OCTOBER 29, 2018

By B S V Murthy

1.  SECTION 73 of the CGST Act is the relevant section for recovery of GST short paid/not paid/refund wrongly sanctioned/inadmissible input tax credit. The section also covers instances where there is delay in payment of self-assessed tax/tax collected but not paid.

2. Self-assessed tax means an admitted tax liability by the registered person. It is the sum of tax payable on supply of goods or services or both and declared in the returns filed under section 39 of the Act, 2017.

3.  Any amount collected as tax means the tax charged on the invoice for supply of goods or services or both, irrespective of the fact whether collected or not. Here it appears that literal meaning cannot be given to the words "Any amount collected as tax", since the liability to pay tax crystallises based on time of supply i.e. earlier of the events of date of invoice or supply of goods/service or receipt of consideration. Where the tax invoice is issued, the tax liability for the same is required to be paid/discharged within the due date whether tax is collected or not. This is because payment of tax is not based on realisation of the consideration, but on accrual basis. The assessee has self-admitted the tax liability, which is evident from the tax invoice issued by him and the same is considered as tax collected but not paid.

4.  In the above two situations, section 73(11) provides for penalty which would be higher of the following;

a.  Equivalent to 10% of tax; or

b.  Rs.10,000/-

5.  On a careful reading, it may be seen that penalty of 10% is fixed amount based on the tax payable, but not paid and rate of 10% is not linked to per annum or per month. Thus, even if there is a delay of one day after 30 days, the assessee shall be liable to pay 10% of tax as penalty. The cost of delay has been kept quite high and intention appears to be to make the provision a deterring one to the assessee for delaying the payment of tax.

6.1  The question that arises is whether the penalty under sub-section 11 is payable without adjudication process or not.

6.2  Provisions relevant to this article in section 73 of the CGST Act are reproduced below:

(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 utilised 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)  …

(3)  …

(4)  …

(5)  The person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

(6)  The proper officer, on receipt of such information, shall not serve any notice under sub-section (1) or, as the case may be, the statement under sub-section (3), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

(7)  …

(8)  Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

(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)  ….

(11)  Notwithstanding anything contained in sub-section (6) or sub-section (8), penalty under sub-section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.

6.3  According to provisions of sub-section (6), in case of short-payments/wrong refunds, if the amount is paid with interest and intimated, no notice will be issued. In this case short/payment/non-payment/ineligible refund might have been noticed by the department or by the assessee. The sub-section provides for voluntary payment.

6.4 The provisions of sub-section (8) provide that if the amount is paid within 30 days of the show cause notice, no penalty shall be payable. Even if the amount is not paid when noticed, if it is paid without contesting the show cause notice when issued, no penalty would be leviable.

6.5  The provisions of sub-section (9) come into play if the amount is not paid after issue of show cause notice within 30 days. If the proper officer, after considering the representation, determines the tax is payable and quantifies it, penalty to the extent of 10% of the tax or Rs.10,000/- whichever is higher has to be imposed in addition to tax and interest. This mandatory penalty is for contesting the stand taken by the proper officer (There can be no other explanation).

6.6  Sub-section 11 of section 73 provides that penalty as per the provisions of sub-section 9 would be payable where there is delay of 30 days or more from the due date in payment of self-assessed tax or any amount collected as tax. Sub-section (11) is notwithstanding the provisions of sub-sections (6) and (8) of section 73. Provisions of sub-sections (6) and (8) are provisions which provide that no penalty is payable in certain circumstances. Sub-section 11 provides that notwithstanding the provisions contained in sub-sections (6) and (8), penalty under sub-section (9) shall be payable. The question that arises is whether penalty has to be imposed after issue of notice as contemplated in sub-section 9 or it becomes payable when there is a delay of more than 30 days in payment of self-assessed tax or amount collected as tax.

7.  A reference to the provisions of section 75(12) would probably be the answer to this question. This sub-section reads as follows:

(12)  Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.

8. When it is seen that sub-section (9) provides for determination of tax, interest and penalty and sub-section 12 of section 75 of CGST Act provides for action for recovery without following the procedure under sections 73 or 74, the obvious conclusion would be that the reference to sub-section (9) in sub-section (11) of section 73, is for the quantum of penalty and not for the procedure of issue of show cause notice, personal hearing etc. which is actually contained in sub-sections (6), (8) and (9).

9.  As regards supplies in respect of which tax was collected or charged in the invoice but not paid, provisions of section 76 provides detailed procedure for determination of the correct amount payable and provides for imposition of penalty equal to the tax payable. It also provides for claim for refund by the person who has borne the liability, in case tax was not payable but collected.

10.  In the case of tax collected but not paid, sub-section 11 of section 73 requires the taxable person to pay 10% of the tax or Rs.10,000/- whichever is higher as penalty in addition to tax collected and interest thereon if the tax or tax with interest is not paid within a period of 30 days from the due date. Section 76 comes into play only when the tax collected is not paid. Therefore, it can be presumed that if the amount of tax collected, interest thereon and penalty as above are paid before show cause notice is issued, penalty will be only 10% or Rs.10,000/- whichever is higher and if not, penalty can go up to 100%.

11.  As regards collection of penalty of 10% or Rs.10,000/- whichever is higher that is payable under sub-section 11 and not paid, provisions of section 79 empower the proper officer to recover since the section provides for recovery of the amount by resorting to various steps envisaged therein and not specifically tax or interest.

12.  The following illustrations are provided to understand the provisions of section 73(11) better:

Illustration 1:

Company 'A' has the liability of GST of Rs.5,00,000/- to be payable by 20.02.2020 (due date for payment of tax). However, Company 'A' was unable to pay the said self-assessed tax and such tax was paid on 20.04.2020.

In this case, the delay in payment of tax is by 60 days which is more than 30 days prescribed and hence penalty under section 73(11) of CGST Act, 2018 would be applicable.

The penalty would be higher of the following - i.e., Rs.50,000/-

a.  10% of Rs.5,00,000/- = 50,000/-; or

b.  Rs.10,000/-

Illustration 2:

Company X has raised 100 tax invoices for the month of Jan 2018, while filing GSTR-3B the Company X has considered only 90 invoices and assessed the tax and made the payment. Later on, during April 2018 Company X realised that they have not assessed the tax w.r.t 10 invoices and not paid the tax. Accordingly they remitted the GST while filing return for the month of April 2018 i.e., on 20.05.2018. Whether mandatory penalty under section 73(11) is attracted?

Yes. Even though the Company X has self-assessed tax only for 90 invoices, on remaining 10 invoices the tax has been charged, which is an admitted tax liability. Therefore this situation comes under "any amount collected as tax but not paid within 30 days from the due date". Accordingly penalty of 10% of tax or Rs.10,000/- whichever is higher would be applicable.

13.  The mandatory penalty as prescribed under section 73(11) would be applicable whenever there is delay in payment of self-assessed tax or any amount collected as tax, if not paid within 30 days from the due date.

Alternative view:

14.  Alternatively, a view can be taken that sub section 11 is notwithstanding the provisions of sub-sections (6) and (8) but not sub-section 9. Sub-section 9 provides for determination of tax, interest and penalty. Therefore, even where the tax has been self-assessed, if it is not paid, if the amount has to be recovered, the self- assessed tax has to be verified for correctness, determined in accordance with law and penalty has to be imposed in the same order. The facility of waiver of penalty available under sub-sections (6) and (8) of voluntary payment or payment within a month of show cause notice will not be available. Therefore, at the time of voluntary payment, it is sufficient if tax with interest is paid.

Conclusion:

15.  It is suggested to make the payment of GST within due date, if not pay within 30 days from the due date with interest. In case department insists on payment of penalty as per sub-section 11 without issue of show cause notice, a request can be made to pass a speaking order to the effect that penalty of 10% is payable without adjudication process. The assessee has to take a conscious decision in this regard. It has to be remembered that the department may go for recovery under section 79 without issue of show cause notice or speaking order in which case the only remedy available would be to approach the jurisdictional High Court with a writ petition.

(The author is a former Member (CESTAT) and the views expressed are strictly personal)