Determination of Tax Liability under Demand Provisions
In our previous blog, we understood all about the demand provisions under GST, and how they are invoked, whenever there is a short payment, non-payment, or wrong refund of tax or wrong utilisation of input tax credit. We also learnt about the modes of demand of tax in terms of issuing the show cause notice (SCN) as well as the Order, for both fraudulent and non-fraudulent cases, and the respective penalties and timelines. In this blog, we will understand the rules laid down for determination of tax liability for calculation of penalty under the demand provisions of GST.
General Provisions for Determination of Tax Liability
The general provisions for determination of tax liability are as follows:
- If the service of the Show Cause Notice (SCN) or the issue of the Order, both of which are important notifications for a defaulting tax payer, have been stayed by a Tribunal or Court order, then the stay period will be excluded from the maximum time limits specified i.e. 3 years in the case of non-fraud cases and 5 years in the case of fraud cases
- If the Appellate Authority or Tribunal or Court decides that charges of fraud are not sustainable i.e. the case cannot be labelled as a fraud case, then the case will be handled as a non-fraud one and the SCN issued earlier will be assumed to be a SCN for a non-fraud case. The tax officer will calculate the tax accordingly
- If the Tribunal or Court directs that an order has to be passed, then it will be issued within two years from the date of the direction
- An opportunity of a personal hearing will be granted to the taxpayer if they request it in writing, or, if a penalty or any adverse decision is proposed against such person
- The proper officer can adjourn the personal hearing if the concerned person provides sufficient cause in writing, but, such an adjournment will be allowed for a maximum of 3 times
- While issuing an order, the proper officer, shall set out the relevant facts and the basis of his decision, in the order itself
- The amount of tax, interest and penalty demanded in the order will not exceed the amount specified in the notice. All demands will be made, only on the grounds specified in the notice
- The Appellate Authority or Tribunal or Court can modify the amount of tax determined by the proper officer
- Interest on tax which is unpaid or short paid, will have to be paid whether or not specified in the order
- If the order is not issued within 3 years (in case of non-fraud cases) or 5 years (in case of fraud cases), then it is assumed that the adjudication proceedings are completed, and no further orders will be issued afterwards
- All pending cases, where the decision was against the interest of revenue, might be appealed to a higher authority. For such cases, the period between the date of the original decision and the date of the revised decision of the higher authority, will be excluded from the period of 3 years or 5 years, as applicable
- Recovery provisions for unpaid or short paid tax and interest levied on the same, is applicable irrespective of the demand provisions
- Once a penalty is imposed on a taxpayer under the demand provisions specified for fraud and non-fraud cases, no other penalty under any of the GST sections will be applicable
Tax collected but not paid to Government
The following provisions have been specified to handle the scenario of a person collecting tax from another person, but not depositing the same with the Government, i.e. tax collected but not deposited to the Government:
- The defaulter will have to mandatorily pay the said amount to the Government, irrespective of whether the supplies, for which the amount was collected, are taxable or not
- If the amount is not paid in time, a proper officer may issue a SCN immediately, for recovery of the amount and penalty equivalent to the amount. There will be no specified time limit for issuing such a SCN
- The proper officer, will then after considering all the facts, determine the amount finally due from the defaulter. The defaulter will be liable to pay not only the amount, but also the interest at the rate specified, from the date the said amount was collected by him to the date the said amount is paid by him to the Government
- The proper officer shall issue an order within one year from the date of issue of the notice, post which the amount shall be collected and adjusted against the relevant tax ledgers
Tax wrongfully collected and paid to Central Government or State Government
One of the most common mistakes which can happen for any business is the payment of tax under the incorrect head i.e. CGST + SGST / UTGST being paid in place of IGST or vice versa. The following provisions have been specified to handle tax wrongfully collected:
- A registered person who has paid CGST + SGST / UTGST on a transaction considered by him to be an intra-State supply, but which was actually an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.
- A registered person who has paid IGST on a transaction considered by him to be an inter-State supply, but which was actually an intra-State supply, shall not be required to pay any interest on the amount of CGST and SGST / UTGST, which is payable.
Now, that we are clear about all the demand provisions under GST, as well as the various provisions specified for determination of tax liability – including GST collected but not deposited as well as tax wrongly collected, we will understand about recovery provisions in our next blog.
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Author: Pramit Pratim GhoshPramit, who has been with Tally since May 2012, is an integral part of the digital content team. As a member of Tally’s GST centre of excellence, he has written blogs on GST law, impact and opinions - for customer, tax practitioner and student audiences, as well as on generic themes such as - automation, accounting, inventory, business efficiency - for business owners.
Pramit Pratim Ghosh
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