Currently lot of taxpayers has received Show Cause Notices for the financial year 2017-18 as due date of issuing SCN for FY 2017-18. Department is not even considering the submission made by the taxpayers before issuing SCNs. Due to this, many taxpayers are facing un-necessary hardship of replying to such baseless SCNs.
Department can issue SCNs under section 73 & Section 72 of CGST Act. There are multiple extensions for filing the Annual return due to covid because of which which due date of issuing SCNs are also got extended. We will go through all about various due dates for issuing SCNs by department.
Section 73 of CGST Act 2017: Issuance of SCNs for Non-Fraud cases:
Legal Provision:
As per Section 73(2) of CGST Act, 2017, The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.
As per section 73(10) of CGST Act, 2017, The proper officer shall issue the order under sub-section (9) within three years from the due date of furnishing annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized related to or within 3 years from the date of erroneous refund.
It is pertinent to note that, the GST council in its 47th meeting recommended to extend limitation under sec 73 of the CGST Act for the FY 2017-18 for issuance of order till 30.09.2023.
CBIC vise notification no.13/2022- central tax dated 05.07.2022 had extended the time limit specified under sec 73(10) of the CGST Act for issuance of order under sec 73(9) of the CGST Act, for recovery of tax not paid or short paid or of input tax credit wrongly availed or utilized, in respect of a tax period for the financial year 2017-18, upto 30.09.2023.
Further, the specific period from 01.03.2020 to 28.02.2022 was excluded for calculation of following limitation period w.e.f. 01.03.2020:
- For computation of period of limitation under sec 73(10) of the CGST Act for issuance of order under sec 73(9) of the CGST Act , for recovery of erroneous refund;
- For computation of period of limitation for filling refund application under sec 54 or 55 of the CGST Act.
However, CBIC vide notification no. 09/2023 –central tax dated 31.03. 2023, partially modified the notification no. 13/2022- central tax dated 05.07.2022 and extended the time limit specified under sec 73(10) of the CGST Act, for recovery of tax not paid or short paid or of input tax credit wrongly availed or utilized for FY 2017-18, 2018-19 and 2019-20 till 31.12.2023, 31.03 2024 and 30.06.2024 respectively.
| Particulars | When tax not paid or short paid or input tax credit wrongly
availed or utilized relates to |
||||
| Financial year for which adjudication order is to be passed | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | 2021-2022 |
| Due date of filing of annual return | 05.02.2020/
07.02.2020 |
31.12.2020 | 31.03.2021 | 28.02.2022 | 31.12.2022 |
| Limitation period for the issuance of order | 3 years form the due date of filling of annual return
|
||||
| Last date upto which order can be issued | 31.12.2023 | 31.12.2024 | 30.06.2024 | 28.02.2025 | 31.12.2025 |
| Last date upto which SCN to be issued (3 months prior to the expiry of time limit of issuance of order.) | 30.09.2023 | 31.12.2023 | 31.03.2024 | 28.11.2024 | 30.09.2025 |
Impact of exclusion of the period from 01.03.2020 to 28.02.2022 (24 months) for computation of period of limitation under Section 73(10) of the CGST Act for issuance of order under Section 73(9) of the CGST Act, for recovery of erroneous refund:
| Date of disbursement of refund (for FY 2017-18) | Periods need to be excluded for the computation of period of limitation | NO. of months excluded | Date up to which order can issued | Date upto which SCN can be issued |
| 01.01.2019 | 01.03.2020 to 28.02.2022 | 24 | 31.12.2023 | 30.09.2023 |
| 30.06.2019 | 01.03.2020 to 28.02.2022 | 24 | 30.06.2024 | 31.03.2024 |
| 01.01.2020 | 01.03.2020 to 28.02.2022 | 24 | 31.12.2024 | 30.09.2024 |
| 01.03.2020 | 01.03.2020 to 28.02.2022 | 24 | 28.02.2025 | 30.11.2024 |
| 30.06.2020 | 30.06.2020 to 28.02.2022 | 20 | 28.02.2025 | 30.11.2024 |
| 31.12.2020 | 31.12.2020 to 28.02.2022 | 14 | 28.02.2025 | 30.11.2024 |
| 01.01.2022 | 01.01.2022 to 28.02.2022 | 2 | 28.02.2025 | 30.11.2024 |
| 28.02.2022 | 28.02.2025 | 30.11.2024 |
- No notice /statement of demand to be issued when tax along with interest is paid before serving notice/deemed notice
As per sec 73(5) of the CGST Act, the person chargeable with tax may, before service of notice/statement under sec 73(1)/sec 73 (3), pay the amount of tax along with interest payable thereon under sec 50 (interest on delayed payment of tax) on the basis of-
- his own ascertainment of such tax, or
- as ascertained by the proper officer
and inform the proper officer in writing of such payment.
In this regard, rule 142(1A) of the CGST Rules inserted w.e.f. 09.10.2019 vide notification no. 49/2019-central tax dated 09.10.2019, provides that a proper officer may issue a chargeable with tax, interest and penalty. This form shall contain the details of any tax, interest, and penalty as ascertained by the proper officer. Based on these details, the person chargeable with tax, may decide to pay the alleged amount of tax along with interest and thus there would not be any SCN/statement of demand issued to such person.
However, duering the period 09.10.2019 to 14.10.2020, communication of pre-SCN consultation in PART A of FORM GSTR DRC-01A before service of notice was mandatory.
Based on the discussion made above penalty is payable under Section 73 (NON_FRAUD CASES) as follows:
| Pay tax plus interest | Amount of penalty |
| Before issuance of show cause notice | No penalty |
| Within 30 days of the issuance of show cause notice | No penalty |
| In any other case | Higher of:
· 10% of the tax: or · INR 10000/- (INR 20,000 [total of CGST and SGST/UTGST or IGST]) |
Section 74 of CGST Act 2017: Issuance of SCNs for Fraud cases:
Before understanding the procedure of demand and recovery in fraud cases, it is important to understand the meaning of key terms used in sec 74 of the CGST Act viz. fraud, misstatement and suppression.
- Fraud:
Generally, fraud means a crime of using dishonest means to take something valuable from another person or in other words, it is intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right or an act of deceiving or misrepresenting. In other words, an intentional wrong deed can be called as fraud.
There are various pronouncements of the Apex Court wherein the term ‘fraud’ is clarified. Some of the important judgement are as under:
a. Elements of fraud: The expression “fraud” involves two elements, deceit and injury to the person deceived. Injury is something other than economic loss, that is, deprivation of property, whether movable or immovable or of money and it will include and any harm whatever caused to any person in body, mind, reputation or such others. In short, it is a non-economic or non-pecuniary loss. A benefit or advantage to the deceiver, will almost always call loss or detriment to the deceived. Even in those rare cases where there is a benefit or advantage to the deceiver, will almost always call loss or detriment to the deceived. Even in those rare cases where there is a benefit or advantage to the deceiver, but no corresponding loss to the deceived, the second condition is satisfied. – Hon’ble SC in Dr. Vimla v. Delhi Administration [1963 Supp. 2 SCR 585].
b. Fraud is deliberate deception by taking unfair advantage of another : “Fraud” is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another’s loss. It is a cheating intended to get advantage- Hon’ble SC in S.P. Chengalvaraya Naidu v. Jagannath [1994 (1) SCC 1].
c. Fraud means willfully causing damage to another by falsehood: “Fraud” as is well-known vitiates every solemn act. Fraud and justice never dwell together. It is also well settled that misrepresentation itself amounts to fraud. A fraudulent misrepresentation is called deceit and consists in leading a man into damage by willfully or recklessly causing him to believe and act on falsehood- Hon’ble SC in Ram Chandra Singh v. Savitri Devi and Ors. [2003 (8) SCC 319].
Generally, mis-statement means to state or report (something) incorrectly.
Many times, when department is not able to issue notices within normal period of limitation (under section 73), it would issue the same under extended period (under section 74). However, if the assessee is successful in proving that there was no fraud, suppression etc. involved in the said matter, there are chances that the said notice can be dropped. Hence, limitation ground is very important while fighting tax litigation.
In this regard, there are various legal pronouncements wherein it was held that to invoke extended period of limitation under Section 74 instead of Section 73, mis-statement must be willful, and an incorrect statement cannot be equated with a willful mis-statement.
- Suppression must be willful: “Suppression of facts” can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. It is settled law that were failure to declare does not amount to willful suppression., there must be some positive act from the side of assesse to find willful suppression-Hon’ble SC in Anand Nishikawa Co. Ltd, v. Commissioner of Central Excise, Meerut [ 2005 (288 ) E.L.T. 149 S.C.
- Non-payment of duties does not amount to willful suppression: Mere non-payment of duties is not equivalent to collusion or willful mis-statement or suppression of facts- Hon’ble SC in Uniworth Textiles Ltd. v. Commissioner of central Excise, Raipur [2013 (288) E.L.T. 161 (S.C.]
- No suppression if department is already aware of the facts: Where first show cause notice was issued, all the relevant facts were in the knowledge of the authorities, then while issuing subsequent show cause notices on the same/similar facts, the department cannot allege suppression of facts on the part of the assesse- Hon’ble SC in Nizam Sugar Factory v. Collector of Central Excise, A.P. [2006 (197) ELT 465 (S.C.)].
- Department cannot invoke extended period if it is already aware of all the facts: When all the facts were within the knowledge of the department while issuance of first show cause notice, issuance of second show cause notice on same set of facts invoking extended period of limitation cannot be permitted- Gujrat HC in Gujarat Ambuja Exports Ltd. v. Union of India [2012 (26) S.T.R. 165 (Guj.)].
Time limit/period for issuing SCN under Section 74:
As per sec 74(2) of the CGST Act. The proper officer shall issue the notice under sec 74(10) for issuance of order.
It is imperative here to understand that as per sec 74 (10) of the CGST Act, order of adjudication is required to be issued within 5 years from the due date for filing annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within 5 years from the date of erroneous refund. Accordingly, SCN for fraud cases will have to be issued on or before 6 months prior to expiry of 5 years from the date of filing of annual return/erroneous refund. It can be seen that a minimum time period of 6 months is maintained between issuance of show cause notice and last date of passing of the adjudication order.
| Particulars | When tax not paid or short paid or input tax credit wrongly availed or utilized relates to | ||||
| Financial year for which adjudication order is to be paused | 2017-2018 | 2018-19 | 2019-20 | 2020-21 | 2021-22 |
| Due date of filing of annual return | 05.02.2020/ 7.02.2020* | 31.12.2020* | 31.03.2021* | 28.02.2022* | 31.12.2022 |
| Limitation period for the issuance of order | 5 years is to be calculated from the due date of filing of annual return | ||||
| Last date upto which order can be issued | 05.02.2025/07.02.2025 | 31.12.2025 | 31.03.2025 | 28.02.2027 | 31.12.2027 |
| Last date upto which SCN to be issued (6 months prior to the time limit of issuance of order) | 05.08.2024/07.08.2024 | 30.06.2025 | 30.09.2025 | 31.08.2026 | 30.06.2027 |
*Note: Due date of furnishing annual return for financial year 2017-18, 2018-19, 2019-20 and 2020-21 was extended.
Penalty under Section 74:
As per sec 74(8) of the CGST Act, where any person chargeable with tax under sec 74(1) pays the said tax along with interest payable under sec 50 (interest on delayed payment of tax) and a penalty equivalent to 25% of such tax, within 30 days of issue of show cause, all proceedings in respect of the said notice shall be deemed to be concluded.
However, it is suggested that 30 days should be counted from the date of communication (services) of show cause notice, rather than from the date of issuance as stipulated under sec 74(8) of the CGST Act, which is not even in line with provisions of corresponding rule 142(3) of the CGST Rules (which talks about ‘service’ of notice). It needs to be appreciated that till the very existence of the show cause notice is unknown to be assesse, he cannot take an action on it.
Based on the discussion made above penalty is payable under Section 74 (FRAUD CASES) as follows:
| Pay tax plus interest plus reduced penalty | Percentage of tax amount as penalty |
| Before issuance of show cause notice | 15% penalty |
| Within 30 days of the show cause notice | 25% penalty |
| Within 30 days of the order | 50% penalty |
| Any Other Case | 100% penalty |
COMPARITIVE SUMMARY OF DEMAND & PENALTY PROVISIONS: FRAUD VS. NON-FRAUD CASES
| Stage at which action is taken by taxpayer | Amount of penalty payable | |
| Non-Fraud cases | Fraud Cases | |
| Before issuance of show cause notice | Tax, interest and no penalty.
All proceedings deemed to be concluded. |
Tax, interest and penalty equal to 15% of the tax amount. |
| Within 30 days after the issuance of the show cause notice | Tax, interest and no penalty.
All proceedings deemed to be concluded. |
Tax, interest and penalty equal to 25% of the tax amount. All proceedings deemed to be concluded. |
| Determination by Order | Tax, interest and penalty of 10% tax or Rs. 20,000 whichever is higher. | Tax, interest and penalty equal to tax amount. |
| Within 30 days of order | Tax, interest and penalty of 10% of tax or Rs. 20,000 whichever is higher. | Tax, interest and penalty equal to 50% of the tax amount |
Note: The amount of penalty above is total of CGST and SGST/UTGST or IGST.
Monetary Limit for issuance of show cause notices and passing of orders:
Department has issued Circular no. 31/05/2018- GST dated 09.02.2018 where monetary limit for issuance of SCN & passing or orders is notified:
| SI. No. | Officers of Central Tax | Monetary limit of the amount of central tax (including cess) not paid / short-paid / erroneously refunded etc. | Monetary limit of the amount of integrated tax (including cess) not paid/ short-paid/ erroneously refunded etc. | Monetary limit of the amount of central tax and integrated tax (including cess) not paid/ short- paid/ erroneously refunded etc. |
| 1. | Superintendent of Central Tax | Not exceeding INR 10 lakhs | Not exceeding INR 20 lakhs | Not exceeding INR 20 lakhs |
| 2. | Deputy or Assistant Commissioner of Central Tax | Above INR 10 Lakhs and not exceeding INR 1 Crore. | Above INR 20 lakhs and not exceeding INR 2 Crores | Above INR 20 lakhs and not exceeding INR 2 crores |
| 3. | Additional or Joint Commissioner of Central Tax | Above INR 1 Crore without any limit | Above INR 2 crores without any limit | Above INR 2 Crores without any limit |
Show cause notice is mandatory requirement for raising any demand under GST act 2017 except payment of interest u/s 50 and assessment of non-filer of returns u/s 62 of the act. SCN is the foundation on which adjudicating authority has to build up case. It is the document served on the taxable person asking him to explain with reason as to why a particular course of action should not be taken against him. It must be speaking and well-reasoned. Issuance of show cause notice should be with open mind. Taxable person should be of clear view that it is only proposal and his reply will be considered before taking any decision.
It is very important for all taxpayers that, all SCNs received are issued within due time & penalty is correctly demanded.
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