NOTICE U/S 74(5) FOR THE CURRENT F.Y.

[Renju Joy]

I have missed to show reverse charge on inward supplies in GSTR 3B for the month of June 2019.

Now I have received a notice dated 29.02.2020 u/s 74(5) for this non payment. Am I able to show this in the GSTR 3B of Feb, which is pending to be filed or should I pay the tax along with penalty and interest through DRC-03.

Thanks & Regards.

[YAGAY andSUN]

In our view, you would have payoff all statutory dues along with interest and penalty as applicable or if imposed along with filing of all returns etc.

[CA Seshukumar]

Dear Roy

You have both options as this notice is under sub section.5.

You can take oral concurrence from officer to do any option.

Best is issue the invoice as per sec.31(3)(f) in the current month and show in 3B and pay tax along with interest.

And. Communicate the same to authority with a justification that there is no i tentoonstelling to suppress the facts...Etc so that waiver of penality is possible. Though section says 15% penalty.

Be sure not to get any SCN or Order in this aspect in which case you will not be able to take credit also. This will be full loss.

[KASTURI SETHI]

Dear Querist,

In simple words, Section 73 talks of recovery of tax not paid due tobona fide mistake and Section 74 talks of recovery of tax not paid due tomala fide intention. This is the major difference between the two Sections. The querist has received notice under section 74(5) of CGST Act as per his query.. They have not received SCN but proceedings for recovery of tax not paid due to mala fide intention have been initiated under Section 74(5) which is applicable for evasion of tax intentionally, willfully, deliberately etc. They may not have mala fide intention to evade tax and their intentions may be clear but as per the records of the department they have evaded tax intentionally. Needless to say the department will act as per whatever documentary evidence is available on the records and not on the basis of verbal reasoning. The time of verbal reasoning was available before the issuence of notice under Section 74(5).

Now, as per Section 17(5) (i) of CGST Act , if any tax is paid in accordance with the provisions ofSections 74, 129 and 130 of CGST Act, ITC is not allowed. In this scenario, the proceedings have been initiated under Section 74(5) by way of notice (NOT SCN) even then ITC will not be available. It is worthwhile to mention that the querist/party is also out of the scope/phrase, "on his own ascertainment" mentioned under Section 74(5) of CGST Act. It is a fact that they have received notice under Section 74(5) as mentioned in the Verbal reasoning will not click. Verbal reasoning has no room, especially, in view of documentary evidence.

Go through the following provions which are extracted below for your convenience:-

Section 74 (5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. 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.

Section 17(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely :-

Explanation :

(e) ________

(f) _______

(g) __________

(h) __________

(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.

I fully support the views of M/s.Yagay and Sun, Sir.

[CA Seshukumar]

Dear sir,

While the sec.17(5) is barring on a credit of tax that is paid under sec.74,

However , by conjoint reading of CGST Rule .36(3) with sec.17(5) gives a combination of the tax paid in pursuant to the order arising out of demand confirmed on account of fraud...Etc which is enumerated in 74.

Hence , while under sec.74 the order can be passed pursuant to the SCN issued under sec.74(1) . In fact sec.74(5) is a saving provision and not enabling provision for officer to issue notice. Notice can be issued under 74(1) only.

If any thing issued under 74(5) then the same shall not be treated as notice under section.74(1).

In fact once payment is made under 74(5) , no notice will be issued under sec.74(1) . Hence no adjudication and no order. Hence credit is eligible with conjoint reading of Rule.36(3) with 74 section by not having an order.

Different views may be possible.

[KASTURI SETHI]

Dear Sir, Rule cannot override Section/Act. Pl.note the language, " any tax paid under provisions of Section 74." It is the word, 'provisions' and not 'provision'. Emphasis is on 'provisions' and not on 'a provision ' I.e. 74(1). If the party gets relief, it is a matter of pleasure for all the experts. The party has missed the bus by not taking recourse to the phrase, "on his own ascertainment" which is present in both Sections 73 and 74. What I feel this lapse has happened due to lack of knowledge but records reflect otherwise.

[CA Seshukumar]

Dear sir,

In sec.74(5) there is no power to officer to issue notice.

If at all notice to be issued such notice is to be SCN and to be issued under 74(1).

Hence the communication which is received by tax payer with 74(5) is a defective to call it as notice under sec.74.

So for all practical purposes there is no notice and tax payer can pay tax on his own and communicate to officer.

Hence no notice under sec.74.

To my view the credit is available.

[KASTURI SETHI]

Why the department has issued notice under Section 74(5) instead of Section 73(5) ? Ponder over it. Reason is obvious.

[CA Seshukumar]

Dear sir

Issuing notice under both 73 and 74 is only under subsection (1) and can't be issued under sub section(5).

Hence it is an intention of department in alerting assessee to pay tax instead of initiating adjudication procedure.

If intention is so to bar entire 74 then the rule 36(3) does not have any relevance.

As I have mentioned different views are possible.

[YAGAY andSUN]

In nut shell, pay the tax and relax.

[Renju Joy]

I am on the conclusion that officer has just issued an intimation on tax ascertained to be paid u/s 74(5) , before service of notice under section 74(1).

[CA Seshukumar]

Dear Renju roy

This is what precisely i am of the view.

Please proceed proving the allegations of fraud,..Etc is a process which is not obvious in normal cases where in the tax payer not knowing the transaction and not by intention to avoid. Hence 74 can be used only when they ascertain an evidence that even after making the tax payer to know the non payment of tax ..Etc if he don't lay then they conclude that intention and fraud..Etc and start 74(1).

Please pay tax with interest and avail credit of the same. And also please commit the facts of payment and also availment of credit also.

Penalty may be waived subject to the facts of each case.

[KASTURI SETHI]

Dear Querist,

With reference to your response at serial no.10 above, the following facts cannot be denied :

(i) You will make payment of tax along with interest and penalty as demanded in the notice or intimation ( whatever you may call) under Section 74 (5).

(iii) This non-payment has been detected by the department. Thus you are making payment of tax after detection.

(iii) You are required by law to make compliance of the notice in full. In case you do not make compliance in full as per notice issued under Section 74(5), you will get SCN under Section 74(1). No other option with you. Nobody likes SCN.

(iv) Doors of Section 73 are closed for you in this case.You cannot resort to Section 73. I have just mentioned this aspect to emphasize the difference between the two Sections.

Also go through Rule 53 (3) of CGST Rules which is extracted below:-

(3) Any invoice or debit note issued in pursuance of any tax payable in accordance with the provisions of section 74 or section 129 or section 130 shall prominently contain the words “INPUT TAX CREDIT NOT ADMISSIBLE”.

You are advised to follow the decision of jurisdictional State GST Officer ( who has issued this notice) on all aspects in your own interest. Rest decision is yours. Avoid the rigours of litigation as far as possible.

[CA Seshukumar]

Dear sir

Rule.53 us mainly for the purpose of revised invoice or credit or debit note.

This case arises when tax is short paid and invoice is issued for less tax. Revised invoice will be given only when originally an invoice is issued. In the current case queries is requested to take this point for check.

If no invoice is issued then this becomes first invoice.

Though the sub rule starts with words anyinvoice which may be need to read with intent of such revised invoice or debit note which is primarily in the nature of recovering more tax than what is actually paid.

You may take a conscious view after through discussion with officer whose views need not bind on you.

[KASTURI SETHI]

We agree to disagree. Anyhow this notice is an opportunity for the querist to pay Govt. dues as demanded in the notice.

[Ganeshan Kalyani]

As per rule 61(1), the proper officer may have scrutinized the return with the details furnished by the taxpayer. When no reply received the department must have issued notice.

[Ganeshan Kalyani]

When no reply received, notice must have issued by the department. When the department issued notice u/s 74 i.e. short paid not paid tax willfully then even if the absence of willful intention of evading tax is proved the notice remains to be issued u/s 74. Then the provision 17(5) comes into play and input tax credit may be denied. It simply states any tax paid u/s 74.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

First of all I am grateful to you for your intervention. You have done in-depth study of the issue. Section 74must not have come into play. It is beyond doubt that this lapse is detection of the department. Even if a simple letter is issued or a visit is made by the GST officer in the premises of the assessee or records are called for by the GST Officer for scrutiny by way of a letter or summons, it amounts to detection by the department. Moreover, as per records, the element of mens rea with an intent to evade tax is present. All these factors led to issuance of notice under Section 74. This is how the assessee has missed the bus which was comfortably leading to his destination. Now the 'benefits' of Section 73 are not available.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

With reference to your views at serial no. 15 above, you are right. The querist has mentioned in his query that he has missed the details of RCM in GSTR 3B for June, 2019. This amounts to mis-declaration as well as concealment from the department. That is why notice has been issued under Section 74 and not under Section 73. The department is correct de jure. Thus the party has contravened which has become foundation for these proceedings. Hence the jugglery of words will not click.

This is my response to your views and not prejudiced and should be read with healthy spirit.

[YAGAY andSUN]

Let Department Decide this matter. It Tax is payable, then, it should be paid accordingly along with Statutory Interest. Prayer should be made for waiver of any penalty.

[Ganeshan Kalyani]

Sri Kasturi Sir, I agree with you.

AI Summary

Payment under fraud recovery provisions bars input tax credit; pay tax with interest, seek waiver of penalty and officer concurrence. A communication under Section 74(5) permits voluntary payment of the ascertained tax with statutory interest and a 15% penalty and requires informing the proper officer; taxes paid under the recovery provisions for evasion are commonly treated as ineligible for input tax credit. Practitioners disagree whether a subsection (5) intimation is a procedural notice triggering adjudication or merely an invitation to self-assess and pay; the choice to pay, report in a subsequent return with officer concurrence, or await a formal show cause notice carries distinct credit and penalty consequences.