Demand

The Income Tax department uses demand and recovery procedures when the tax liability and the actual tax amount paid do not match. After conducting audit and assessment of the taxpayer, the tax official sends a notice to the taxpayer demanding payment of the taxes owed. This can happen in the following cases:

  • Unpaid or short paid tax or incorrect refund, where there are no fraudulent activities.
  • Unpaid or short paid tax or incorrect refund that involves fraudulent activities.
  • Failure to deposit tax with the government, despite collecting the appropriate amount.
  • Making payments for SGST transactions where IGST had to be paid or vice versa.

Note:

If the due amount is not paid, the IT department will begin its recovery procedure. 

When Can Tax Authorities raise a Demand Under GST?

This section applies to non-fraud cases when:

  • Tax is unpaid/short paid or,
  • Refund is wrongly made or,
  • Wrongly availed/utilized input tax credit

—or any reason, other than fraud etc. i.e., there is no motive to evade tax.

The proper officer will serve a show cause notice on the taxpayer. They will have to pay the amount due, along with interest and penalty.

  1. Time Limit: The authorities will issue the show cause notice 3 months before the time limit. The maximum time limit for the order of payment is 3 years from the due date for filing of annual return for the relevant year.
  2. For Other Tax Periods: After issuing the notice, the proper officer can serve a statement. It will contain details of any unpaid tax/wrong refund etc. for other periods not covered in the notice. There is no need for a separate notice  for each tax period.
  3. Voluntary Tax Payment: A person can pay tax along with interest based on his own calculations (or the officer’s calculations). The taxpayer has to do this before the officer issues the notice/statement. The taxpayer will then inform the officer in writing. The officer will not issue any notice in this case. However, if the officer finds that there is short payment, they can issue a notice for the balance amount.
  4. No Penalty: The taxpayer can pay all their dues and a penalty of 25% within 30 days from the date of notice. In such a situation, the tax authorities will close all proceedings (excluding proceedings u/s 132 i.e., prosecution).
  5. Penalty: The tax officer will consider the taxpayer’s representation and then calculate interest and penalty. Penalty will be 10% of tax subject to the least of Rs. 10,000. The tax officer will issue an order within three years from the due date for filing of relevant annual return.

This section applies to cases of tax evasion involving:

  • fraud
  • willful misstatement
  • suppression of facts

This results in:

  • unpaid/short paid tax or,
  • wrong refunds or,
  • wrongly availed/utilized input tax credit

In such cases, the proper officer will serve a show cause notice to the taxpayer. The taxpayer has to pay the amount due along with interest and penalty.

  1. Time Limit: For cases of fraud, the proper officer has to issue the notice 6 months before the time limit. The maximum time limit is 5 years from the due date for filing of annual return for the relevant year.
  2. For Other Tax Periods: After issuing the notice, the proper officer can serve a statement. It will contain details of any unpaid tax/wrong refund etc. for other periods not covered in the notice. There is no need to issue a separate notice for each tax period.
  3. Voluntary Tax Payment: The person can pay interest and a 15% penalty based on his/her own calculations (or the officer’s calculations). He should do this before the tax officer issues the notice/statement. If the taxpayer informs the officer about the same in writing, then the officer will not issue any notice. However, if the officer finds that there is short payment, they can issue a notice for the balance amount.
  4. Issue of Order: The tax officer will consider the taxpayer’s representation. He will then calculate interest and penalty and issue an order. The officer has to issue the order within five years from the due date for filing of the relevant annual return. For wrong refunds, the tax officer should issue the order within five years from the date of wrong refund.
  5. Penalty: The taxpayer can pay all their dues and a penalty of 50% within 30 days from the date of order. If he does, then the authorities will close all proceedings (including prosecution) regarding the notice.

Recovery of tax from defaulters

If the taxpayer does not pay his dues owed to the GST authorities on time, he would have defaulted on payment. In such situation, the tax authorities can recover the due amount via some legal means.

The GST authorities can recover the amounts through the following ways:

1. Deducting from any amount due to the defaulter

If Government (GST authorities) owe any amount of money to the defaulter, then the due amount will be deducted from it. For instance, if the defaulter is entitled to receive a refund then the due amount will be deducted from the refund against the unpaid amount. After that, the defaulter will get only the remaining amount.

2. Seizing and selling goods:

If the GST authorities possess any goods from the defaulter, they can seize and sell these in order to recover the due amount.

3. Recovery from any person who owes money (i.e., debtor) to the defaulter

  • The proper officer can issue a notice to the debtor asking him to pay the due amount to the government. The debtor will pay only to the extent of the defaulting amount.
  • The person receiving the notice must comply or else, they too will be held as a defaulter under GST.
  • After the tax authorities issue a notice, the debtor has to pay directly to the government. If they pay the defaulter, the debtor will be responsible. They will have to pay the default amount OR the amount of debt to be repaid (lower of the both).
  • If a post office/bank/insurer gets the notice, they have to comply. In this case they will have to pay without insisting on passbooks, other documents etc.
  • The amount the debtor pays to the government will be equivalent to the settlement of his debt to the extent paid. The defaulter cannot later sue the debtor for this amount.
  • If the person can prove that he did not owe any money to the defaulter then the provisions of recovery will not apply to him.

4. Seize movable and immovable property

The proper officer can seize any movable and immovable property belonging to the defaulter till he pays the due amount.

5.  Collect as land revenue

The authorities can also collect the due amount as land revenue.

6. Application to Magistrate

The proper officer will file an application to the appropriate Magistrate. The Magistrate will recover the due amount from the defaulter as if it was a fine imposed by him. This section overrides the Code of Criminal Procedure, 1973.