Demand when there is fraud, wilful mis-statement or suppression of facts :
Where it appears to 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 by 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 utilized input tax credit.
The notice should require 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 equivalent to the tax specified in the notice – section74(1) of CGST Act.
The provisions apply to recovery of interest also.
Notice to be issued at least six months before time limit – Notice to be issued at least six months before time limit specified in section 74(10) – section 74(2) of CGST Act.
Statement 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, 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 74(3) of CGST Act.
The service of such statement under section 74(3) shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under section 74(1) are the same as are mentioned in the earlier notice. – section74(4) of CGST Act.
The specific provision has been as once show cause notice charging suppression or fraud or wilful statement has been issued, such charge cannot be sustained for later period, even if issue is same.
Taxable Person can pay tax with 15% of tax as penalty on own before SCN – The person chargeable with tax may, before service of notice under section 74(1), pay the amount of tax along with interest payable thereon under section 50 and 15% of tax as penalty 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 74(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 – section74(6) 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 – Where the proper officer is of the opinion that the amount paid under section 74(5) falls short of the amount actually payable, he shall proceed to issue the notice as provided in section 74(1) in respect of such amount which falls short of the amount actually payable – section 74(7) of CGST Act.
25% penalty if tax with interest paid within 30 days from issue of SCN – Where any person chargeable with tax pays the said tax along with interest payable under section 50 and 25% of tax as penalty within thirty days of issue of show cause notice, all proceedings in respect of the said tax shall be deemed to be concluded – section74(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.
Demand with penalty equal to tax, in case of suppression, misstatement etc. – 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 penalty equal to tax, due from such person and issue an order – section74(9) of CGST Act.
There is no discretion to reduce penalty in case of fraud, suppression of facts and wilful mis-statement. However, if the taxable person pays tax, interest and 50% penalty within 30 days of communication of order, balance 50% penalty stands waived – section74(11) of CGST Act.
Time limit for issue of order is five years in case of suppression, wilful misstatement – The proper shall issue the order under section 74(9) within five years from the due date for furnishing of 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 within five years from the date of erroneous refund – section74(10) of CGST Act.
Note that the time limit is for issue of demand order and not only for issuing show cause notice.
However, an issue on which the Appellate Authority or the Appellate Tribunal or the High Court has given its decision which is prejudicial to the interest of revenue in some other proceedings and an appeal 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 is pending, the period spent between the date of the decision of the Appellate Authority and that of the Appellate Tribunal or the date of decision of the Appellate Tribunal and that of the High Court or the date of the decision of the High Court and that of the Supreme Court shall be excluded in computing the period referred to in section 73(10) or section 74(10) where proceedings are initiated by way of issue of a show cause notice under said sections – section 75(11) of CGST Act.
Thus, 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.
[In such cases, the SCN is transferred to ‘call book’ in customs department. Possibly same practice may be followed in GST].