Demand & Recovery

Introduction: Levy of tax is mandated by law under GST, its recoveryis an important
administrative function under law. Though the focus is on self-assessment and voluntary
payment of tax, there bound to be certain disputes and other factors resulting in non-payment,
delayed payment of tax.
Legal provisions under GST for demand and recovery: Chapter XV comprising sections
73 to 84 lay down the procedure in demand and recovery of GST.

Sectio Details
n

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.

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.

75 General provisions relating to determination of tax.

76 Tax collected but not paid to Government.

77 Tax wrongfully collected and paid to Central Government or State Government.

78 Initiation of recovery proceedings

79 Recovery of tax.

80 Payment of tax and other amount in instalments.

81 Transfer of property to be void in certain cases

82 Tax to be first charge on property

83 Provisional attachment to protect revenue in certain cases.

84 Continuation and validation of certain recovery proceedings.

Section 73 and 74 have many similarities on recovery procedure, though the circumstances
under which the proceedings are initiated are totally different. The time limit is higher
under section 74 considering the serious nature of circumstances like “….by reason of fraud
or any wilful misstatement or suppression of facts.” Following table summarises the details:

Particulars Section 73 Section 74

Situation of When tax is not paid or short paid or wrong For reason of fraud or wilful
proposing GST utilization of ITC or refund is erroneously misstatement or suppression of facts
demand of tax refunded for reason other than fraud or to evade tax
interest, penalty etc. wilful misstatement or suppression of facts
to evade tax

Time limit for 3 month prior to issuance of order 6 month prior to issuance of order
issuance of SCN
 Time limit for Within 3 year from the due date for Within 5 year from the due date for
Passing of order furnishing of annual return for financial year furnishing of annual return for
to which tax has not paid or short paid or financial year to which tax has not
wrong availment or utilization of ITC paid or short paid or wrong availment
relates to or 3 years from the date of or utilization of ITC relates to or 5
erroneous refund years from the date of erroneous
refund
Voluntary payment is always encouraged for easy and speedier closure of proceedings. To
incentivise such compliance, no penalty or lesser penalty are proposed as per the situation
mentioned in the section.
Issue of show cause notice SCN and related issues: Show Cause Notice (SCN) is the first
stage of litigation under GST. Under GST, the department is required to issue SCN when-
a. Tax is not paid or short paid or
b. Tax is erroneously refunded or
c. Input tax credit is wrongly availed or utilized or
d. Any demand of tax, interest, fee or penalty is to be proposed as a result of inquiry or audit.
Penalty payable under section 73 and 74: Penalty payable under proceedings vary
depending on the level of voluntary compliance. Early response to proceedings and early
payment of tax and interest (u/s 50) entail the chargeable person certain concessions in levy
of penalty.
Time line for compliance Sec 73 Sec 74

Before service of notice 73(5)/74(5) No penalty 15% of tax amount

Within 30 days of issue of show cause notice No penalty 25% of tax amount
73(8) /74(8)

After considering the representations in 10% of tax amount or 50% of tax amount (within 30
proceedings 73(9) / 74(11) 10,000/- the higher one days) 100% of tax amount
after 30 days
Any penalty is imposed under section 73 or 74, no penalty shall be imposed for same act on
the same person under any other provision of this Act. Limitation as per section 75(13).
Section 74- applicable situations: The applicability rests on following conditions:
a. by reason of fraud, or
b. any wilful-misstatement or
c. suppression of facts to evade tax,
Initiation of recovery proceedings: Recovery of tax is an important administrative function.
If the persons pay tax determined as per proceedings/ adjudication, question of recovery does
not arise. In practical life various reasons cause either delay in payment or the persons not
responding to the call for payment. Section 78 provides a period of THREE MONTHS from
the date of service of such order for payment, failing which recovery proceedings shall be
initiated. Proper officer has power to demand tax in a shorter period in the interest of revenue.
Recovery of tax: Section 79 provides for manner of recovery of tax due to the Government.
In nutshell the various methods may be summarised as follows:
a. Deduction from any money payable to person.
b. Recovery through detaining and selling goods.
c. Recovery from any other person who is required to pay any amount to the defaulter-
Garnishee order.
d. Distrain property of the person.
e. As arrears of land revenue.
f. Recovery through Magistrate.
g. Authorities can use one or more methods.
h. Recovery from bond if provided.
i. Recovery out of inter head refund amount against inter head due amount i.e. CGST/IGST
against SGST and vice versa. Section 20 of IGST empowers equal and parallel powers.
Payment of tax and other amount in Instalments: Section 80-This facility is a kind of
benevolence bestowed upon the taxable person. This facility has to be sanctioned by
Commissioner upon request from taxable person. This facility grants some time to arrange
resources and pay in instalments. This can be narrated in capsule form as follows:
Monthly instalments not exceeding 24 months.
Interest shall be payable.
This facility is not available for tax self-assessed by the person.
Facility available for demand confirmed u/s 73,74 and 75- tax, interest, penalty and fine.
Default in payment of any instalment will result in entire amount payable forthwith.
Continuation and validation of certain recovery proceedings. Section 84 provides that
when any demand of tax, interest or penalty has been confirmed against the taxable person
and recovery proceedings are being taken the proceedings will be continued even where
amount is enhanced in appeal revision or other proceedings and in case of reduction of
demand such reduced amount to be recovered. Appropriate authority for recovery shall be so
instructed by Commissioner.
Conclusion: Government revenue is well protected under various circumstances. The
procedures are laid down so as to remove any ambiguity when there are changes in officers
due to transfer or change of jurisdiction. The attachment proceedings coupled with recovery
from third parties who are due to pay to the chargeable person in arrears are further safety
measures.

Penalties
Being a destination based, transaction wise tax, Goods and Services Tax or GST, ropes in
strict compliance procedures for all the taxpayers or people falling under the scope of the
same. Since every transaction is being recorded and tracked between the source and
destination, it is obligatory for the taxpayers to maintain and declare information with utmost
accuracy.

To have a crystal clear movement of goods intra-state or inter-state, reduce corruption and
efficient tax collection system, GST defines strict penalty rules and offenses guidelines,
which the taxpayers have to follow.

In this article, we’ve explained Offenses, Penalties and Appeals in GST which every business
owner should be aware of.
21 set offenses have been identified under the GST regime. There is one more offense which
can be penalised that of availing composition scheme, even if the person is not liable for
doing so.

1. A supplier supplies goods or services without any proper invoice or has issued a false
invoice.
2. He affects the issuance of an invoice without supplying the goods or services as per
provisions of GST.
3. He uses the GSTIN of any other person instead of his own.
4. He submits false information during registration.
5. He gives wrong information while filing returns or files false returns.
6. He gives wrong information or false information during assessment proceedings.
7. He fails to submit GST with the Government that was deducted by him, within a
period of 3 months from the date of such deduction.
8. If TDS is deducted in contravention of provisions of GST, he is still liable to pay the
same within three months from the date of such deduction. If such falsely deducted TDS is
not submitted within the prescribed time, then it is an offense.
9. He claims and obtains a refund of CGST or SGST by fraud.
10. He claims Input Tax Credit without the actual receipt of goods or services.
11. He understates his sales during the period to evade tax.
12. He transports or effects movement of goods without proper documentation.
13. He supplies goods that will be confiscated by law.
14. He destroys or tampers with, the goods that have been confiscated.
15. He does not register himself even though he is liable to do so.
16. He does not deduct TDS wherever applicable or deducts lesser than prescribed
amount.
17. He does not collect TCS wherever applicable or collects lesser than prescribed
amount.
18. He does not distribute credit properly or distribute against the provisions of law being
an Input Service Distributor.
19. He obstructs the officer in the performance of his duties.
20. He does not maintain proper books of accounts as required mandatorily by law
21. He intentionally destroys any evidence.

As seen from the above, the Government has clearly spelled out the offenses that are covered
under GST. When a company commits any of the above offense, the officer-in-charge, as
well as the company will be held liable for such an offense. When the offense is committed
by an HUF, LLP (Limited Liability Partnership) or a Trust, then the Karta, partners and
managing trustee will be held responsible for such offense.

Penalties under GST in case of Fraud

For those who have committed fraudulent activities intentionally w.r.t. the provisions of
GST, then he/she shall be liable to pay 100% penalty, i.e. an amount equivalent to the
amount of tax evaded or short deducted, subject to a minimum of Rs. 10,000/-. Where there
is no fraudulent intent, i.e. the tax evasion is unintentional, then the penalty shall be 10% in
this case, subject to a minimum of Rs. 10,000/-.
Where a person, 
 Abates in committing fraud
 Acquires goods or services knowingly that these are against the provisions of GST
 Fails to issue genuine invoice
  Fails to maintain or vouch for the books of accounts
 Fails to appear before the relevant authority upon a summon issued to his name,
Then he shall also be liable to pay a penalty of Rs. 25,000/-.
If fraud is ascertained, then apart from the above amounts, the following shall also apply:
1. When the amount of tax involved is up to 50 lakhs, the person has to serve a jail term
of 1 year along with paying the penalty.
2. When the amount ranges between 50 lakhs to 100 lakhs, then jail term shall be three
years plus penalty
3. When the amount exceeds 100 lakhs, then jail term shall be up to 5 years plus penalty.
The respective authority shall issue a Show Cause Notice to the taxable person and offer him
a reasonable time for being heard. The authority shall have to justify the imposition of such
penalty as well as the nature of the offense committed. Where a taxable person intentionally
discloses an offense committed by him, it is within the powers of the respective authority to
reduce the amount of penalty to be imposed.
Prosecution under GST section 132 (1)
Where a person commits the following offenses with a deliberate intention to cause fraud,
then criminal proceedings shall be held against him.
 Claiming refund of CGST/SGST by fraud
 Submission of fake documents or returns
 Issuing any invoice without making a supply of goods or services
 Abetting in the fraud under GST

Amount of Tax evaded or ITC wrongly availed or utilised or Imprisonment with fine
amount of refund wrongly taken
Exceeds Rs 5 crore 5 years with fine
Exceeds Rs. 2 crore but doesnot exceeds Rs. 5 crore 3 years with fine
Exceeds Rs. 1 crore but does not exceeds Rs. 2 crore 1 year with fine
Falsifies financial records or produces fake accounts or prevents 6 months or fine or both
any officer from discharging his duties or destroys any material
evidence or documents.
Offence committed again 5 years with fine for second
and every subsequent
offence.

Inspection, Search/Seizure under GST

Where the Joint Commissioner CGST/SGST has sufficient reason to believe that a taxable
person is deliberately suppressing transaction to evade taxes or has claimed excessive Input
Tax Credit, then he can order an officer of GST to inspect the locations of such person.
Similarly, the Joint Commissioner can order for search and seizure within the premises of a
taxable person when he has sufficient reason to believe that there are goods, which should be
confiscated or some important documents are being hidden somewhere.
Appeals in GST
A taxable person, who is unhappy with the order passed by an adjudicating officer, can
appeal against such order to the First Appellate Authority. A competent authority that has the
power to pass a decision or an order under the Act is known as the “adjudicating officer.”

Having a four-level appeal structure, the GST provides all unhappy taxpayers to reach out
to the Government. The second level after the First Appellate Authority is the Appellate
 Tribunal. After the Appellate Tribunal, the taxpayer can reach out to the High Court. The last
resort left with the taxpayer is the Supreme Court.
All appeals shall only be entertained provided the same is filed as per prescribed forms, and
minimum fees are paid. The fee for an appeal shall be:
1. 100% of the tax amount, interest, fee, penalty, arising from such challenged order
AND
1. 10% of the disputed amount.

The above amount of 10% can increase up to 25% of the disputed amount, where the
disputed tax amount is above INR 25 Crores.

PENALTIES UNDER GST

Under the Goods and Services Tax Act, there are cases where small procedural lapse which is
generally ignored and which is easily rectifiable may lead to big penalties.

Nature of Default Penalty Remarks

GST Identification Number UptoRs. 25,000 If you are regular GST dealer, GSTIN needs to be
(GSTIN) to be mentioned mentioned on the name board. If you opted for
on the name board Composition levy, you need to mention
‘Composite Taxable person’ on the name board.
This rule is to make the buyer to choose the
supplier on seeing the details on the name board.
GST Registration UptoRs. 25,000 Any registered person needs to display his GST
Certificate to be displayed registration certificate at prominent place of
at prominent place of business and at all additional places of businesses
business at all places of also.
business
Not issuing Proper Invoice Rs. 25,000 Invoice is the document which contains all details
of supply and also an important document based on
which ITC is availed. Hence, Invoice is given
utmost importance in GST, rather any indirect tax
law. So, all details as mentioned in rules need to be
mentioned on the Invoice.
Not maintaining proper UptoRs. 25,000 Stock record is one of the mandatory records to be
Stock record maintained as per Rule 56(2) of CGST Rules,
2017.
Availing Input Tax Credit Rs. 10,000 or 100% of Input Tax Credit (ITC) is backbone of GST
based on wrong Invoice ITC wrongly availed, structure. To avail ITC, proper Invoice is must.
whichever is higher +
24% Interest from
date of availment to
date of reversal

Certain small lapses which may lead to big penalties, are generally ignored, even today by many
businesses.

Nature of Default Penalty Remarks

Paying CGST instead of Pay Tax under CGST & SGST is payable for intra-state supplies and
IGST/SGST Paying correct head with no IGST for inter-state supplies. Taxes paid under
SGST instead of interest and claim respective heads are transferred to respective
CGST/IGST Paying IGST refund of tax paid governments. For Example, taxes paid under SGST
instead of CGST/SGST under wrong head. head is transferred to respective state government
determined based on place of supply. So, Tax paid
under wrong heads leads to transfer of tax to that
 respective government which leads to wrong
accounting. Hence, under GST, paying tax under
correct heads is important and hence, the penalty.
However, GST portal is now generating challan
automatically after entering data in GSTR 3B. Chance
of making this mistake is reduced to great extent.
Rs. 20 (Rs. 10 Timely Compliance is key to success of GST return
Not filing GSTR 3B on or SGST + Rs. 10 process and matching. Hence, to encourage timely
before 20th of next month CGST) per day of compliance, this penalty.
delay in case of NIL
Not filing GSTR 1 on or returns. In other
before due date (penalty cases, Rs.
not yet auto 50 (Rs. 25 CGST +
–reflected in system) Rs. 25 SGST) per
day of delay
Not obtaining registration Rs. 10,000 + ITC Section 22 of CGST Act 2017 mandates every person
within 30 days of date on during the period of to register if the aggregate turnover exceeds Rs. 20
which he is liable to get delay is lost Lakhs. Every registered person needs to pay tax and
registered file returns. Hence, registration is an important aspect
in GST. Non-registration even though he is liable or
takes registration late are both wrong doings.
Invoice without supply Rs. 10,000 or 100% This situation may lead to availment of higher ITC
of tax evaded , without actually selling goods.
whichever is higher
Supply without Invoice Rs. 10,000 or 100% This situation may lead to supply without recording it
(Non- Issuance of of tax evaded, and also the buyer may lose ITC since he doesn’t
Invoice) whichever is higher possess proper invoice.
Collects GST but doesn’t Rs. 10,000 or 100% In indirect taxes, the tax is collected from the
pay to Government of tax evaded, consumer and paid to Government. It is not an expense
within 3 months from due whichever is higher to the supplier. So, whenever tax is collected from a
date third party on behalf of Government and the same is
not paid leads to misappropriation of public money.
General Penalty UptoRs. 25,000 If any of the provisions are defaulted and nowhere
penalty is specified, this general penalty provision may
be resorted to.
The quantum of penalties is really alarming. Penalty for the non-compliance can be costlier than cost
for complying the same. Therefore, as a matter of awareness, the lapses which may be rectified easily
to avoid paying penalties, are listed down.
All the above mentioned defaults are easily rectifiable with minimal time and minimum effort. Hence,
all are requested to see that the simple provisions are being complied and avoid big penalties.