Demand and Adjudication :Beware of it

Topics:

1. Introduction to Demand
2. Issue of Show Cause Notice
3. Time limits for the issue of Show Cause Notice
4. Periodic Show Cause Notice
5. Adjudication of the Show Cause Notice
6. Time limit for Adjudication of the Show Cause Notice
7. Cross Empowerment of GST officers
8. Conditions where Adjudication is not required
9. Recovery proceedings
10. Conclusion

 

1. Introduction to Demand

A demand is a tax imposed by the department when it finds any short payment, non-payment, wrong availment / utilization of input tax credit, late filing of returns, late payments or any other events where tax liability has not been properly discharged by the registered person. The demand comes with penalty which varies depending upon when the taxpayer has paid the amount involved. The taxpayer may be in contention to the demand imposed upon him and decide to appeal. You will read about all such situations in the sections covered below.

2. Issue of Show Cause Notice for a Demand

The requirement of issuing Show Cause Notice goes with the ‘Principle of Natural Justice’. Department cannot take actions in respect to a demand directly without giving the taxpayer a chance to present his case. So it is a chance for the taxpayer to show cause as to why the demand should not be imposed on him.  The demand has to be issued in FORM GST DRC 01.

3. Time limits for the issue of Show Cause Notice for a demand

• Normal Period– If the department issues Show Cause Notice for a reason other than fraud, misstatement, etc then the demand is issued for liabilities which are within 2 years and 9 months from the date of filing the annual returns for the financial year to which the demand pertains.

For example let us suppose the demand is from the month June, 2018 and the date of filing the Annual Return for 2018-19 is 31.12.2019. Then the demand under this provision could be made till 31.09.2022(2 years and 9 months from 31.12.2019).

• Extended Period– Similarly if the department issues Show Cause Notice in case of fraud, misstatement, and suppression of facts etc the demand is issued for liabilities which are within 4 years and 6 months from the date of filing the annual returns for the financial year to which the demand pertains.
• Tribunal or courts at times stay the issuance of SCN. In such cases the period of stay is excluded from the above periods of issue of SCN.

4. Periodic Show Cause Notice

If the demands which are present in the Show Cause Notice as discussed above persist in the even after the demand period then periodic Show Cause Notice is issued in regular intervals by the department. However the taxpayer may opt to pay the tax demanded in the original Show Cause Notice. There are two cases arising in this situation.

• Normal period – If the taxpayer has paid the amount along with applicable interest then no Show Cause Notice will be issued.
• Extended period– The taxpayer has to pay the demand amount along with interest and penalty of 15% of the amount. On such payment made by the taxpayer and on being informed to the department regarding the same no Show Cause Notice will be issued.

5. Adjudication of the Show Cause Notice for any demand

The person to whom the Show Cause Notice is issued is required to reply/ make representation against the demand in FORM GST DRC 06 within the prescribed time. His reply / representation against Show Cause Notice are considered by the proper officer and tax payable is determined accordingly. Interest and penalty is also determined accordingly. For normal period penalty of 10% of the amount or Rs. 10,000/- whichever is higher is demanded. For extended period 100% of the amount or Rs. 10,000/- whichever is higher is demanded. The adjudicating order for the demand is issued in FORM GST DRC 07. This order is treated as recovery notice.

6. Time limit for Adjudication of the Show Cause Notice

There are two situations

• Normal period (where demand is for reason other than fraud etc.) – In this case the adjudication process has to be completed within 3 years of the due date of filing the annual return for the financial year to which the demand pertains.
• Extended period (where demand is for reason of fraud etc.) – In this case the adjudication process has to be completed within 5 years of the due date of filing the annual return for the financial year to which the demand pertains.

 

7. Cross Empowerment of GST officers

It is to be noted that the Goods and Service officers are cross empowered. This means that a Central Goods and Service Tax officer is empowered to adjudicate the demand of State Goods and Service Tax and vice versa.

8. Conditions where Adjudication is not required

In normal period of demand if the assessee admits and pays the demanded amount with interest within 30 days from the date of issue of Show Cause Notice then the case is concluded without issuing any order.

In extended period of demand if the assessee admits the liability and pays the demanded amount along with interest and penalty of 25 % of the amount within 30 days  of issue of Show Cause Notice then the case is concluded without issuing any order.

Any amount paid by assessee for the demand has to be intimated to the department in FORM GST DRC 03. On receiving this communication the proper officer shall conclude the proceedings by issuing order in FORM GST DRC 05.

9. Recovery proceedings

As you already know that the adjudication order in GST FORM GST DRC 07 is treated as recovery notice. If the taxable person fails to pay for the demand within 3 months or any extended period allowed then recovery proceeding is initiated. The amount liable for payment is first charged on the property of such taxable person. Provisional attachment of bank accounts can also be done.

10. Conclusion

This was an intimidating piece of information for many. However the purpose of knowing these things is for understanding the process followed in the government machinery. An informed and honest tax payer can take a better decision and seek proper justice.

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