Demand when no charge of fraud, wilful mis-statement or suppression of facts :
Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder – section73(1) of CGST Act.
The provisions apply to recovery of interest also.
Notice to be issued at least three months before time limit of issue of order – Notice should be issued at least three months before time limit specified in section 73(10) – section 73(2) of CGST Act.
Statement instead of detailed SCN if SCN on same grounds was issued for earlier period – Once a SCN has been issued, repeat notices are required till matter is finally adjudicated. Where a notice has been issued for any earlier period under section 73(1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under earlier SCN, on the person chargeable with tax – section 73(3) of CGST Act.
The service of such statement shall be deemed to be service of notice on such person, if the grounds relied upon for such tax periods are the same as are mentioned in the earlier notice – section73(4) of CGST Act.
This is only to save paper work at department, where show cause notice on same grounds was issued for earlier period.
Taxable Person can pay tax on own before SCN – The person chargeable with tax may, before service of notice under section 73(1) or statement under section 73(3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment – section 73(5) of CGST Act.
The proper officer, on receipt of such information, shall not serve any show cause notice in respect of the tax so paid or any penalty leviable under the provisions of this Act or the rules made thereunder – section 73(6) of CGST Act.
However, if the taxable person has not paid self assessed tax or any amount collected as tax within 30 days from due date of payment, penalty of 10% of tax will be payable – section 73(11) of CGST Act.
This is to promote voluntary compliance and reduce litigation.
‘Shall not serve show cause notice’ means it is a mandatory provision. The issue has to be closed. However, prosecution under section 132 of CGST Act can continue – Explanation (1)(i) to section 73 of CGST Act.
Where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122, 125, 129 and 130 are deemed to be concluded – Explanation (1)(ii) to section 73 of CGST Act. Any notice even for penalty or late fee or co-noticees cannot be issued.
Show cause notice if amount short paid by taxable person – Where the proper officer is of the opinion that the amount paid under section 73(5) falls short of the amount actually payable, he shall proceed to issue the notice under section 73(1), in respect of such amount which falls short of the amount actually payable – section 73(7) of CGST Act.
No penalty if tax with interest paid within 30 days from issue of SCN – Where any person chargeable with tax under section 73(1) or 73(3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said tax shall be deemed to be concluded – section73(8) of CGST Act.
‘All proceedings in respect of the said tax shall be deemed to be concluded’ means any further notice even to co-noticee for penalty, late fee etc. cannot be issued. However, prosecution under section 132 of CGST Act can continue.
Further, if the taxable person has not paid self assessed tax or any amount collected as tax within 30 days from due date of payment, penalty of 10% of tax will be payable – section 73(11) of CGST Act.
Demand with maximum 10% penalty – If taxable person does not voluntarily pay the tax and interest, the proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten percent of tax or ten thousand rupees, whichever is higher, due from such person and issue an order – section73(9) of CGST Act. Penalty equivalent to 10% means lower penalty cannot be imposed.
Time limit for issue of order is three years – The proper officer shall issue the order under section 73(9)within three years from the due date for furnishing annual return for the year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or as the case may be, within three years from the date of erroneous refund -section73(10) of CGST Act.
Note that the time limit is for issue of demand order and not only for issuing show cause notice. However, if the Show Cause Notice was issued but kept pending as department had filed appeal against an order adverse to revenue in some other proceedings on same issue, and appeal of department is pending before Appellate Tribunal, High Court or Supreme Court, that time will not be counted for calculating three year/five year limit – section 75(11) of CGST Act.
[In such cases, the SCN is transferred to ‘call book’ in customs department].