Demand Procedure in GST?

Evasion of tax gives rise to demand under any law. Accordingly, a demand under GST arises due to any of the following reasons-

• When the applicable taxes are either not paid or short paid; or
• When the amount is erroneously refunded; or
• When the input tax credit is wrongly availed or wrongly utilized.

Basically, a demand under GST is divided into the following two broad categories-

1. Evasion of tax under normal circumstances [section 73 of the CGST Act]; and
2. Evasion of tax by reason of fraud or willful mis-statement or suppression of facts [section 74 of the CGST Act].

The present article briefly covers both the above-mentioned demand provisions under GST law.

Issuance of demand notice under GST-

The provisions of issuance of demand notice under both the above categories are summarized hereunder-

• The proper officer will serve show cause notice (i.e. demand notice) demanding-
  • The evaded tax along with interest and penalty leviable under provisions of the CGST Act [section 73(1)]; or
  • The evaded tax along with interest and penalty equal to tax amount [section 74(1)]; or
• Along with the demand notice, the proper officer may serve a statement in Form GST DRC-02 [rule 142(b) of the CGST Rules, 2017]. The statement specifies the details of the amount payable.
• In case the demand notice on similar grounds is already issued earlier, then, a simple issuance of a statement in Form GST DRC-02 will be deemed as service of demand notice.

Payment of amount prior to issuance of demand notice [Section 73(5)/(6) and Section 74(5)/(6)]-

As a part of audit observation or during the inspection, search or seizure, the person will be informed the amount of tax evaded. In case the person accepts the evasion of tax and makes payment of the following amounts –

Then, in such case, demand notice will not be served upon the person, if both the following conditions are satisfied-

Condition 1 – The above referred amounts are paid before issuance of notice or service of relevant statement; and

Condition 2 – The payment of the above amounts is intimated to the proper officer in Form GST DRC-03 [rule 142(2)].

However, in case there is a short-fall of the amount actually payable, then, the proper officer will issue the demand notice in respect of pending amounts.

Payment of amount post issuance of demand notice [Section 73(8) and Section 74(8)]-

In case the demand notice is issued to the taxpayer and the taxpayer accepts the demand so raised therein. Accordingly, post acceptance of demand, the taxpayer has an option to pay the following amounts within a period of 30 days-

Now, if the taxpayer pays the above amounts, then, in such case, no penalty will be payable under section 73 and all the proceedings in respect of the said demand notice under both section 73 or section 74 will be deemed to be concluded.

Submission of defence reply and personal hearing-

In case the demand notice is not acceptable by the taxpayer, then, the taxpayer can file an appropriate defence reply putting up their points defending the demand.

Further, on written request, the taxpayer will also be given an opportunity of being heard by the department. Accordingly, the taxpayer himself or his authorized representative should attend the personal hearing and counter their points defending the demand.

Issuance of an order-

After considering the representation, if any, via defence reply and/ or personal hearing, the proper officer is required to issue an order in Form GST DRC-07 [rule 142(5)] within the following period-

The order in Form GST DRC-07 will determine the amount chargeable as under-

Some of the notable points with regard to the order as mentioned under section 75-

• The proper officer is required to mention all the facts and the basis for his decision in the order.
• No demand shall be confirmed on any grounds other than the grounds specified in the demand notice.
• The amount of tax; interest and penalty as demanded in the order should not be more than that specified in the demand notice.

Payment of reduced amount post issuance of order-

Post issuance of an order in Form GST DRC-07, the following reduced amount will be payable by the taxpayer only in case the amount is paid within a period of 30 days-

Notably, the amount which stands payable by the taxpayer, as per the order, needs to be paid within a period of 3 months from the date of service of the order. Post completion of 3 months, recovery proceedings will be initiated by the department.

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