Concept Of Demands & Recovery Under GST

Concept Of Demands & Recovery Under GST

GST is levied on any taxable outward supplies by a person. The complete responsibility of calculation, chargeability, and payment of tax has been assigned to the person making outward supplies. It is a self-assessment tax without any interference from the department. However, it may happen that a person has short paid or not paid taxes or claimed excess or wrongful input tax credit not necessarily with the intention of fraud but otherwise.

Whenever the GST authorities come across such information on tax evasion, it may initiate demand proceedings under the law. The department shall give the person an opportunity to justify its contention or accept the evasion and pay taxes along with interests and penalties.

Even after the demand order is issued the person in default does not pay the due amount. In these cases, the department has to go one step further and start recovery proceedings by attaching bank accounts, inventory, immovable assets, etc.

List Of Topics Covered

Demand Order In Genuine Cases (Sec 73)

GST being a new tax, it may happen that any person has made the erroneous claim of blocked ITC or considered a taxable supply an exempt supply or paid tax at a lesser rate due to no knowledge of the change in tax rates. These are few scenarios where a person generally makes mistakes under a genuine belief and without any reason of fraud, wilful misstatement or suppression of facts to evade tax.
In cases where it appears to the Proper Officer that any person has:
→ Not paid tax
→ Short paid any tax 
→ Erroneously received refund 
→ Input Tax Credit (ITC) wrongly availed or utilized 
In all such cases, the officer shall issue a show-cause notice (SCN) on the person as to provide reasons why tax should not be paid by him along with interest applicable under section 50(1). The process and time limit of issuing demand notice and order can be better understood below: 

Demand in genuine cases (section 73)

  • Notice for other tax periods: If an SCN has been issued for a particular period, then there is no requirement to issue separate notices for another tax period not covered in the SCN provided a statement containing the relevant details is furnished to the person and the grounds of belief are same as of tax periods covered in SCN.
  • What shall be the penalty: The penalty provision under various situations can be better understood by the below table:
Sr. No.ParticularsPenalty amount

a.

If a person deposits the amount of tax along with interest before service of notice and informs the proper officer in writing of such paymentNo penalty shall be levied and no demand notice shall be issued

b.

In the above case, if the amount deposited is short of the actually payableDemand notice shall is issued for the balance payable amount

c.

If any person pays the tax along with interest within 30 days of issue of demand noticeNo penalty

d.

If a person pays amount payable after a period of 30 days from the issue of notice10% of the tax amount due or Rs. 10,000/- whichever is higher

e.

If a person has collected tax but not paid within 30 days10% of the tax amount due or Rs. 10,000/- whichever is higher

The Board has vided Circular No. 76/50/2018-GST dated 31st December 2018 has clarified that there shall be no penalty under section 73(11) as discussed in point ‘e’ on delayed filing of GSTR 3B. However, a general penalty under section 125 shall be levied since the tax has been paid late.

Demand In Case Of Fraudulent Tax Evasion (Sec 74)

Where a person indulges in any transaction with intent to cause tax evasion, then an extended time limit is provided to the authorities for initiating demand proceedings and higher penalties against such persons are specified under the GST law.
If it appears to the Proper officer that any person by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax has –
→ Not paid tax 
→ Short paid any tax 
→ Erroneously received refund 
→ Input Tax Credit (ITC) wrongly availed or utilized 
Then, the proper officer shall issue demand notice requiring a person to show cause as to why he should not pay the amount specified in the notice along with interest payable applicable under section 50(1). The process and time limit of issuing demand notice and order in this situation are as follows:

Demand In Case Of Fraudulent Tax Evasion

  • Notice for other tax periods: Similar to the provision in section 73, an officer can start demand proceedings by furnishing a statement of tax particulars for earlier tax periods without the issuance of a separate SCN.
  • What shall be the penalty: The penalties in cases of fraud, wilful misstatement, and suppression of facts can be levied up to 100% of the tax amount. The various scenarios are as follows:
ParticularsPenalty amount
If a person deposits an amount of tax along with interest before service of notice and informs the proper officer in writing of such payment15% of tax payable
In the above case, if the amount deposited is short of the actually payableDemand notice shall be issued for the balance payable amount along with penalty on same
If any person pays the tax along with interest within 30 days of issue of demand notice25% of tax payable
If any person pays the tax along with interest within 30 days of communication of demand order50% of tax payable
In all other cases100% of the tax amount due or Rs. 10,000/- whichever is higher
For the purpose of sections 73 and 74, all the proceedings (except for Section 132 i.e. punishment by way of arrest and fine in specific cases) shall be concluded on payment of requisite penalty amount along with tax and interest.

General Provisions Relating Determination Of Tax (Sec 75)

  • Where the service of notice or issuance of order is stayed by an order of a court or Appellate Tribunal, the period of such stay shall be excluded from the time period of 3 and 5 years
  • Where any Appellate Authority or Appellate Tribunal or court decides that charges of fraud or any wilful-misstatement or suppression of facts to evade tax are not sustainable, then tax shall be determined deeming the notice is issued under section 73
  • If an appeal is filed by the revenue to the Appellate Tribunal or the High Court or the Supreme Court against such decision of the Appellate Authority or the Appellate Tribunal or the High Court and the said appeal is pending then the period of the decision by the authorities and decision of appeal shall be excluded in the calculation of time period for issue of demand order under section 73 and section 74.
  • Any order to be issued based on the direction of the Appellate Authority or Appellate Tribunal or a court shall be issued within 2 years from the date of communication of such direction
  • An opportunity of hearing shall be granted whenever requested in writing. The hearings can be adjourned a maximum of 3 times during the proceedings on the basis of sufficient cause shown.
  • The order issued by the proper officer shall have relevant facts and the basis of decision. Also, the amount of tax, interest, and penalty demanded in the order shall not be more than the amount demanded in notice.
  • Where the Appellate Authority or Appellate Tribunal or court modifies the amount of tax determined by the proper officer, the amount of interest and penalty shall stand modified accordingly.
  • The interest shall be payable under section 50(1) on the tax amount even if not specified in the demand order.
  • Where any penalty is imposed under section 73 or 74, no penalty shall be levied under other sections of the act for the same act or omission.

Demand In Case Taxis Collected But Not Paid To Government (Sec 76)

  • A demand notice shall be issued to a person who has collected tax but not paid to the government.
  • The amount shall be determined after considering the representation made by the person. The amount payable shall include interest on tax to be calculated from the date of collection till the date it is paid to the government.
  • In case any amount is already deposited by the assesse, such amount shall be adjusted against the amount payable and balance if any shall be credited to either fund or to person from whom tax is collected.
  • An opportunity of hearing shall be provided to the person if a request is made in writing.
  • The order shall be passed within 1 year from the date of issue of notice. Any period of stay by the authorities shall be excluded in the calculation of 1 year. The order shall set out the relevant facts and the basis of his decision.
  • The person, who has borne the incidence of the amount, may apply for the refund of the same in accordance with the provisions of section 54.

Initiation Of Recovery Proceedings Under GST (Sec 78)

Any amount that is payable pursuant by an order shall be paid within 3 months from the date of order. If the amount payable is not paid within the required period of time then recovery proceedings shall be initiated against such person under the GST law.
The officer can reduce the time period of 3 months for payment of tax for specific cases if he considers it necessary in the interest of revenue. The reasons for the reduction of the time period shall be recorded in writing and communicated to the person from whom amount is payable.

Modes Of Recovery

Where any amount payable by a person to the Government is not paid, then the proper officer shall proceed to recover the amount by one or more of the following modes –
  • Recovery by deduction from any money owed (Rule 143): The proper officer may proceed himself or order any other specified officer to deduct the amount from any amount that is due to such person (For example refund due to a person)
  • Recovery by the sale of goods under the control of proper officer (Rule 144): The proper officer may detain and proceed to sell of goods belonging to the person in default if the amount payable remains unpaid. Procedure to be followed for selling goods belonging to the person in default are as below:
→ The officer shall prepare an inventory and estimate the market value of such goods and will sell only so much as to recover the amount payable along with the cost of selling and administrative expenses. → The said goods shall be sold through a process of auction, including e-auction and shall be transferred to the person making the highest bid. →The proper officer may specify the amount of pre-bid deposit to be furnished to make the bidders eligible to participate in the auction, which may be returned to the unsuccessful bidders, forfeited in case the successful bidder fails to make the payment of the full amount, as the case may be.
  • Recovery from a third- person (Rule 145): The proper officer shall issue a notice requiring any person from whose amount is due or any other person who holds money for or on account to the person in default to pay the payable amount within the time specified in the notice. The time limit can be revoked, amended, or extended by the officer on a case to case basis. The person can prove to the officer that there is no money due by him to the person in default or that he does not hold any money on or behalf of the person in default.
If a person who to who notice is issued fails to make the payment, then the said person shall be deemed to be a ‘Defaulter in respect of such payable amount’.
Any person discharging any liability to the person in default after service on him of the notice shall be personally liable to the Government to the extent of the liability discharged or to the extent of the liability of the person in default for tax, interest, and penalty, whichever is less.
The notices can be issued to post offices, banks, and insurance companies, vendors, and other third parties as well in respect of a person. If the amount payable is paid by the third person and communicated in writing, then he shall be discharged of all his liability.
  • Recovery through execution of a decree, etc. (Rule 146): Where any amount is payable to the person in default through execution of a decree of a Civil court the authorities can execute a decree of a Civil Court for payment of tax and credit the net proceeds for settlement of the amount recoverable. The payment made by such persons shall be deemed to have made payment under the authority of the person in default and shall constitute a good and sufficient discharge of the liability of such person to the person in default.
  • Recovery by the sale of movable or immovable property (Rule 147): The officer may seize or issue orders of distrainor attachment of any movable or immovable property belonging to or under the control of such person un till the payable amount is paid. If the amount remains unpaid then the officer may proceed to recover the amount by following procedures:
→ If the amount is not paid within a period of 30 days from the date of order of payment, the officer may sell such properties through auction or e-auction. → The sale proceeds out of the auction shall be utilized towards administrative cost of recovery proceedings of selling the property, the amount to be recovered, and balance if any shall be refunded to the defaulter. → Shares or negotiable instruments can be sold through brokers instead of the auction process and the broker shall deposit the amount with the Government after deducting his commission. → The property shall be transferred to the person making the highest bid and the successful bidder has to make payment of bid within a specified period of time.
  • Prohibition against bidding or purchase by the officer (Rule 148): No officer who is a part of demand and recovery proceedings shall take part in the bidding process either directly or indirectly.
  • No sale on holidays (Rule 149): The sale of property shall not take place on Sunday or public holidays notified by the Government or other notified holidays notified for that particular place.
  • Attachment of debts and shares, etc. (Rule 151)-: The officer shall in respect of the person in default prohibit:
→ In the case of a debt, the creditor from recovering the debt → The debtor from making payment thereof until the receipt of a further order from the proper officer → Transfer of shares and receipt of dividend → Transfer of movable property from any other person to the person in default A copy of prohibition shall be sent to such persons and a copy shall be affixed to a prominent place of business.
  • Attachment of property (Rule 152): Where the property to be attached is in the custody of any court or Public Officer, the proper officer shall send the order of attachment to such court or officer, requesting that such property, and any interest or dividend becoming payable thereon, may be held till the recovery of the amount payable.
  • Attachment of interest in Partnership (Rule 153): Where the property to be attached consists of interest of the defaulter, being a partner, in the partnership property, the officer may order payment of the due amount in the partnership firm to the Government and may sale partnership interest to existing partners or other persons under-recovery proceedings.
  • Recovery through land revenue authority (Rule 155): The officer shall send a Certificate to the Collector or Deputy Commissioner of the district to recover from the person concerned the amount specified in the certificate as if it were an arrear of land revenue.
  • Recovery through court (Rule 156): If a fine is to be received by the defaulter person under the Code of Criminal Procedure, 1973, the proper officer shall make an application before the appropriate Magistrate to recover from the person concerned, the amount specified thereunder as if it were a fine imposed by him.
  • Recovery from a surety (Rule 157): Where any person has become surety for the amount due by the defaulter, he may be proceeded against such surety to recover the amount as if he were the defaulter.
The commissioner may extend the time limit of payment of taxes (except liability self-assessed in any return) or allow any person to pay the amount in installments along with interest thereon under section 50(1).
  • Payment of tax and other amounts in installments (Rule 158): On receipt of the application by a taxable person seeking an extension of time for the payment of taxes or any amount due under the Act or for allowing payment of such taxes or amount in installments, the commissioner shall
→ Call for a report about the financial ability of the taxable person → Allow further time or to pay the amount in installments to a maximum monthly installment of 24 months → The above facility shall not be granted to any person who has already defaulted in any other recovery proceedings, has not been allowed this facility in preceding financial year or the amount of tax involved is less than 25,000/-.
If anyone installment has defaulted on its due date, then the entire balance amount shall become payable on the said date of default and shall be liable for recovery.

If any person creates a charge on or parts with the property belonging to him or in his possession by way of sale, mortgage, exchange, or any other mode of transfer in favor of any other person with the intention of defrauding the Government, then such transfer shall be void.
Provided such transfer shall not be void if it is made in for adequate consideration, in good faith and without notice of the pendency of such proceedings under this law

Any amount payable by a taxable person or any other person on account of tax, interest or penalty which he is liable to pay to the Government shall be a first charge on the property of such taxable person or such other person.

In order to protect interests of Revenue, the commissioner may by order in writing attach provisionally any property, including bank account, belonging to the taxable person. Shall provisional attachment shall be valid till the expiry of 1 year from the date of order of provisional attachment.

  • The procedure of attachment of property on a provisional basis (Rule 159):

→ The commissioner shall pass an order of attachment along with details of the property attached
→ Where the property attached is of perishable or hazardous nature, then the property can be released if the taxable person pays lesser of the amount equivalent to the market price of such property or the amount in total payable on account of default.
→ On failure of payment from the person in default, the commissioner may dispose of such property and utilize the amount against the tax, interest, penalty, fee or any other amount payable by the taxable person.
Power to provisionally attach bank accounts or any property is a drastic power. Considering the consequences that ensue from provisional attachment, the Courts have repeatedly emphasized that this power is not to be routinely exercised.

Few important case laws with respect to demands and recovery proceedings are listed below:
Sr. No. Case law details Brief facts & ruling

1.

No. 386 of 2020 M/S. Serajuddin and Co. Vs. Union of India Orissa High Court Principles of Natural Justice: Opportunity of being heard Facts: Demand order issued under section 73 ignoring the request for extension of time limit to give reply to show cause notice. Also request for a personal hearing is not entertained Ruling: Whenever an assessee, chargeable with tax and penalty makes a request in writing for the opportunity of hearing, such an opportunity should be granted to him. The court held that the demand order passed by the is in violation of statutory requirements and remanded back the matter.

2.

Civil Application No. 14129 of 2019 Enpcron Enterprise Limited Vs. The Assistant Commissioner of State Tax Gujarat High Court Provisional attachment of bank accounts: Facts: The Assistant commissioner has passed a prohibition order and provisionally attached 3 bank accounts of the assessee and office premises of the petitioner worth more than INR 1 Crore. The assessee submitted that there is no justification for attaching the bank accounts over and above the attachment of the office premises when the liability that may arise is already protected by the attachment over the office premises. Ruling: The order of provisional attachment, as well as the order of prohibition, is not sustainable on two counts, i.e. (i) the order has been passed by the Assistant Commissioner, and (ii) the order has been passed without any credible materials, available for the purpose of passing such order of provisional attachment.   The order of provisional attachment passed by the Assistant Commissioner so far as the immovable property is concerned is set aside.

3.

No.15645 of 2019 Kabeer Reality Private Limited Vs. The Union of India Madhya Pradesh High Court The validity of recovery proceedings: Facts: The notice of recovery is passed under section 79 (1). It has also been contended that without determination of tax payable by the taxable person, no recovery could have been initiated under Section 79 (1) of the Act of 2017 Also no opportunity of hearing is provided to the company. Also, the company has filed GSTR 1 regularly but failed to file GSTR 3b. Rulings: It was held that GSTR-1 is a declaration of tax liability and GSTR-3B is evidence of actual payment. Since the liability has already been quantified by the petitioner itself, only attempts are being made for recovering revenue dues under Section 79 (1). There is no need for separate determination of tax payable in this case.

4.

No. 3145 OF 2019 Kaish Impex Private Limited Vs. The Union of India Bombay High Court Provisional attachment of bank accounts of third persons: Facts: Proceedings have been launched against assessee under section 67 by way of issue of summons in pursuant to an inquiry against any other person. The bank account of the petitioner is attached under section 83. Ruling: Section 83 of the Act refers to the pendency of proceeding under Section 62, 63, 64, 67, 73, and 74. It is therefore not possible that even though specified proceedings have been launched against one taxable person, the bank account of another taxable person can be provisionally attached merely based on the summons
Sr. No. Form No. Title

1

GSTR DRC-01 Summary along with  Demand notice specifying details of tax payable

2

GST DRC-02 Summary along with a statement as per section 73(3) & 74(3) specifying details of tax payable

3

GST DRC-03 Intimation of payment of tax, interest, and penalty

4

GST DRC-04 Acknowledgment of payment made through Form GST DRC-03

5

GST DRC-01A Intimation of partial payment to the Government

6

GST DRC-05 Issuance of order to conclude proceedings in respect of any notice

7

GST DRC-06 Representation against demand notice by the person

8

GST DRC-07 Summary of an order specifying therein the amount of tax, interest, and penalty payable by the person chargeable with tax. Also known as Notice for Recovery

9

GST DRC-07A Notice for recover of the amount of tax, interest, and penalty payable by the person chargeable with tax under the old laws

10

GST DRC-08 Summary of rectification order or withdrawal order

11

GST PMT-01 Demand order to be posted in the electronic credit ledger

12

GST DRC-09 Order for deduction of the unpaid amount from the amount owing due to person

13

GST DRC-10 Notice of auction or e-auction specifying details of goods to be sold and purpose of sale

14

GST DRC-11 Notice to the successful bidder in an auction to make payment

15.

GST DRC-12 Transfer of goods to the bidder on completion of payment

16

GST DRC-13 Notice of demand to the third person

17

GST DRC-14 Certificate of payment to the Government by the third person and discharge of liability

18

GST DRC-15 Request for the execution of the decree by the Courts

19

GST DRC-16 An order of attachment or distraint and notice for sale

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