ADJUDICATION UNDER GST (PART-7)

[Dr. Sanjiv Agarwal]

Tax collected but not paid to Government (Section 76)

Section 76 provides that any amount collected as tax, along with interest, from customers shall be paid to account section of the Government regardless of whether the supplies are taxable or not. This section further provides for issuance of a show-cause notice for the amount collected but not deposited. This section also provides that the order needs to be issued within one year from the date of issuance of such notice.

Amount collected to be deposited with Government

Any person who collects the amount as tax from any other person is duty bound to deposit the amount so collected with the respective Government. It will not matter whether there was any doubt about the taxability of the transaction on which such amount has been collected. It has been provided in section 76(1) of the CGST Act, 2017 that, notwithstanding anything to the contrary contained in any order or direction of any Appellate authority or Tribunal or Court or in any other provision of the Act or the rules made there under or any other law, every person who collects any amount as tax shall deposit it with Government. Thus, in a case amount has been collected as tax, there is no shelter for avoiding the liability of deposit of such sum with the Government.

Meaning of ‘forthwith’

Sub-section (1) specifies the timing of payment as ‘forthwith’, but what is ‘forthwith’ has not been defined or explained. Normally, it means immediately or at once.

The literal meaning of ‘forthwith’ is immediately or without delay; as soon as reasonably can be, without unreasonable delay etc.

‘Advanced Law Lexicon’ by P Ramanatha Aiyar provides the following interpretation/meaning of the word ‘forthwith’ –

The dictionary meaning of ‘forthwith’ is “immediately, at once, without delay or interval.” A typical instance of the use of the word cited in the dictionary is : “When a defendant is ordered to plead forthwith, he must plead within twenty-four hours.” SK. SALIM VERSUS STATE OF WEST BENGAL [1975 (1) TMI 90 - SUPREME COURT]. [See Shorter Oxford English Dictionary, Third Edition, Vol. I, p. 740]. The Interpretation of Statutes 12th Ed., pp. 10 I-I 02].

Where, however, the statute prescribes the payment of money and the accrual of interest thereon at certain points of time, the expression ‘forthwith’ must necessarily be understood to be immediate or instantaneous. so as to avoid any ambiguity or uncertainty. The right accrues or liability arises exactly as prescribed by the statute. RAYMOND SYNTHETICS LTD. VERSUS UNION OF INDIA [1992 (2) TMI 269 - SUPREME COURT] It means with all reasonable quickness and reasonable prompt time. RAO MAHMOOD AHMED KHAN THROUGH THEIR LR. VERSUS SHRI RANBIR SINGH & ORS. [1995 (2) TMI 359 - SUPREME COURT].

However, the word ‘forthwith’ should not be construed as to mean “then & there” but means within reasonable time.” (Basant Raj v. State, 1994 CrLR Raj 410).

There are a few cases in which “forthwith” has been held to be synonymous with ‘immediately’ but these are in contexts such as the performance of judicial actions where reasonably practicable would probably amount to the same thing in practice. See for example : R. v Francis, Ca t. Hard 115; Grace v. Clinch, 4 QB 606; R. v. Berkshire Justices 4 QBD 469.

[Occasionally the word “forthwith” means as soon as possible after the occurrence of some specific intervening event expressed or implied from the context. For example, the making of an application (Hancock v. Somes. 28 LJMC 196; Costa v. Hetherington. 28 LlMC 198) or the execution of a reconveyance (Boyes v. Bluck; 13 CB 652)]. (Stroud. 6th Edn.. 2000)

The word “forthwith” must receive a reasonable construction, and in giving it a construction some regard must be had to the nature of the act or thing to be performed and the circumstances of the case.

The term ‘forthwith’ means within a reasonable time [Samsnath v. Bhagwat Nath, AIR 1966 All 615, 616. [C.P.C. (5 of 1908), O. XVll, R. 3(a) as amended by Allahabad High Court]

The word ‘forthwith’ cannot be taken to mean a mandate to decide the suit the same day as a penalty for default. KURI LAL RUNGTA VERSUS SMT. BANARSI DEVI AND ORS. [1985 (5) TMI 241 - ALLAHABAD HIGH COURT], 104. [C.P.C. (5 of 1908), O. XVII, R. 3(a)]

Forthwith means immediately or without delay. KAMAXI KOM BHIKKU SHETTY VERSUS VAMAN THIPPAYYA BHATTAGERI [1975 (5) TMI 93 - KARNATAKA HIGH COURT][C.P.c. (5 of 1908), O. XXI, R. 84(1)]

Maxwell in Interpretation of Statutes (II th Edition) at p. 341 observes. When a statute requires that something shall be done ‘forthwith’, it should be probably understood as allowing a reasonable time for doing it. BIDYA DEB BARMA ETC. VERSUS DISTRICT MAGISTRATE TRIPURA, AGARTALA [1968 (8) TMI 187 - SUPREME COURT] at ) 325. - Preventive Detention Act (1950), S. 3(3)]

An Act which is to be done forthwith must be held to have been so done, when it is done with all reasonable despatch and without avoidable delay. The term ‘forthwith’ in S.3(3) cannot mean the same thing as ‘as soon as may be’ in S. 7, and the farmer is more peremptory than the latter. KESHAV NILKANTH JOGLEKAR VERSUS COMMISSIONER OF POLICE [1956 (9) TMI 56 - SUPREME COURT], 3 I, 32.-Preventive Detention Act, 1950, Ss. (3) and 7]

Section 76 of CGST Act, 2017 can be invoked if :

1. Any person has collected GST from the recipient of supplies but not paid
2. Any person has collected GST from recipient which was not required to be so collected but not paid

The liability under this section shall be for:

1. Amount collected but not paid
2. Interest under section 50 for the period from date of collection of amount till the date such amount is paid.
3. Penalty as imposed by proper officer subject to adjudication

Actions by proper officer

In terms of section 76(2) of the CGST Act, 2017, the proper officer in such case may issue a show cause notice to such person for recovery of the amount collected by such person together with penalty equal to the amount of tax collected by such person and proceed with adjudication thereof.

In case a person collects the amount as tax and fail to deposit the same with the respective Government, following process should be observed by the proper officer in terms of section 76 of the CGST Act, 2017:

1. a show cause notice to be issued by the proper officer of the amount so collected and penalty equal to the amount so collected to be issued to person who has collected the tax but not deposited.
2. The person will be entitled to submit his reply to the show cause notice and he will also be given an opportunity of hearing in case asked by him in writing.
3. The proper officer will consider the representation made by such person and after consideration determine the amount payable by such person as tax , interest and penalty.
4. The proper officer shall set out the relevant facts and the basis of his decision.

As provided in section 76(6) of the CGST Act, 2017, the order by proper officer will be issued by him within a period of one year from the date of issue of show cause notice by him.

As provided by section 76(7) of the CGST Act, 2017, in case the issuance of show cause notice has been stayed by the order of the Court or Tribunal, the period of such stay will be excluded for calculating the period of limitation of one year.

Adjustment / Refund of amount deposited

As provided in section 76(9) of the CGST Act, 2017, in case the person concerned had already deposited some amount with the Government. The amount so deposited by him will be adjusted from the amount of tax ordered to be deposited by the proper officer in respect of the supplies referred to in the notice.

As per provision of section 76(10) of the GST Act, where any surplus is left after the adjustment of sum already paid by the person, such surplus amount shall be-

(a)        Refunded to the person who has borne the incidence of such amount, or

(b)        Credited to the Consumer Welfare Fund.

In case it is determined later that the transaction on which tax has been collected were not taxable and the amount of tax paid by such person has already been deposited with the Government. In such cases, as per provisions of section 76(11) of the CGST Act, 2017, such person who has suffered such amount will be eligible to make an application for the refund of such amount and provisions of refund will be applicable on such case as well.