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The implementation of the Goods and Services Tax (GST) in India has brought about significant changes in the taxation system. To ensure compliance and address issues related to tax evasion, the CGST Act, 2017 includes provisions such as Section 73 and Section 74. These sections pertain to the determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized. In this article, we will explore the key aspects of Section 73 and Section 74 of the CGST Act, along with their implications and procedures.
Section 73: Determination of Tax Not Paid or Short Paid or Erroneously Refunded or Input Tax Credit Wrongly Availed or Utilized
Section 73 of the CGST Act deals with situations where the proper officer believes that tax has not been paid, has been short paid, has been erroneously refunded, or where input tax credit has been wrongly availed or utilized. It is important to note that this section applies to cases where there is no fraud, willful-misstatement, or suppression of facts to evade tax.
1. Meaning of Proper Officer for Section 73
The term "Proper Officer" refers to the Commissioner or the officer of the central tax who is assigned a specific function by the Commissioner in the Board. This officer is responsible for performing functions related to the CGST Act.
2. Circumstances in which Section 73 can be invoked
Section 73 can be invoked in the following circumstances:
a. Tax not paid: When the taxpayer fails to pay the required tax amount. b. Tax short paid: When the taxpayer pays an amount less than the actual tax liability. c. Erroneously refunded: When a refund is issued to the taxpayer by mistake. d. Input tax credit wrongly availed: When the taxpayer claims input tax credit that they are not entitled to. e. Input tax credit wrongly utilized: When the taxpayer utilizes input tax credit for purposes other than those allowed under the law.
3. Exclusion of Fraud or Willful-Misstatement
Section 73 specifically excludes cases involving fraud, willful-misstatement, or suppression of facts to evade tax. In such cases, different provisions under the CGST Act, such as Section 74, come into play.
4. Time Period for Issuance of Show Cause Notice (SCN)
The proper officer is required to issue a show cause notice (SCN) within three months prior to the time limit for the issuance of an adjudication order. The SCN serves as a communication to the taxpayer, requiring them to show cause as to why they should not pay the specified amount along with interest and penalties.
5. Penalty Waiver within 30 Days of Notice
If the tax and interest are paid within 30 days from the date of issue of the notice, all penalty proceedings shall be concluded. This provision aims to encourage prompt payment of outstanding taxes.
6. Details Covered in the Notice
The SCN issued under Section 73 must provide details related to tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized. It should clearly specify the reasons for the issuance of the notice.
7. Time Limit for Issuance of Determination Order
The proper officer must issue the determination order within three years from the due date of the annual return for cases related to tax unpaid, short paid, input tax credit wrongly utilized or availed. For cases of erroneous refund, the order must be issued within three years from the due date of the refund.
8. Penalty and Interest under Section 73
Under Section 73, a penalty equivalent to 10% of the tax amount or Rs 10,000, whichever is higher, shall be levied. In addition, interest shall be calculated at a rate of 18% per annum as per Section 50 of the CGST Act.
9. Levy of Penalty within 30 Days
If the tax remains unpaid within 30 days from the due date of payment, the proper officer shall levy the penalty as prescribed under Section 73.
Judicial Decisions
- Extension of Limitation to Issue Order: The Kerala High Court has held that the extension of the limitation period to issue an order under Section 73 also extends the time limit to issue the SCN.
- Adjudication Process: The Delhi High Court has ruled that no coercive steps shall be taken for recovery without following the adjudication process under Section 73/74 of the CGST Act.
Extract of Section 73 of CGST Act, 2017
Section 73: Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful-misstatement or suppression of facts.
(1) 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 utilized 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 as to 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.
Conclusion
Section 73 of the CGST Act plays a crucial role in determining cases of tax non-payment, short payment, erroneous refund, and wrongful availment or utilization of input tax credit. It provides a framework for issuing show cause notices, imposing penalties, and calculating interest. By understanding the provisions of Section 73, taxpayers can ensure compliance and avoid potential penalties. It is essential to seek professional guidance when dealing with matters related to Section 73 of the CGST Act to ensure adherence to the law and timely resolution of any disputes.
