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COMPARISION OF PROVISIONS OF CHATER V OF FINANCE ACT, 1994 AND GST LAWS IN DEMAND AND RECOVERY

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COMPARISION OF PROVISIONS OF CHATER V OF FINANCE ACT, 1994 AND GST LAWS IN DEMAND AND RECOVERY
By: Mr.áM. GOVINDARAJAN
July 22, 2021
All Articles by: Mr.áM. GOVINDARAJAN       View Profile
  • Contents

Introduction

The tax laws either direct taxes or indirect taxes provide for the levy of tax at the prescribed rate and payment within the due dates and also filing returns periodically.  The tax laws also made provisions for the mode of recovery of tax in case of the assessee fails to pay tax or evade the payment of tax with intention.  The provisions of service tax vide section 73 provides for the recovery of service tax not levied or not paid or short levied or short paid or erroneously refunded.  Similarly GST Central and State laws provide for the same but in two sections viz. section 73 and section 74. In this article there is a comparison between section 73 of Chapter V of Finance Act, 1994 (‘Finance Act’ for reference) and sections and 73 and 74.

Power of Officers

Section 73(1) of Finance Act provides that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, serve notice on the person chargeable with the service tax requiring him to show cause why he should not pay the amount specified in the notice.

The proviso to section 73(1) provides for the issue of show cause notice where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud or collusion or willful mis statement or suppression of facts or contravention of provisions of Chapter V or the rules made there under with intention to evade the payment of tax.

The GST laws give powers to the proper officer to issue show cause notice on the taxable person where it appears to him that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized-

  • Section 73 - for any reason, other than the reason of fraud or any willful-misstatement or suppression of facts to evade tax;
  • Section 74by reason of fraud or any willful-misstatement or suppression of facts to evade tax.

The show cause notice will also incorporate the payment of interest and penalty along with the payment of tax.

Limitation

Section 73(1) of Finance Act gives powers to the Central Excise Officers to issue show cause notice within thirty months (with effect from 14.05.2016 – before that it is 18 months) from the relevant date.  The proviso to Section 73(1) invokes the extended period of limitation up to 5 years in case the tax is not paid with intention to evade tax by reason of fraud etc.,

Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of thirty months or five years, as the case may be.

Section 73(10) of GST laws provides that the proper officer shall issue the order 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 utilized relates to or within three years from the date of erroneous refund.  Section 73(2) provides that the proper officer may issue show cause notice at least 3 months prior to the issue of order under section 73(10).

Section 74(10) of GST laws provides that he 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 utilized relates to or within five years from the date of erroneous refundSection 74(2) provides that the proper officer may issue show cause notice at least 6 months prior to the issue of order under section 73(10).

Relevant date

Section 73(6) of the Finance Act defines the ‘relevant date’ as-

  • in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid-
  • where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;
  • where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
  • in any other case, the date on which the service tax is to be paid under this Chapter or the rules made there under;
  • in a case where the service tax is provisionally assessed under this Chapter or the rules made there under, the date of adjustment of the service tax after the final assessment thereof;
  • in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund.

Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of thirty months or five years, as the case may be.

Section 73 and 74 of GST laws provide that the relevant date considered for calculation limitation period to issue show cause notice is 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 utilized relates.

Statement

Section 73(1A) of Finance Act provides that  the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section, a statement, containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax, then, service of such statement shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon for the subsequent period are same as are mentioned in the earlier notices.

The same position is in GST lawsSection 73(3) and section 74(3) provide that where a notice has been issued for any period the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under earlier notice, on the person chargeable with tax.   The service of such statement shall be deemed to be service of notice on such person subject to the condition that the grounds relied upon for such tax periods other than those covered under earlier notice  are the same as are mentioned in the earlier notice.

No show cause notice – When?

Section 73(3) of the Finance Act provides that the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, -

  • on the basis of  his own ascertainment thereof; or
  •  on the basis of tax ascertained by a Central Excise Officer before service of notice on him in respect of such service tax, and

inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice in respect of the amount so paid.  This is not applicable if extended period of limitation is invoked.

The same is the position in respect of 73 of GST laws and it is slightly different under section 74 of the said Act.  Section 73(5) & (6) provide that the person chargeable with tax may, before service of notice or the statement pay the amount of tax along with interest payable 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.    The proper officer, on receipt of such information, shall not serve any notice or the statement in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made there under.

Section 74 requires the payment of penalty in addition to the payment of tax and interest.  Section 74(5) & (6) provide that the person chargeable with tax may, before service of notice pay the amount of tax along with interest and a penalty equivalent to 50% of such tax 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.  The proper officer, on receipt of such information, shall not serve any notice in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made there under.

Notice for short payment

The proviso to section 73(3) of the Finance Act provides that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of   thirty months shall be counted from the date of receipt of such information of payment.

The same is the position in GST lawsSection 73(7) and section 74(7) provide that where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

Deemed conclusion

Before 08.04.2011 the proviso to section 73(2) of Finance Act provides that where such person has paid the service tax in full together with interest and penalty under sub-section (1A), the proceedings in respect of such person and other persons to whom notices are served under sub-section (1) shall be deemed to be concluded.  But this proviso has been omitted with effect from 08.04.2011.

Section 73(8) and 74(8) of GST Act provides that 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.

Order

The taxable person is to file reply to the show cause notice issued to him within the prescribed time to the concerned Central Excise Officer along with the documents supporting his contention.  The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.  This exercise is to be done within six months from the date of notice where it is possible to do so.  If extended period of limitation is invoked it shall be decided within one year from the date of notice.

Section 73(9) of GST Act provides that 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 10% of tax or ₹ 10,000/-, whichever is higher, due from such person and issue an order. 

Section 74(9) provides that 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.

Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to 50% of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.

If extended period has not been established

Section 73(2A) (inserted from 10.05.2013) of the Finance Act provides that where any appellate authority or tribunal or court concludes that the notice invoking extended period of limitation is has not been established against the person chargeable with the service tax, to whom the notice was issued, the Central Excise Officer shall determine the service tax payable by such person for the period of thirty months , as if the notice was issued for the offences for which limitation of thirty months  applies under sub-section (1).

No such provision in the GST Acts.

 

By: Mr.áM. GOVINDARAJAN - July 22, 2021

 

 

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