THE POLICY LAB (TPL) - 45
MAY 21, 2024

By J B Mohapatra

A: To the extent possible, it is fair to say that most statutory timelines in complementary fiscal statutes are set by design and never ad hoc. However, considering the number of taxes: cesses, income tax, corporate income tax, GST, state excise, duties on export and import, mining royalty, stamp duty, property tax, water cess, electricity duty, land revenue, motor vehicle tax, municipal tax, many of the levy under the state legislations, 3 salient points are worth noting. One, it will be an impossibility to have a single harmonised template for scheduled timelines for actions under all the fiscal legislations that will not impinge on one another. Two, compliance under a particular legislation is prioritized by a taxpayer over the other for reasons of expediency as much as the compulsions under that legislation. Three, among the gamut of fiscal legislations, it is the direct tax, which comes in the last, after the taxpayer discharges his obligations under other Acts, for example under the GST Act, or the Customs Act, or the State levies.

B: Many times, the interplay of compliance and timeline mismatch under different legislations is statutorily addressed, if the issue gets beyond the scope of available administrative powers. Sometimes, these are judicially noticed and redressed on a case- to-case basis. There are instances however when the timeline mismatch is not neutralised either on statutory or judicial side and tells upon the overall efficacy of the fiscal system. Reopening under the fiscal laws - under CGST, 2017, Customs Act, 1962, and Income Tax Act, 1961 is a case in point.

C: Section 73 CGST Act reads as follows:

"…..

(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………

(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.

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(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.

D: Section 74 of CGST Act reads as follows:

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(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 by 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---

(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.

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(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an 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.

E: In essence, section 73 of the CGST Act, 2017 empowers the proper officer to determine the tax liability of a person who has failed to pay the tax or has short-paid the tax or wrongly availed ITC without an intent to fraud or any wilful-misstatement or suppression of facts to evade tax. Section 73(10) lay down a timeline of 3 years from the due date for furnishing of Annual Return for the financial year, for issuance of an order under section 73(9) of the CGST Act, for recovery of tax not paid or short paid or of input tax credit wrongly availed. Likewise, section 74 of the Act lays down a time line of 5 years from the due date for furnishing of Annual Return for the financial year for issuance of an order under section 74(9) when there are prima facie evidence of fraud or any wilful-misstatement or suppression of facts to evade tax. Section 44 of the Act provides for the time line to submit the annual return for every financial year before the 31st day of December following the end of the relevant financial year.

Thus in a case of a taxpayer for FY 23-24, the due date for filing annual return being 31-12-24, the proper officer will have time up to 30-09-27 to issue the notice under section 73(2) and time up to 31-12-27 to pass an order under section 73(9) ; and under section 74 of the Act, the proper officer will have time up to 30-06-29 to issue the notice under section 74(2) and and time up to 31-12-29 to pass an order under section 74(9) of the CGST Act.

F: Section 29 of the Customs Act, 1962 reads as follows:

"Section 28. Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded. -

(1) Where any duty has not been levied or not paid or short-levied or short-paid or erroneously refunded, or any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than the reasons of collusion or any wilful mis-statement or suppression of facts,-

(a) the proper officer shall, within two years from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;

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(4) Where any duty has not been levied or not paid or has been short-levied or short-paid or erroneously refunded, or interest payable has not been paid, part-paid or erroneously refunded, by reason of,-

(a) collusion; or

(b) any wilful mis-statement; or

(c) suppression of facts,

by the importer or the exporter or the agent or employee of the importer or exporter, the proper officer shall, within five years from the relevant date, serve notice on the person chargeable with duty or interest which has not been so levied or not paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

G: In essence, under the Customs Act, a show cause notice (SCN) is to be served under section 28(1) of the Act, in the cases where customs duty has not been paid or short paid or erroneously refunded within two years from the relevant date in normal cases. In case there is a collusion, or wilful mis-statement or suppression of facts with the intent to evade payment of duty or to get erroneous refund, SCN is to be served under section 28(4) of the Act within five years from the relevant date.

H: Contrast the timelines for reopening under the CGST Act or the Customs act against section 149 of the Income Tax Act (ITA). Latter reads as follows:

"149. (1) No notice under section 148 shall be issued for the relevant assessment year,-

(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of-

(i) an asset;

(ii) expenditure in respect of a transaction or in relation to an event or occasion; or

(iii) an entry or entries in the books of account,

which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:"

Essence of the reopening provisions under the ITA is that actionable information (on the basis of which reassessment proceedings can be initiated as per Explanation 1 to section 148 comprising (a) information obtained under the risk management strategy as formulated by the Board (b) an audit objection (c) information obtained under an agreement under section 90 or 90A (d) information obtained under the scheme notified section 135A (e) information requiring an action in consequence of orders of a tribunal or a court) can be the basis of reopening of an assessment for up to 3 years from the end of the relevant assessment year. This time period will stand extended up to 10 years from the end of the relevant assessment year, if the escapement of income is in excess of Rs 50 lakhs and the escapement of income is found in such evidence by way of an asset, an expenditure or an entry or entries in the books of account.

Under the GST law therefore, the proper officer dealing a case for FY 23-24 will have time up to 30-06-29 to issue the notice under section 74(2) and time up to 31-12-29 to pass an order under section 74(9) of CGST Act, while time available to issue a reassessment notice under section 148 of the ITA can run up to 31-3-34 and time for passing an order under section 143(3)/144 read with section 147 of ITA can run up to 31-3-35.

I: Reopening up to 3/5 years under the CGST Act and 2/5 years under the Customs Act throws 2 interesting questions, if that issue of reopening under the said Acts is tied up with the statutory time line of 3/10 years under the Income Tax Act, as invariably these issues will coalesce for an entity running a business or a profession. Questions are:

(i) What if an evidence obtained in a GST proceeding in exercise of powers of inspection, search and seizure reveals suppression of transactions relating to supply of goods and services for a period beyond what is provided for in section 74(10) of CGST Act- outside the band of 5 years from the due date for furnishing annual return.

(ii) What if an evidence is obtained by the Income Tax Department of the very same case in a proceeding under section 133A or section 132 of the Income Tax Act which reveals (a) suppression of transactions recorded relating to supply of goods and services for a period which runs up to 10 years from the end of the relevant assessment year and (b) suppression of income (clearly relatable to suppression of transactions) being reflected in form of an asset- an immovable property, shares and securities, loans and advances, deposits in bank account- in excess of Rs 50 lakhs.

J: Statutory position under the CGST Act will not enable reopening of the case for any year which is not within a period of five years from the due date for furnishing of annual return, and hence even though evidence of suppression of transactions has come to the notice of GST authorities, the case cannot be reopened under that statute. Conversely, the suppression of transactions resulting in suppression of income will not be a bar for reopening of the very same case under the ITA, even though evidences are for a period beyond 5 years from the due date for furnishing of annual return under the GST Act. Thus, suppression of transactions relating to supply of goods or services cannot be statutorily reassessed under the CGST Act, if suppression goes beyond 5 years from the due date of furnishing of annual return, though the income derived from such suppression of transactions can be validly reassessed under the ITA beyond 5 years from the due date of furnishing annual return under the GST Act.

K: Section 149 of the ITA till the amendment vide Act No 13 of 2021 with effect from 1-4-21 did not permit reopening of assessments beyond 6 years under any condition. One can say, provisions under both the CGST Act and the ITA once upon a time were synchronous in addressing issues of suppression of transaction/ escapement of income as far as time period was concerned. Extending the time for reopening under the ITA to 10 years with effect from 1-4-21 therefore raises a valid question: whether the interface of the amendment to ITA with other enactments while being asymmetrical qua the length of time for which reopening is possible under the enactments is iniquitous and unreasonable.

It goes without saying that each fiscal enactment is unique both in its intent and implication, configuring the machinery thereof thoughtfully made among the many available legislative choices. However, it hardly needs iteration that any such choice under a particular enactment should not be resulting in absurdity in administering another fiscal enactment, when both the enactments generally operate in tandem for a taxpayer, as ITA and the GST Act do. If suppression of transaction relating to supply of goods or service and therefore liable to GST is not amenable to reopening under the CGST Act on account of limitation built into section 74 of the CGST Act, it is not unsurprising for a question to be raised how the income derived from the same suppression of transaction is permitted to be reassessed under the ITA.

Challenge here is to acknowledge the tenuous nature of fiscal enactments and regulatory statutes and try synchronising their working to overcome unreasonable outcomes.