CBIC has issued clarification on the applicability of Section 75(2) of the CGST Act, 2017 and its impact on limitation. CBIC has clarified about the time limit for re-determination of tax payable, deeming the notice to have been issued under Section 73(1), specially in cases where time limit for issuance of order under Section 73(10) has passed. Further, CBIC also clarified regarding the methodology for re-computation of amount payable by the noticee.
CBIC GST Circular 185/17/2022 dt. 27/12/2022: CBIC clarification on the applicability of Section 75(2) of the CGST Act, 2017 and its impact on limitation.
Section 75(2) of the CGST Act, 2017, states that if the appellate authority, appellate tribunal, or court determines that the notice issued by the proper officer under Section 74(1) is not sustainable because charges of fraud, willful misstatement, or suppression of facts to evade tax have not been established against the noticee, in such situations the proper officer shall determine the tax payable by the noticee as if the notice was issued under Section 73(1).
Clarifications have been sought from the CBIC regarding the time limit within which the proper officer is required to re-determine the amount of tax payable by the noticee in light of the notice issued under Section 73(1), particularly in cases where the time limit for issuance of an order under Section 73(10) has already passed. Furthermore, CBIC has been asked to define the mechanism for calculating the amount payable by the noticee, assuming the notice was issued under Section 73(1).
To clarify the matter and maintain uniformity in the implementation of GST legislation provisions, the CBIC has clarified the following issues in the exercise of its powers provided by Section 168(1) of the CGST Act, 2017:
1. What would be the time period for re-determination of the tax, interest, and penalty payableIn in the cases where the show cause notice (SCN) has been issued to a person by the proper officer under section 74(1) of the CGST Act for demand of tax (not paid, short paid, erroneous refund, or input tax credit (ITC) wrongly availed or utilized), wherein the appellate authority, tribunal, or court concludes that the said notice is not sustainable for the reason that the charges of fraud or any willful misstatement or suppression of facts to evade tax have not been established against the noticee, and the proper officer is directed to re-determine the amount of tax payable under section 73(1) in accordance with the provisions of section 75(2) of the CGST Act?
Section 75(3) of the CGST Act, 2017, provides that an order required to be issued pursuant to the directions of the appellate authority, appellate tribunal, or court has to be issued within two years from the date of communication of the said direction.
Accordingly, in cases where any such direction is issued for re-determining the amount of tax payable by the noticee by deeming the notice to have been issued under section 73(1) in accordance with the provisions of section 75(2) of the CGST Act, the proper officer is required to issue the order of redetermination of tax, interest, and penalty payable within the time limit as specified under Section 75(3), i.e., within a period of two years from the date of communication of the said direction.
2. How shall the amount payable by the noticee, assuming the notice was issued under Section 73(1), be re-computed or re-determined by the proper officer in accordance with Section 75(2)?
In cases where the amount of tax, interest, and penalty payable by the noticee is required to be re-determined by the proper officer in terms of Section 75(2) of the CGST Act, the demand would have to be re-determined keeping in mind the provisions of Section 73(2), read with Section 73(10) of the CGST Act.
Section 73(1) of the CGST Act provides for the issuance of a show cause notice by the proper officer for tax not paid, short paid, or erroneously refunded, or where input tax credit has been wrongly availed of or utilized, in cases that do not involve fraud, wilful misstatement, or suppression of facts to evade tax.
Section 73(2) of the CGST Act provides that a show-cause notice shall be issued at least 3 months prior to the time limit specified in Section 73(10) for the issuance of an order.
Section 73(9) of the CGST Act provides that the proper officer is required to determine the tax, interest, and penalty due from the noticee and issue an order.
According to Section 73(10) of the CGST Act, an order under Section 73(9) must be issued by the proper officer within three years of the due date for furnishing the annual return for the fiscal year in respect of which tax has not been paid or has been underpaid, input tax credit has been wrongfully availed of or utilized, or the date of an erroneous refund.
It transpires from a combined reading of the above provisions of the CGST Act that in cases which do not involve fraud, willful misstatement, or suppression of facts to evade payment of tax, the show cause notice in terms of Section 73(1) has to be issued within 2 years and 9 months from the due date of furnishing the annual return for the relevant financial year for which such tax is not paid or short paid or input tax credit is wrongly availed or utilized, or within 2 years and 9 months from the date of an erroneous refund.
As a result, in cases where the proper officer is required to re-determine the amount of tax, interest, and penalty payable deeming the notice to have been issued under section 73(1) in terms of provisions under section 75(2), the same can be re-determined for so much amount of tax short paid or not paid, or input tax credit wrongly availed or utilized, or that of an erroneous refund, in respect of which a show cause notice was issued within the time limit as specified under under section 73(2) read with section 73(10). Thus, only the amount of tax short-paid or not paid, or input tax credit wrongly availed or utilized, along with interest and penalty payable, in terms of Section 73 relating to such financial years can be re-determined, where a show cause notice was issued within 2 years and 9 months from the due date of furnishing the annual return for the respective financial year. Similarly, the amount of tax payable on account of an erroneous refund, along with interest and penalties payable, can be redetermined only where a show cause notice was issued within 2 years and 9 months from the date of the erroneous refund.
In cases where the SCN under Section 74(1) was issued after the said period of two years and nine months from the due date of furnishing the annual return for the fiscal year to which such demand relates, and the appellate authority concludes that the notice is not sustainable under Section 74(1), the entire proceeding must be dropped, as specified in Section 73. Similarly, where an SCN was issued under Section 74(1) for an erroneous refund beyond a period of 2 years and 9 months from the date of the erroneous refund, the entire proceeding shall have to be dropped.
In cases where the SCN was sent out under Section 74(1) within 2 years and 9 months from the due date of filing the annual return for the financial year to which the demand relates, or from the date of an incorrect refund, the re-determined amount would cover the full amount of the demand in the show cause notice.
Where the SCN was issued under Section 74(1) for multiple financial years and where notice had been issued before the expiry of the time period as per Section 73(2) for one financial year but after the expiry of the said due date for the other financial years, then the amount payable in terms of Section 73 shall be re-determined only in respect of that financial year for which the SCN was issued before the expiry of the time period allowed.
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