Illustration for a Fraud Scenario

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

General Provisions for

Determination of Tax (Section 75)
 If the service of notice or issue of the order has been stayed by a
Tribunal/Court order then the stay period will be excluded from the
time limits of 3 and 5 years.

 If the Appellate Authority/Tribunal/Court decides that charges of

fraud are not sustainable (i.e., it is not a fraud case), then the
notice issued earlier will be assumed to be a notice under Section
73 (i.e. non-fraud case). The tax officer will re-calculate the tax
accordingly.

 CGST Circular 185/2022 issued on 27th December 2022 clarifies

by when and how to re-determine the tax dues.
 If the Tribunal/Court directs that an order has to be passed, then it
will be issued within two years from the date of the direction. In
other words, it is within two years from the date of communicating
by Appellate Authority or Tribunal or the Court, clarified the
Circular.

 The officer shall re-determine the interest/penalty/tax demand as

follows-

 In non-fraud cases, if SCN was issued within 2 years

and 9 months from the due date GSTR-9 for the
particular financial year, then only the tax short paid or
unpaid, or input tax credit wrongly availed or utilised,
together with interest and penalty, as per Section 73 of
CGST Act for such financial years can be re-computed.
Similarly, the amount of tax liability for erroneous refund
along with interest and penalty payable can be re-
computed only where SCN was issued within 2 years
and 9 months from the date of erroneous refund.

 Where SCN is issued after the above time limit, then the
proceedings must be dropped.

 In fraud cases, if SCN was issued within 2 years and 9

months from the due date GSTR-9 for the particular
financial year, then entire demand in such notice is the
re-computed amount.

 In fraud cases, if SCN was issued for many years but

after the expiry of time limit, then re-determination of
 amount under Section 73 will be for only that financial
year where the SCN was issued before the expiry of
time limit.

 An opportunity for a personal hearing will be given to the taxpayer

when they request it in writing or a penalty or any adverse decision
is proposed against such person.

 The proper officer can adjourn the personal hearing if the person
provides sufficient cause in writing. But adjournment will be
allowed for a maximum of 3 times.

 The amount of tax, interest and penalty demanded in the order will
not exceed the amount specified in the notice. All demands will be
only on grounds specified in the notice.

 The Appellate Authority/Tribunal/Court can modify the amount of

tax determined by the officer.

 Interest unpaid/short paid tax will have to be paid whether or not

specified in the order.

 If the order is not issued within 3 or 5 years then it is assumed that

the adjudication proceedings are completed. No order will be
issued afterwards.

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.
  Recovery provisions for unpaid/short paid tax and interest is
applicable irrespective of demand provisions.

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:

 Tax is unpaid/short paid or,

 Refunds have been wrongly calculated or,

 The input tax credit has been wrongly availed/utilised

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.

Interest applicability on GST

demand
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: