GST demand notice
A Overview on the GST Demand Notice
In this post, we will discuss GST Demand Notices, including what they are, the different types, and the penalties involved. We will also cover the time limits for issuing these notices and the implications for taxpayers.
Let’s look at each section:
What is a GST Demand Notice?
A Demand Notice outlines the amount of tax owed, the reason for the demand, and the deadline for payment. It’s typically issued after an audit of the individual’s or company’s records, showing that taxes were underpaid.
Under the GST system, taxpayers are responsible for assessing their own tax liability. While this relieves GST officials from managing files for over 1 crore taxpayers, it also increases the risk of mistakes like underpaid taxes, incorrect ITC claims, or ITC refunds.
Types of GST Demand Notices
There are two types of tax demand notices under GST:
(i) There is no such reason for Fraud or intentional misrepresentation, or to hide the facts.
(ii) There is a reason for Fraud or intentional misrepresentation or to hide the facts.
Notice Under Section 73(When there is No Fraud)
A tax demand notice under Section 73 of the GST Act is issued when there’s no fraud or intentional misrepresentation. It applies in these three situations:
- Tax is unpaid or underpaid.
- An erroneous refund is given.
- Input Tax Credit (ITC) is wrongly claimed or used.
Time Limit for Issuing a Tax Demand Notice:
The notice must be issued within 3 years of filing the annual GST return for the relevant period. However, the tax office must issue a show-cause notice at least 3 months before this deadline.
Penalty on Tax Demand Notice under Section 73
If a taxpayer receives a tax demand notice under Section 73 and fails to pay on time, the following penalties apply:
Paid the dues on | The penalty amount | |
1 | If dues are paid before receiving the notice | No penalty |
2 | If dues are paid within 30 days of receiving the notice | No penalty |
3 | If dues are paid after 30 days from the show cause notice or order | A penalty of 10% of the due amount. |
Notice Under Section 74(When there is Fraud)
If there is fraud, intentional misrepresentation, or an attempt to hide facts, a tax demand notice is issued under Section 74 of the GST Act. Section 74 specifically applies when tax evasion is intentional. Here are three situations where it applies:
- Tax is not paid or is underpaid.
- An incorrect refund is claimed.
- Input Tax Credit (ITC) is wrongly availed or used.
Time Limit for Issuing a Tax Demand Notice
A tax demand notice under Section 74 can be issued within 5 years from the date of filing the annual GST return for the relevant period. However, the tax office must issue a show-cause notice at least 6 months before this deadline.
Penalty on Tax Demand Notice under Section 73
If a tax demand notice is issued under Section 73 and the taxpayer fails to pay the dues on time, the following penalties apply:
Paid the dues on | The penalty amount | |
1 | Before notice | 15% of the evaded tax |
2 | Within 30 days of notice | 25% of the evaded tax |
3 | After 30 days of the show-cause notice or order | 50% of the evaded tax |
4 | In other cases (Section 122) | 100% of the evaded tax |
General Provisions for Determination of Tax (Section 75)
- If a Tribunal or Court grants a stay on a show cause notice or order, the stay period will not count towards the time limits in Section 74 and Section 75 of the GST Act.
- Suppose the Appellate Authority or Tribunal rules that charges of Fraud are untrue. In that case, the notice will be treated as issued under Section 73 of the GST Act, and the remaining tax will be recalculated accordingly.
- If the court or tribunal decides that an order should be passed, it must be issued within 2 years of the decision.
- Every taxpayer is entitled to a personal hearing, with a maximum of 3 hearings allowed.
- The amount of tax, interest, or penalty cannot exceed what is stated in the notice or order, but the appellate authority, tribunal, or court may change it.
- If the order is not issued within the specified time limit, it is assumed that the adjudication process is complete, and no further orders will be issued.
- Recovery provisions apply regardless of the demand notice or order.
Limitations of Demand Notices under GST
The tax, interest, and penalty demanded in an order cannot exceed what was stated in the notice, and no demand can be confirmed for reasons not mentioned in the notice.
Additionally, if a penalty is imposed under Section 73 or 74, no other penalty for the same act or omission can be imposed under any other section of the Act.
Lastly, if the order is not issued within 3 years (under Section 73) or 5 years (under Section 74), the case is considered closed, and no further orders can be issued.
Interest applicability on GST demand
Interest on short-paid or unpaid tax must be paid, even if it’s not mentioned in the order determining the tax liability.
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