HOW TO HANDLE SHOW CAUSE NOTICE UNDER SECTION 73 AND 74 OF CGST ACT, 2017 !!

Show cause notice (SCN) – is a document served by department as an opportunity to person to explain with reasons as to why particular course of action should not be taken against him. No person can be proved guilty without given an opportunity of being heard.

Show cause notice under section 73-

Section 73 talks about determination of

• tax not paid or
• short paid or
• erroneously refunded or
• input tax credit wrongly availed or utilised for any reason other than fraud or any wilful mis-statement or suppression of facts.

– the Proper Officer shall serve notice on the said person requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty Levi able as per the provisions of the Act.

• Time Limit-Section 73(2) when read with Section 73(10), spells out the time limit for passing the adjudication order along with the time limit for issuance of show cause notice.
• The adjudication order needs to be passed within three years from the due date for furnishing of annual return for the financial year to which the tax relates to or within three years from the date of erroneous refund.
• Show cause notice shall be issued at least 3 months before the due date of passing of adjudication orders i.e 2 years and 9 months from due date of Annual Return.

First Opportunity 

• The Officer will serve an intimation vide Part A of Form GST DRC – 01A asking the person to remit the tax along with interest. Details about the tax demand will be stated briefly in Part A.
• This is a mandatory facility that must be allowed before SCN so that the taxpayer who turns down this opportunity also gives up the concession that goes along with this facility, the concession being that in cases covered by section 73, if tax demanded along with interest is paid ‘before SCN’ then,penalty payable will be ‘nil’. 
• Payment is not made in full-In case, the assessee has made only partial payment and he is not accepting the remaining liability or he is disputing the entire liability, he can respond in Part B of the same form GST DRC-01A.

Second Opportunity 

• After having turned down the facility allowed under section 73(3) when the show cause notice is issued, the taxpayer is allowed a ‘second’ opportunity to pay tax demanded along with interest in Form GST DRC-03 within 30 days of issue of show cause notice and inform the proper officer in writing of such payment.
• The officer upon receipt of such information, shall give an intimation of conclusion of proceedings in Form GST DRC-05 and all the proceedings in respect of the said notice except proceedings under Section 132 shall be deemed to be concluded. Here too, penalty payable will be ‘nil.

Imposition of penalty- In case taxpayer not availed both opportunities then the proper officer will proceed to take up the adjudication process and then determine penalty equivalent to ten per cent of tax or ten thousand rupees, whichever is higher.

Show cause Notice under Section 74-

Section 74 talks about determination of

• tax not paid or short paid or
• erroneously refunded or
• input tax credit wrongly availed or utilised for any reason
• by reason of fraud or any wilful-misstatement or suppression of facts to evade tax, the Proper Officer shall serve a notice on the said person requiring him to show cause as to why he should not be asked to pay the amount specified in the notice along with interest payable thereon under section 50 and with 100% of tax as penalty leviable as per the provisions of the Act. 

Time Limit-Section 74(2) when read with Section 74(10), spells out the time limit for passing the adjudication order along with the time limit for issuance of show cause notice. It says that, the adjudication order needs to be passed within five years from the due date for furnishing of annual return for the financial year to which the tax relates to or within five years from the date of erroneous refund.

It prescribes that the show cause notice shall be issued at least 6 months before the due date of passing of adjudication orders.

First Opportunity but with 15% penalty :

• The proper officer will serve an intimation vide Part A of Form GST DRC – 01A asking the person to remit the tax along with interest and 15% penalty without serving a show cause notice.
• Upon remitting of such amounts vide Form GST DRC-03, the taxpayer shall inform the proper officer in writing of such payment. Upon receipt of such information, the proper officer shall give an acknowledgement in Form GST DRC-04 and shall not serve any notice under Section 74(1).

 Second Opportunity to get away with 25% penalty :

• After the issuance of show cause notice, if the taxpayer comes forward and pays the balance amount of tax, interest along with 25% penalty in Form GST DRC-03 within 30 days of issue of show cause notice and informs the proper officer in writing of such payment, the officer upon receipt of such information, shall inform the taxpayer that, all the proceedings in relation to the said notice deemed to have been concluded.

Third Opportunity to get away with 50% penalty:

• After issuance of order in original the tax payer can avail the third chance to get away with 50% penalty. Where the taxpayer comes forward and pays the amount demanded, applicable interest along with 50% penalty in Form GST DRC-03 within 30 days of communication of the order and informs the proper officer in writing of such payment, the officer upon receipt of such information, shall give an intimation of conclusion of all the proceedings in respect of the said notice.

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