Section 73 of the CGST Act: Demand and Recovery of Tax

The Goods and Services Tax (GST) Act has revolutionized the Indian tax system by unifying various indirect taxes under one umbrella. The Central Goods and Services Tax (CGST) Act plays a crucial role in ensuring the smooth implementation and administration of GST. Sections 73 and 74 of the CGST Act deal with the demand for tax from taxpayers. Understanding these sections is essential for both taxpayers and tax authorities to ensure compliance and avoid any legal complications. In this article, we will delve into the intricacies of Sections 73 and 74 and their significance in the GST regime.

About Section 73 of the CGST Act

Section 73 of the CGST Act focuses on the determination of tax that has not been paid or has been short-paid by a taxpayer. This section provides the framework for tax officers to initiate an inquiry when they believe that a registered person has not paid or has short-paid the tax liability, erroneously refunded, ITC wrongly availed or utilised. To begin the process, the tax officer issues a notice in FORM GST DRC-01, which outlines the reasons for the demand and specifies the amount of tax, interest, and penalty due.

Notice must contain the ‘ingredients’ necessary to bring any transactions within the scope of the provision containing the ‘cause of action’ 

Pre-Notice Consultation

Section 73(5) mandates that pre-notice consultations to be held with taxpayers in order to explore the possibility of avoiding litigation if the taxpayer is aggregable to discharge liability along with the interest. Penalty is excused completely in this situation.

Demand is ascertained by the officer in DRC-1A under Rule 142(1A). Though the section was introduced on July 2017, the pre consultation came into effect from 09/10/2019. 

Taxpayer has to reply in Part B. Practically this part doesn’t require detailed reply except to state whether the liability reported in Part A is “accepted or rejected”. The taxpayer is welcome to provide certain information which may help the officer to redress any misunderstanding or misinformation in respect of the proposed liability

Limitation

After passing the hurdle of pre-notice consultations, taxpayers must take mote of the ‘limitation’ prescribed in Section 73(10) which specifies ‘end date’ by when all the following proceedings must conclude,

1. Pre-notice consultation conducted and concluded
2. Notice served
3. Reply received 
4. Personal hearing conducted and concluded, and
5. Adjudication completes by passing Final Order

The timelines required under the section are tabulated below, 

Type of Demand	Notice (Start Date)	Order (End Date)
Tax not Paid	33 Months from “Due Date” Annual Return (Order should be issued within 3 months from the date of Notice)	36 Months from “Due Date” Annual Return (As per section it is 3 years, converted into months to simplify)
Tax Short Paid
Credit wrongly availed
Credit wrongly availed
Erroneous Refund	33 Months from the date of Refund Sanctioned (Date to be referred of RFD-6)	36 Months from the date of Refund Sanctioned (Date to be referred of RFD-6)

 

Statement of Demand

Where the demand (for tax or credit or refund) arises and a notice has been issued under section 73(1) for one tax period and exactly the same issue of non-compliance resulting in demand of a corresponding amount, arises for a subsequent or earlier tax period then officer may issue mere statement the said additional tax period without giving formal notice under this section separately. All the grounds, allegations, evidences and cause of action in the respective period will applicable as it is. No further notice for the same issue to be raised by the officer. Provided the limitation of timeline needs to be followed as mentioned in the Table supra.

Service of Notice

Section 169 of the Act lists different modes of service of notice. Service is not dispatch of the notice but it refers to avail any mode as specified in the said section that is best suited to meet the standards specified in the law for ‘service of notice’.

It is strongly suggested that the taxpayer instead of raising questions on validity of the service of notice, he/she should focus on addressing the merits of the case. 

Lenient Penalty Process

Penalty applicable during pre-notice consultations (as mentioned above) is NIL under section 73(5). And this is the penalty applicable if the total demand (including interest thereon, if applicable) is discharged after 30 days from the date of service of notice. 

Deficiencies in Notice

There are deficiencies or discrepancies in notice and have to decide whether those are serious in nature or non-serious in nature. Some of them are tabularised below,

Serious Discrepancies	Non-Serious Discrepancies
Officer is not Proper Officer to issue SCN	DRC-1A (Intimation for Tax Ascertainment) is not issued
SCN issued before date of authorisation conferring authorities	Form of DRC-1 Varies that with the SCN
SCN not accompanied by DRC-1	SCN Invokes section providing ‘cause of action’ but does not specify exact sub-section in that section
SCN only asserted violation or non-compliance but does not state ‘cause of action’ in support of demand	Documents relied upon are those replied by taxpayer and not secured independently.
Service of SCN not valid
Documents ‘relied upon’ in support of allegations in notice not disclosed or furnished

 

Penalties

There is wide relief given from the penalty allowed under Section 73(5) during pre-notice consultations and up to thirty (30) under Section 73(8) after issuance of notice, will not be available in case taxpayers decide not to carry demand in appeal.

When any notice goes into Adjudication, penalty imposed in the Adjudication Order will not exceed 10 per cent of that prescribed in section 122(2)(a) or Rs. 10,000/-, whichever is higher.