Demand

Reason of Demand Notice

2 reasons The GST demand notice can be issued by the Proper Officer (i.e Adjudicating
Authority) for short payment or non-payment of GST in following two
different situations:

1. When there is no reason of fraud or wilful misstatement or suppression of

facts. Section 73

2. When there is reason of fraud or wilful misstatement or suppression of

facts. Section 74

Adjudicating As per Section 2(4) of the CGST Act, 2017 “adjudicating authority” means any
Authority authority, appointed or authorised to pass any order or decision under this
Act, but does not include—
1. The Central Board of Indirect Tax and Customs,
2. The Revisional Authority,
3. The Authority for Advance Ruling,
4. The Appellate Authority for Advance Ruling,
5. The Appellate Authority; and
6. The Appellate Tribunal
7. Competition Commission of India i.e. The Relevant Authority for Anti
profiteering matters

Demand and Adjudication

Reasons behind 1. tax has not been paid

Show cause Notice 2. or short paid or
3. erroneously refunded,
4. or where input tax credit has been wrongly availed or utilized.

Time limit for Show Nature of transaction Time for issuance of Time of issuance of
Cause Notice (SCN) SCN order
and Adjudication Other than fraud Within 2 years and 9 Within 3 years from the
(Order) months from the due date
due date of filing of filing of Annual
Annual Return for the Return for the
Financial Year to which Financial Year to which
the demand the demand
pertains or from the pertains or from the
date of erroneous date of erroneous
refund. refund.
Fraud case Within 4 years and 6 Within 5 years from the
months from the due date
due date of filing of filing of Annual
Annual Return for the Return for the

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 Financial Year to which Financial Year to which
the demand the demand
pertains or from the pertains or from the
date of erroneous date of erroneous
refund. refund.
Any amount collected No time limit Within 1 Year from the
as date of issue of
tax but not paid notice.
Non-payment of self- No need to issue a Recovery proceedings
assessed show cause notice can be started
tax directly.

Proper Officer & Monetary limits to issue notices and orders

Monetary Limits Officer of Central CGST IGST CGST & IGST

Tax (including cess) (including cess) (including cess)
Superintendent of ≤ `10 lakhs ≤ `20 lakhs ≤ `20 lakhs
Central
Tax
Deputy or > `10 lakhs ≤ `1 > `20 lakhs ≤ `2 > `20 lakhs ≤ `2
Assistant Crore Crore Crore
Commissioner of
Central
Tax
Additional or Joint > `1 crore > `2 crore > `2 crore
Commissioner of without any limit without any limit without any limit
Central
Tax

Show cause notice by Audit Commissionerate’s and Directorate General of Goods and Services Tax
Intelligence ( “DG-GST-I”)

Only Issue of Notice The central tax officers of Audit Commissionerate’s and Directorate General
and no adjudication of Goods and Services Tax Intelligence shall exercise the powers only to issue
show cause notices.

A show cause notice issued by them shall be adjudicated by the competent

central tax officer of the Executive Commissionerate in whose jurisdiction
the noticee is registered.

Principal places In case there are more than one notices, mentioned in the show cause notice
of business having their principal places of business falling in multiple
falling in multiple Commissionerate’s, the show cause notice shall be adjudicated by the
Commission-erate’s competent central tax officer in whose jurisdiction, the principal place of
business of the noticee from whom the highest demand of central tax
and/or integrated tax (including cess) has been made falls.

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Tax demand of A show cause notice issued by DGGSTI in which the principal places of
more than Rs. 5 business of the noticees fall in multiple Commissionerate’s and where the
crore central tax and/or integrated tax (including cess) involved is more than `5
crores shall be adjudicated by an officer of the rank of Additional
Director/Additional Commissioner (as assigned by the Board), who shall not
be on the strength of DGGSTI and working there at the time of adjudication.

Intimation before show cause notice

Intimation before Step 1: Details sent by Proper Officer

show cause notice The proper officer shall, before serving of such a notice, communicate the
details of any tax, interest and penalty as ascertained by him.

Step 2: Partial Payment or submissions by assessee

Further, where such person has made partial payment of amount
communicated to him or desires to file any submission against the proposed
liability, he may make such submission in the prescribed form.

Step 3: Taxpayer to take advantage of reduced or Nil Penalty

Taxpayer will be able to take advantage of nil or reduced penalty.

Step 4: Intimation of payment by Assessee to Proper Officer

Where any person makes payment of tax, interest, penalty or any other
amount due, he shall inform the proper officer of such payment and the
proper officer shall issue an acknowledgement, accepting the payment made
by the said person.

Merging of 73 and 74 into 74A and consequential amendments

New Provision a) A common section 74A has been inserted for all demand and recovery
provisions in lieu of Section 73 and 74 from Financial Year 2024-25.

b) Common time limit for all evasion and non-evasion cases has been
prescribed to be 42 months from the due date for furnishing of annual return
for the relevant FY.

c) The time limit for passing of order would be 12 months from the date of
issue of notice. Where the Commissioner or any officer not below the rank
of JC records the reasons for delay in writing before the expiry, the said period
can be extended by a further 6 months.

d) The time limit for reduced penalty for all cases has been increased from
30 days of notice /order to 60 days of notice / order

e) Consequential amendments for insertion of 74A in the Rules wherever

required has been carried out. (in place of section 73 & 74).

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 Key Highlights of This new section consolidates and simplifies the process of determining tax
Section 74A liabilities, including cases of:

• Tax not paid or short paid,

• Erroneous refund,
• Input Tax Credit (ITC) wrongly availed or utilized.

Key Features:
1. Uniform Time Limits:
• Notice Issuance: Within 42 months from the due date of furnishing the
annual return or from the date of erroneous refund.
• Order Issuance: Within 12 months from the date of notice, extendable by
6 months.

2. Penalty Provisions:
• Without Fraud: Higher of 10% of tax due or ₹10,000.
• With Fraud: Penalty escalates based on the stage of payment:
• 15% of tax (voluntary payment before notice).
• 25% of tax (payment within 60 days of notice).
• 50% of tax (payment within 60 days of order).

Section 50 (Interest 1. Interest Rates: • Delayed Payment of Tax: 18% per annum.
on Delayed • Wrongful ITC Utilization: 24% per annum.
Payment)
2. Clarification on Electronic Cash Ledger (ECL):
• Interest is payable only on the portion of tax that is not available in the ECL
on or before the due date.

Example 1: Non-Fraudulent Case (Short Payment of Tax)

Scenario:
• Taxpayer: XYZ Pvt. Ltd.
• Tax Period: May 2025.
• Tax Liability: ₹5,00,000.
• Tax Paid: ₹4,50,000 (short payment of ₹50,000).
• Due Date for GSTR-3B: June 20, 2025.
• Actual Payment Date: August 10, 2025.
• Notice Issued: None (voluntary payment before detection).

Step-by-Step Process:

1. Interest Calculation:
• Shortfall: ₹50,000.
• Interest Rate: 18% per annum.
• Delay: From June 21, 2025 to August 10, 2025 = 51 days.
• Interest: ₹50,000 × 18% × (51 ÷ 365) = ₹1,258.90.

2. Penalty:
• Since the taxpayer voluntarily paid the shortfall along with interest before any notice was issued,
no penalty is applicable as per Section 74A(8)(i).

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Final Payment Breakdown:
• Tax: ₹50,000.
• Interest: ₹1,258.90.
• Penalty: Nil.

If Notice Was Issued: If the notice had been issued:

• Taxpayer must pay ₹50,000 (tax) + ₹1,258.90 (interest) within 60 days.

• No penalty would still apply if payment is made within this period under Section 74A(8)(ii) (i.e.
within sixty days of issue of show cause notice).

Example 2: Fraudulent Case (Wrongful ITC Utilization)

Scenario:
• Taxpayer: ABC Ltd.
• Financial Year: 2024-25.
• Wrongful ITC Claimed: ₹3,00,000 using fake invoices.
• Detection Date: September 15, 2026.

Step-by-Step Process:
1. Interest Calculation:
• Wrongful ITC: ₹3,00,000.
• Interest Rate: 24% per annum.
• Period: From April 1, 2024, to September 15, 2026 = 898 days.
• Interest: ₹3,00,000 × 24% × (898 ÷ 365) = ₹1,77,480.

2. Penalty:
• Since the case involves fraud, the penalty depends on the stage of payment:
• Before Notice Issuance (Subsection 9(i)):
• Penalty = 15% of ₹3,00,000 = ₹45,000.
• Within 60 Days of Notice (Subsection 9(ii)):
• Penalty = 25% of ₹3,00,000 = ₹75,000.
• Post-Order (Subsection 9(iii)):
• Penalty = 50% of ₹3,00,000 = ₹1,50,000.

Final Payment Scenarios:

1. Voluntary Payment Before Notice:
• Tax: ₹3,00,000.
• Interest: ₹1,77,480.
• Penalty: ₹45,000.
• Total: ₹5,22,480.

2. Payment Within 60 Days of Notice:

• Tax: ₹3,00,000.
• Interest: ₹1,77,480.
• Penalty: ₹75,000.
• Total: ₹5,52,480.

3. Post-Order Payment:
• Tax: ₹3,00,000.
• Interest: ₹1,77,480.

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• Penalty: ₹1,50,000.
• Total: ₹6,27,480.

3. Summary of Compliance Scenarios

4. Key Learnings

1. Timely Compliance Reduces Costs:

• Voluntary payment avoids penalties entirely in non-fraudulent cases and minimizes penalties in
fraudulent cases.

2. Awareness of Time Limits:

• Notice must be issued within 42 months, and orders must be issued within 12 months of the
notice, extendable by 6 months.

3. Proper ITC Utilization:

• Avoid wrongful ITC claims as they attract higher interest (24%) and steep penalties (up to 50% of
tax due) in cases of fraud.

4. Electronic Cash Ledger (ECL):

• Maintain sufficient balance in ECL to minimize interest liabilities on late tax payments.

Dispensation of SCN (i.e. SCN not required to issue)

3 cases (a) once a SCN has been issued, where for normal period or extended period,
for subsequent demand period, a statement showing details demand can be
served if grounds of demand are same. It means for subsequent period no
separate show cause notice is required.

(b) In a normal demand case (other than fraud), where assessee pays the tax
short levied or short paid etc. along with interest and informs the proper
officer in writing, then no SCN will be issued.

(c) In an extended period demand case (i.e. fraud case), where assessee pays
the tax short levied or short paid etc., along with interest with 15% of the
amount as penalty and informs the proper officer in writing, then no SCN will
be issued.

General provisions relating to determination of tax

Period of Stay Period of stay on issuance of SCN to be excluded for determining limitation.

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Deemed Notice If notice under section 74 turns out not to be valid as there was no fraud
found, the same notice shall be deemed to be a notice u/s 73.

Moreover, For Section 74A, If notice under clause (ii) turns out not to be valid
as there was no fraud found, the same notice shall be deemed to be a notice
under clause (i).

Order issued in Where any order is required to be issued by department upon instructions
pursuance of the of the Appellate Authority or Appellate Tribunal or a court, such order shall
Court be issued within 2 years from the date of communication of the said
direction.

Maximum limit of The proper officer shall grant maximum 3 adjournments to give time.
Adjournments

Order should not be The amount of tax, interest and penalty demanded in the order shall not be
passed more than in excess of the amount specified in the notice and no demand shall be
the demand confirmed on the grounds other than the grounds specified in the notice.
mentioned in SCN
Order Amount < or = Notice amount

Grounds of Order = Ground of Notice

Interest mandatory The interest on the tax short paid or not paid shall be payable whether or
not specified in the order determining the tax liability.

Time barred Orders The adjudication proceedings shall be deemed to be concluded, if the order
is not issued within the specified limitation period.

Relevant Forms DRC-01: Summary of Demand along with SCN in case of No Fraud
DRC-02: Summary of Demand along with SCN in case of Fraud

DRC-06: Reply by Noticee

DRC-07: A summary of the order issued specifying the amount of tax, interest
and penalty payable by the person chargeable with tax.

Self-assessed tax to include tax payable on outward supplies furnished in GSTR-1 but not included
in return under Section 39 of the CGST Act, 2017:

General provisions “Self-assessed tax” shall include the tax payable in respect of outward
supplies, the details of which have been furnished under section 37 (output
tax liability GSTR-1), but not included in the return furnished under section
39 (payment of tax GSTR-3B).

Examples Example 1: a typographical error/wrongly reported details in GSTR-1 or

GSTR-3B which may be rectified in subsequent GSTR_1 or GSTR-3B.

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 Example 2: where a supply could not be declared in GSTR-1 of an earlier tax
period, though the tax on the same was paid by correctly reporting the same
in GSTR-3B of said tax period; details may now be reported in the GSTR-1 of
the current tax period.

Mismatch in GSTR-1 In case of mis-match between GSTR-1 and GSTR-3B, the proper officer may
and GSTR-3B first send a communication to the registered person to pay the self-assessed
tax short paid /not paid, or to explain the reasons for the same, within a
reasonable time prescribed in the communication.

Recovery Recovery proceedings under section 79 will be initiated by the proper officer
proceedings only when the said person either
(i) fails to reply to the proper officer, or
(ii) fails to make the payment of such amount short paid/not paid
within the prescribed time or
(iii) fails to explain the reasons for such amount short paid/not paid

Redetermination of tax, Interest, Penalty Payable

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 Tax collected but not paid to Government

Duty to pay tax If tax has been collected, whether the supply was taxable or not, tax has to
collected even if be paid to government.
the relevant supply
is not taxable

Basics Procedure 1. SCN can be issued without any time limit

and Rules
2. Officer will determine the amount due.

3. Interest also needs to be paid.

4. An opportunity of hearing shall be granted.

5. Within 1-year proper officer should issue an Order in Form GST DRC-07)
from the date of issue of SCN. Such order shall be treated as Recovery
Notice.

6. Period of Any Stay order issued by the court shall be excluded in

computing the period of One Year.

7. Proper officer shall set out the relevant facts in his order

Tax wrongly collected and paid to Central Government or State Government

Inter state supply, Correct Treatment should be done:

wrongly treated as Inter State Supply having IGST
Intra State Supply
Wrong Treatment actually done:
Intra State Supply having CGST & SGST

Result: The tax paid shall be refunded.

Intra state supply, Correct Treatment should be done:

wrongly treated as Intra State Supply having CGST & SGST
Inter State Supply
Wrong Treatment actually done:
Inter State Supply having IGST

Result: No interest shall be payable on the amount of Central and State/UT

tax paid.

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