NOVEMBER 03, 2023

By Amit Jain, Advocate

1. RECENTLY, there has been a spate of show cause notices (SCNs) issued by the Department demanding payment of Tax or ITC allegedly wrongly availed for FY 2017-18. In this regard,the Department is apparently relying upon Notification No. 9/2023-CT dated 31.03.2023, under which the time limit specified u/s 73(10) for issuance of order u/s 73(9) of the CGST Act, 2017 in respect of FY 2017-18 was extended upto 31.12.2023. Vide this notification, the time limit for issuance of orders for FY 2018-19 & FY 2019-20 was also extended.

2. Relying upon the above notification, a number of show cause notices have been issued all over the country, assuming that in view of the extended time limit, SCNs for FY 2017-18 can be issued upto 30.09.2023, in terms of the provisions of Section 73(2) of the CGST Act.

3. A question that arises in this regard is the validity/legality of the Orders/SCNs issued for FY 2017-18. We propose to discuss the issue under the following heads:

i) The Statutory Scheme;

ii) History of the Notifications issued;

iii) Scope of Section 168A of the CGST Act and legality/ validity of Notification No. 9/2023-CT dated 31.03.2023 issued thereunder;

iv) Whether the Orders/SCNs issued relying upon Notification No. 9/2023-CT dated 31.03.2023 are legally sustainable.

The Statutory Scheme.

4. Since the SCNs have been issued under the provisions of Section 73 of the CGST Act, it is necessary to first examine the provisions of sub-sections (2), (9) & (10) of Section 73, which read as under:

SECTION 73. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful -misstatement or suppression of facts. - (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.

(2) The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.

………………….

(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.

(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund.

5. It is evident from a reading of the above provisions that there are three inter-related events:

i) Due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to;

ii) Issue of order by the proper officer, which is required to be issued within three years from the due date of furnishing of annual return; and

iii) Issue of notice, which is required to be issued at least three months prior to the time limit specified in sub-section (10) for issuance of the order.

6. Therefore, the three events are statutorily inter-related and one cannot be disassociated from the others.

History of the Notifications issued.

7. The time limit for furnishing of the annual return for FY 2017-18 was extended vide Notification No. 6/2020-CT dated 03.02.2020 [read with corrigendum dated 04.02.2020] to 05/07.02.2020 (depending upon the State of the principal place of business of the registered person). There has been no further extension of time for furnishing the annual return for FY 2017-18. Accordingly,in terms of the provisions of Section 73(10), the order was required to be issued within three years from the said due date for furnishing the annual return for FY 2017-18.

8. Vide Notification No. 9/2023-CT dated 31.03.2023, the time limit specified under sub-section (10) of Section 73 for issuance of order under sub-section (9) of Section 73 of the said Act, inter alia, for FY 2017-18 was extended upto 31.12.2023. The said notification reads as under:

In exercise of the powers conferred by section 168A of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereinafter referred to as the said Act) read with section 20 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), and section 21 of the Union Territory Goods and Services Tax Act, 2017 (14 of 2017) and in partial modification of the notifications of the Government of India, Ministry of Finance (Department of Revenue), No. 35/2020-Central Tax, dated the 3rd April, 2020 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 235(E), dated the 3rd April, 2020 and No. 14/2021-Central Tax, dated the 1st May, 2021 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 310(E), dated the 1st May, 2021 and No. 13/2022-Central Tax, dated the 5th July, 2022, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 516(E), dated the 5th July, 2022, the Government, on the recommendations of the Council, hereby, extends the time limit specified under sub-section (10) of section 73 for issuance of order under sub-section (9) of section 73 of the said Act, for recovery of tax not paid or short paid or of input tax credit wrongly availed or utilised, relating to the period as specified below, namely :-

(i) for the financial year 2017-18, up to the 31st day of December, 2023;

(ii) for the financial year 2018-19, up to the 31st day of March, 2024;

(iii) for the financial year 2019-20, up to the 30th day of June, 2024.

[Notification No. 9/2023-C.T., dated 31-3-2023]

9. Thus, by Notification No. 9/2023-CT dated 31.03.2023, three notifications have been amended, (i) Notification No. 35/2020-CT dated 03.04.2020, (ii) Notification No. 14/2021-CT dated 01.05.2021, and (iii) Notification No. 13/2022-CT dated 05.07.2022.

10. Notification No. 35/2020-CT dated 03.04.2020 was issued by the Government in exercise of powers u/s 168A of the CGST Act, and corresponding provisions of the IGST/UTGST Acts, extending the time limit for completion or compliance of any action, which falls during the period 20.03.2020 to 29.06.2020 to 30.06.2020. The reason for exercise of the power u/s 168A as given in the notification was the spread of pandemic COVID-19 across many countries of the world, including India.

11. Notification No. 35/2020-CT dated 03.04.2020 was amended from time to time and latest, by Notification No. 91/2020-CT dated 14.12.2020 extending the time limit for completion or compliance of any action, which falls during the period 20.03.2020 to 30.03.2021 to 31.03.2021. Like the original notification, all the amending notifications were also issued by the Government in exercise of powers u/s 168A of the Act.

12. Similarly, Notification No. 14/2021-CT dated 01.05.2021 was issued by the Government in exercise of powers u/s 168A of the CGST Act, extending the time limit for completion or compliance of any action, which falls during the period 15.04.2021 to 30.05.2021 to 31.05.2021. This was amended vide Notification No. 24/2021-CT dated 01.06.2021 extending the time limit for completion or compliance of any action, which falls during the period 15.04.2021 to 29.06.2021 to 30.06.2021.

13. Notification No. 13/2022-CT dated 05.07.2022 [w.e.f 01.03.2020] was issued by the Government in exercise of powers u/s 168A of the CGST Act, amending Notification No. 35/2020-CT dated 03.04.2020 [w.e.f 20.03.2020] and Notification No. 14/2021-CT dated 01.05.2021 [w.e.f 15.04.2021], extending the time limit specified under sub-section (10) of Section 73 for issuance of order under sub-section (9) of Section 73 of the said Act, up to 30.09.2023.

14. Finally, vide Notification No. 9/2023-CT dated 31.03.2023 (reproduced supra), issued by the Government in exercise of powers u/s 168A of the CGST Act, Notification No. 35/2020-CT dated 03.04.2020, Notification No. 14/2021-CT dated 01.05.2021 and Notification No. 13/2022-CT dated 05.07.2022, have been amended extending the time limit specified under sub-section (10) of Section 73 for issuance of order under sub-section (9) of Section 73 of the said Act, inter alia , for FY 2017-18 up to 31.12.2023.

Scope of Section 168A of the CGST Act and legality/ validity of Notification No. 9/2023-CT dated 31.03.2023 issued thereunder

15. It is noteworthy that all the above notifications have been issued by the Government in exercise of powers under Section 168A of the CGST Act. The said Section 168A reads as under:

SECTION 168A. Power of Government to extend time limit in special circumstances. - (1) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, by notification, extend the time limit specified in, or prescribed or notified under, this Act in respect of actions which cannot be completed or complied with due to force majeure.

(2) The power to issue notification under sub-section (1) shall include the power to give retrospective effect to such notification from a date not earlier than the date of commencement of this Act.

Explanation. - For the purposes of this section, the expression "force majeure" means a case of war, epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature or otherwise affecting the implementation of any of the provisions of this Act.

16. From a reading of the above provision it is evident that it empowers the Government, on the recommendation of the Council, to extend the time limit specified in, or prescribed or notified under the Act. However, there is a limitation provided in the provision itself that the said power can be exercised in respect of actions which cannot be completed or complied with due to force majeure.

17. The expression "force majeure" is defined in the Explanation to the said provision to mean a case of war, epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature or otherwise affecting the implementation of any of the provisions of this Act.

18. Here the expression ‘otherwise' needs to be interpreted applying the principle of ejusdem generis which provides that words of a Statute otherwise wide but associated with more limited words have to be given a restricted operation as the class of genus preceding them. This is the position of law settled by various judicial pronouncements, including that of the Apex Court.

19. Therefore, applying the above principle, the expression ‘otherwise' used in the Explanation to Section 168A needs to be interpreted in light of the words preceding it, i.e., an event which is unanticipated and beyond human control.

20. However, from the series of notifications issued by the Government, exercising the power u/s 168A of the CGST Act, it is evident that the power is being used by the Government indiscriminately and in a routine manner.

21. As stated above, while issuing Notification No. 35/2020-CT dated 03.04.2020, the reason for exercise of the power u/s 168A given in the notification was the spread of pandemic COVID-19 across many countries of the world, including India.

22. It is well known that the COVID-19 pandemic is over, still Notification No. 35/2020-CT dated 03.04.2020 is being amended repeatedly to extend the time limit for passing orders in respect of FY 2017-18, by taking recourse to the provisions of Section 168A of the CGST Act.

23. It, therefore, appears to be a case of colorable exercise of power by the Government, as there was apparently no case of a ‘force majeure' at the time of issuing Notification No. 9/2023-CT dated 31.03.2023, extending the time limit specified under sub-section (10) of Section 73 for issuance of order under sub-section (9) of Section 73 of the Act, inter alia , for FY 2017-18 up to 31.12.2023.

24. In fact, this situation was taken cognizance of by the CBIC itself vide their Instruction dated 22.09.2021 , reading as under:

Instruction No. 2/2021-22/GST-Investigation, dated 22-9-2021

F. No. GST/Inv/Dispute Resolution/03/21-22

Government of India

Ministry of Finance (Department of Revenue)

Central Board of Indirect Taxes & Customs, New Delhi

Subject : Issuance of SCNs in time bound manner - Regarding.

A detailed analysis to pursue trends in cases of GST evasion & fraudulent ITC availment booked viz-a-viz number of SCNs issued against for the FY 2017-18 [w.e.f. July, 2017], 2018-19 & 2019-20, have been made and it is observed that in GST evasion cases booked and in the Fraudulent ITC cases booked, during the above mentioned period, SCNs have been issued only in few cases.

2.1 Apparently, cases of ITC frauds or GST evasion are covered under the provisions of Section 74 of CGST Act, 2017 [the extended period clause], However, there may be certain other situations where issuance of a notice under Section 73 of the CGST Act, 2017, is intended.

2.2 Kind attention is invited to sub-section (2) & sub-section (10) of the Section 73 of the CGST Act, 2017, which read as under :

(2) The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.

* * *

(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund.

2.3 Attention is also invited to sub-section (2) & sub-section (10) of the Section 74 of the CGST Act, 2017, which read as under :

(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

* * *

(10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.

3. Further, the last dates of filing of the "Annual Return" under Section 44 of the CGST Act, 2017, for the Financial Years 2017-18, 2018-19 & 2019-20 are as below :

4. Board has examined the matter in the background of issuance of SCNs in meagre number of cases booked/detected as mentioned above. It may be seen that the last date for filing the Annual Returns for the FYs of 2017-18, 2018-19 & 2019-20 is already over. As a result, the time limit of three years/five years for issuance of orders under Section 73 & Section 74 of the CGST Act, 2017 has already kicked in. If the issuance of SCNs is pushed to close proximity of the end dates/last dates, it may leave very little time with the adjudicating authority to pass orders within stipulated period mentioned in sub-section (10) of Section 73/Section 74. This might result in a situation where either the adjudicating authority is not able to pass orders within prescribed time period or quality of adjudication suffers. It is felt that the present situation warrants for extra efforts on the part of field formations and strict monitoring at supervisory level.

5. Accordingly, Board desires that Principal Director General/Director General(s)/Principal Chief Commissioner(s)/Chief Commissioner(s) within their jurisdiction may take stock of the pending investigation cases/other cases which warrant issuance of show cause notices and take appropriate action to ensure timely completion of investigation(s) and issuance of SCNs well before the last date. The respective Pr. Chief Commissioners/Chief Commissioners may draw an action plan so that no case is pending investigation beyond one year. Needless to mention that once SCN is issued, timely adjudication must follow.

[Emphasis supplied]

25. In the above Instructions, CBIC had clearly taken cognizance of the fact that the last date for filing the Annual Returns for the FYs 2017-18, 2018-19 & 2019-20 is already over and the time limit of three years/five years for issuance of orders under Section 73 & Section 74 of the CGST Act, 2017 has already kicked in. The CBIC, therefore, sounded a timely warning to the field formations to take necessary action well in time. Still, the time limit for issuance of orders, and thus, the time limit for issuance of SCNs is being repeatedly extended by the CBIC itself, without any justification.

Whether the Orders/SCNs issued relying upon Notification No. 9/2023-CT dated 31.03.2023 are legally sustainable.

26. Apart from the question of a colorable exercise of power by the Government, another question that arises is the legality/validity of the Orders/SCNs issued relying upon Notification No. 9/2023-CT dated 31.03.2023.

27. As stated above, as per the provisions of Section 73 of the CGST Act, the three events of due date of furnishing the annual return, the date for passing of order and the date for issuance of the notice are statutorily inter-related. As per Section 73(10), the order is required to be passed within three years from the due date for furnishing the annual return and as per Section 73(2), notice has to be issued at least three months prior to the time limit specified in sub-section (10) for issuance of order.

28. Therefore, merely extending the time limit for issuance of order u/s 73(10) of the CGST Act, divorced from the due date for furnishing of the annual return u/s 44 of the Act, is contrary to the scheme of statutory provisions, thus, ultra vires , the provisions of Section 73 itself. It,therefore, appears to be a case of the subordinate legislation being in conflict with the parent legislation.

29. Therefore, notwithstanding the issuance of Notification No. 9/2023-CT dated 31.03.2023, no Order in respect of FY 2017-18 can be passed by the Department after expiry of three years from the due date for furnishing the annual return for FY 2017-18 and the SCNs in all these cases were to be issued at least three months prior to the time limit specified for issuance of the order.

30. Same reasoning applies for issuance of Orders/SCNs for FY 2018-19 as well. As stated in the CBIC Instructions dated 22.09.2021 (supra), the last date for filing annual return for FY 2018-19 was extended up to 31.12.2020, vide Notification No. 80/2020-CT dated 28.10.2020. Therefore, the orders in respect of FY 2018-19 have to be passed within three years from the due date for furnishing the annual return for FY 2018-19 and the SCNs in all these cases were to be issued at least three months prior to the time limit specified for issuance of the order.

The hardest skill is getting the goal post to stop moving - Anon.

[The views expressed are strictly personal.]