice shall be issued	The penalty shall also be not chargeable in cases where the self assessed tax or any amount collected as tax is paid (with interest) within 30 days from the due date of payment
2.	Tax amount, along with the interest, paid within 30 days of issuance of Notice	No Penalty. All proceedings deemed to be concluded	25% of the Tax amount. All proceedings deemed to be concluded
3.	Tax amount, along with the interest, paid within 30 days of communication of Order	10% of the Tax amount or ₹ 10,000/-, whichever is higher	50% of the Tax amount. All proceedings deemed to be concluded
4.	Tax amount, along with the interest, paid after 30 days of communication of Order	10% of the Tax amount or ₹ 10,000/-, whichever is higher	100% of the Tax amount

Adjudicating authority under GST Law:

The board has vide circular No. 31/05/2018-GST dated 09/2/18 has empowered the Proper Officer to issue Show Cause notice u/ss 73 & 74: The circular list outs the sub-sections of Sections 73 and 74 and the powers of the Superintendents of Central Tax, the Deputy or Assistant Commissioner of Central Tax, all officers up to the rank of Additional/Joint Commissioner of Central Tax for issuance of such notices. The circular further provides for the ­monetary limits in such cases where notices would be issued.

Role of Directorate General of Goods and Services Tax Intelligence:

It has been clarified in the circular 31/05/2018-GST dated 09/2/18 that 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 Page 4 of 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.

Notwithstanding anything contained 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 ₹ 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.

Section 75 : General provisions relating to determination of Tax

Section 75 of the MGST Law purports to set out general guidelines for determination of tax irrespective of any issuance of show cause Notice under sections 73 and 74 which are specific laws where show cause is mandated.

Section 75(1): The period covered by stay granted by any appropriate court vis-a-vis the service of notice, would specifically be excluded from the limitation under Sub- Secs (2) & (10) of both sections 73 and 74.

Section 75(2) : Where any appropriate court or Tribunal holds that the notice under Section 74 is not sustainable due to non-establishment of charges of fraud, wilful misstatement or suppression of facts, the proper officer shall determine the tax payable by such a person for the period of 3 years, deeming as if the notice was under section 73(1).

Section 75(3) : Where any appropriate tribunal or court has remanded the matter with directions, such an order must be passed within 2 years of date of communication of such directions.

Section 75(4): Opportunity of personal hearing shall be granted if the request is received in writing from such a taxable person. Opportunity of personal hearing shall be granted if the officer contemplates an adverse order.

Section 75(5): Adjournment of proceeding only upon showing sufficient cause and restricted to maximum of 3 times. (Whether adjournment by the Officer would count while counting the 3 adjournments is not clarified).

Section 75(6): The officer has to pass a speaking order.

Section 75(7): Amount of tax, interest and penalty demanded in the order shall not exceed the amount demanded in the notice. No power to the officer to travel beyond the grounds specified in the notice while confirming the demand.

Section 75(8): If the amount is modified by the Appellate Authority, Tribunal or court, subsequent penalty and interest shall also stand modified proportionately.

Section 75(9): Interest as per Section 50 on tax determined to be mandatory irrespective of it being mentioned in the order.

Section 75(10) : Adjudication proceedings deemed to be concluded if the order is not issued within 3 years or 5 years as prescribed under Sections 73(10) and 74(10) respectively.

Section 75(11): Where the First Appellate Authority or Tribunal or HC has given an order which is adverse to the Department in similar matters, the period of time during the pendency of decision of the lower appellate courts/Tribunal and higher Appellate Authority shall be excluded in computing the period of limitation as per Section 73 or 74.

Section 75(12): Any tax payable as per return shall be recovered notwithstanding any notice under Sections 73 and 74.

Section 75(13): No Penalty for the same act or omission shall be imposed on the same person under any other provision of law for which a penalty has been imposed under Sec. 73 or Sec. 74.

Section 76: Tax collected but not deposited with the Central or a State Government

This is indeed a beneficial provision and reasonably dealer friendly. This is a provision which seems to be a direct result of the post 48(5) era of the Maharashtra Value Added Tax. Several other States have also followed suit. This section is the only section in the Act which deals with the suppliers turning defaulters. The department took an easy stance of thrusting the recovery on the dealers who purchased such goods. The main grievance of the affected dealer is that there was no robust mechanism in the Act, to actually bring the defaulter to justice.

Provisions of Section 77 of the MGST Law are similar to provisions present under the Service Tax laws, Excise, and customs law with a few modifications like the time limit. This Section will hopefully provide some succour to persons who's ITC is disallowed due to non-payment of tax by their suppliers despite collecting the same.

Summary of the section is as follows:

 i.   Notwithstanding anything to the contrary in an order of higher appellate forums, in the event that tax is collected by a person representing as tax, the same has to be paid to the Government regardless of whether such suppliers have transacted in taxable or non-taxable supply.

 ii.   Show cause notice by the proper officer to such a person before levying any tax, interest and penalty.

 iii.   No order to be passed without considering the representation made by such an affected person.

 iv.   Personal hearing to be mandatory provided request is made in writing.

 v.   Officer has to pass a speaking order, stating relevant facts.

 vi. Limitation: One year from the date of notice. Interest mandatory. Period of stay on the notice by any Appellate forum to be excluded.

vii. Any amount paid would be adjusted against the tax payable.

viii. Surplus to be credited to the consumer welfare fund, or as the case may be refunded to the person who has borne the incidence tax due to the default. Though no clarity on whether the interest collected will also be credited or not.

ix. Person who has borne the incidence of tax, would be eligible to apply for refund only within 6 months of adjudication.

Section 77: Tax wrongfully collected and deposited with the Central or a State Government

It is the very nature of the GST Act with its place of supply and time of supply provisions, that it has been predicted that there would be numerous instances where tax is paid as Intra-State but the transaction is subsequently held to be inter-State or vice versa.

 i.   If CGST/SGST paid on a transaction later held as inter-State, the person can take refund of the amount paid.

Refund has always been a contentious issue and it is an administrative nightmare for dealers who have to claim refund. Since there is no adjustment mechanism of excess tax paid under the MGST Law, one can foresee severe inconvenience especially during the formative years when the dealers who have forever paid tax as per an original based tax system make an abrupt transition to a destination based tax system.

 ii.   If IGST paid on a transaction held as intra-State, the only relief as per 77(2) is that such a person would be exempt from paying interest on the SGST/CGST payable. This section as it stands neither provides for adjustment nor does it provide for refund as per 77(1). The refund of wrongly Paid IGST shall be available under the Sec. 19 of IGST Act.

Reference can be made to recent Kerala High Court decision with regards to the above provision:

SAJI S, PROPRIETOR, ADITHYA AND AMBADI TRADERS 2018 (19) G.S.T.L. 385 (Ker.)

Issue:

Petitioner, a registered dealer, had purchased goods from Chennai - While transporting the goods to Kerala, the same were detained while in transit by the Assistant State Tax Officer - based on the demand made, the consignor paid tax and penalty but the remittance was made under the head 'SGST' ? - Since the remittance should have been made under the head IGST, the authorities refused to release the goods, hence this writ petition

Held:

Section 77 of the GST Act, 2017 provides for the refund of the tax paid mistakenly under one head instead of another, however, Rule 4 of the GST Refund Rules speaks of adjustment - Where the amount of refund is completely adjusted against any outstanding demand under the Act, an order giving details of the adjustment is to be issued in Part A of FORM GST RFD-07 - Under these circumstances, High Court does not find any difficulty for the respondent officials to allow the petitioner's request and get the amount transferred from the head 'SGST' to 'IGST' - it is inequitable for the authorities to let the petitioner suffer on the count that such transfer may take some time - Second respondent directed to release the goods forthwith along with the vehicle and, then, ensure that the tax and penalty which already stood remitted under the 'SGST' is transferred to the head 'IGST' - Petition disposed of by High Court.

Section 78: Initiation of recovery proceedings

Any amount payable ought to be paid within 90 days from the date of service of order. Provided further, if the Officer considers it expedient in the interest of the revenue, he shall after giving reasons in writing direct the payment for a period shorter than 90 days.

Section 79: Recovery of tax

The summary of Section 79 is as follows:— Where any amount is recoverable, the same may be recovered as follows:

 1. Officer may recover the amount recoverable by adjusting any amount receivable by such a person which may be under the control of a proper officer or any other specified officer (Section 79(1)(a)).

 2. Recovery can also be made by detention or sale of any goods belonging to such a person under the jurisdiction of the proper officer (Section 79(1)(b)).

 3. Recovery from the debtors is permitted after service of proper notice to such debtors. The same may be adjusted against tax payable by such a person from whom tax is actually receivable under the Act [Section 79(c)(i)]

 4. Any debtor served with a notice is mandated to comply with such a notice. In the event institutions like banks, insurers, etc., are debtors they shall not impede the recovery for want of passbook, deposit receipt or any other document which is required as rule, requirement or general practice [Section 79(c)(ii)].

 5. Any default in payment after issuance of notice by such a debtor, will deem the debtor a defaulter for the impugned amount. [Section 79(c)(iii)].

 6. Officer has the power to amend or revoke or extend the time for making good the payment in pursuance of the notice. [Section 79(c)(iv)].

 7. Any payment made by a debtor shall be deemed to be under the authority of the person and default. Such a payment will be sufficient discharge of liability towards the defaulting person to the extent mentioned in notice. Such a debtor will be personally liable to the extent of the amount in dispute [Section 79(c)(v) and (vi)].

 8. If any person upon receiving the notice proves to the satisfaction of the Officer, that he neither is nor will be a debtor/holder of the defaulting taxable person, such a person will not be liable to pay any amount [Section 79(c)(vii)].

 9. After proper authorisation by a competent authority as may be prescribed, the officer can detain any movable or immovable property for the period of 30 days during which the amount remains unpaid. After the expiry of 30 days the officer is authorised to sell such a property to make good the amount payable as per notice. The cost of detention and sale will be recoverable from the sale proceeds. Any surplus amount will be proffered to such a taxable person [Section 79(d)].

10. Proper officer is authorised to prepare a certificate and send the same to the Collector under whose jurisdiction the person owns any property or resides or carries on business for initiating recovery proceedings of the tax dues as arrears in land under the respective Land Revenue Acts [Section 79(e)].

11. Proper officer also authorised to apply to the appropriate Magistrate to recover the amount as if it were a fine imposed by such a Magistrate [Section 79(f)].

12. Where any bond or instrument is executed under the Act or any other rules prescribed provides that amount may be recovered under Section 79(1), the same shall be recovered without prejudice to other modes of recovery under the section. (Multiple modes of recovery allowable).

13. Any amount recoverable can be recovered as SGST/CGST, the proper officer for both the acts may recover the same under the Act under his jurisdiction and credit the same to the appropriate Government [Section 79(3)].

14. Any amount partially recovered under Section 79(3) may be credited to the respective Government proportionately [Section 79(4)].

Section 80. Payment of tax and other amount in instalments

This is a beneficial provision for any dealer/taxable person who is unable to pay the tax due to financial hardship. Instalments can be availed by the person after a written application is made for the same. The payment of tax to be allowed in a maximum of 24 instalments and interest on such instalments is mandatory. Default in payment of one instalment renders outstanding amount as dues recoverable under the Act.

Though beneficial, there is a further need for clarity vis-a-vis the grant of ITC to the recipient of supply who will not be entitled to credit of ITC till the entire tax is actually paid.

Section 81: Transfer of property to be void in certain cases

This is a regular provision which acts as a safeguard for the revenue. Any charge created on any property by any person with the intention to defraud the revenue shall be void as against the claim in respect of any tax or any other sum payable.

Section 82: Tax under the GST laws will be first charge on property over any other law being in force for the time being

Section 83: Provisional attachment to protect revenue in certain cases

During the pendency of Proceedings under 62 or 63 or 64 or 67 or 73 or 74, the Commissioner may direct provisional attachment of property to property the interest of the revenue. No provisional attachment after expiry of 1 year from the date of order of provisional attachment.

Section 84: Continuation and validation of certain recovery proceedings

In the event of any appeal, revision application results in:

1. Enhancement of dues

(a) Commissioner shall serve another notice of demand for enhanced dues.

(b) No fresh notice for dues recoverable before the disposal of such appeals, revisions, etc.

(c) Recovery proceedings to continue for enhanced amount

2. Reduction of dues

(a) No fresh notice of demand for such reduced dues.

(b) Intimation by Commissioner to the person and recovery officer.

(c) Recovery proceedings to continue for reduced amount.

The provisions of the demands and recovery cannot be seen in isolation. Assessment and Audit will form the real events which would eventually trigger Sections 73 to 84 of the GST Law.

Various forms notified for demand & recovery action under GST:

Sr. No.	Form No.	Available to	Purpose
1.	DRC - 01	For Tax Official	Notice initiating proceeding u/s. 73 or 74
2.	DRC - 02	For Tax Official	Statement of Summary of demand to be issued along with DRC - 01
3.	DRC - 03	For Tax Payer	Intimation of Voluntary payment
4.	DRC - 04	For Tax Official	Acknowledgement of Payment
5.	DRC - 05	For Tax Official	On satisfaction of payment, the proper officer to Issue order to conclude the proceedings
6.	DRC - 06	For Tax Payer	Response by the taxable person to the Show Cause Notice issued by the proper officer
7.	DRC - 07	For Tax Official	Order levying Tax, Interest & Penalty
8.	DRC - 08	For Tax Official	Rectification of order
9.	DRC - 09	For Tax Official	Requiring specified officer to deduct amount owning to defaulter
10.	DRC - 10, 11 & 12	For Tax Official	Forms relating to auction of goods belonging to the defaulter, collection of amount and transfer of title.
11.	DRC - 13, 14	For Tax Official	Collection of dues from third person who owe to the defaulter
12.	DRC - 15	For Tax Official	Collection from execution of decree in favour of defaulter
13.	DRC - 16, 17	For Tax Official	Collection from sale of movable/immovable property/debtor realisation etc.
14.	DRC - 18	For Tax Official	Recovering the dues of defaulter through land revenue authority
15.	DRC - 19	For Tax Official	Recovery of amount as fine under CCP Act,1973
16.	DRC - 20, 21	For Tax Payer	Application to pay the dues in instalment & its order
17.	DRC - 22, 23	For Tax Official	Attachment of property including bank account and its release
18.	DRC - 24	For Tax Official	Notice of tax dues to the liquidator
19.	DRC - 25	For Tax Official	Order for reduction or enhancement of demand

Corresponding CGST Rules 142 to 161

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