Ch 28 - Demands and Recovery | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


about:blank 11/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 28 -Demands  and recovery 
 
 
 
 
 
CHAPTER 28 
 
Demands and recovery 
 
28.1 Demands for tax short paid or not paid or erroneously refunded 
 
Since tax is payable on self assessment basis, it is possible that the taxable person may not have correctly paid 
the tax or may not have paid the tax at a l. It is also possible that the taxable person might have claimed refund 
and got refund of tax or input tax credit. 
In such case, department can issue show cause notice and adjudicate the demand. 
 
In normal cases, such order is required to be passed within three years from the due date of filing return. 
However, if the non-payment was on account of fraud, wilful mis-statement or suppression of facts to evade 
tax, the order can be passed within five years from the due date of f iling return. 
The provisions apply to recovery of interest also. 
 
28.2 Demand when no charge of fraud, wilful mis-statement or suppression of facts 
 
Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or 
where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or 
any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable 
with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously 
been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause why he should 
not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty 
leviable under the provisions of this Act or the rules made thereunder - section73(1) of CGST Act. 
The provisions apply to recovery of interest also. 
 
Notice to be issued at least three months before time limit of issue of order - Notice should be issued 
at least three months before time limit specified in section 73(10) - section 73(2) of CGST Act. 
Statement  instead  of detailed SCN if SCN on same grounds  was issued for earlier  period - Once a 
SCN has been issued, repeat notices are required ti l matter is finally adjudicated. Where a notice has been 
issued for any earlier period under section 73(1), 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 SCN, on the person chargeable with tax - section 73(3) 
of CGST Act. 
The service of such statement shall be deemed to be service of notice on such person, if the grounds relied 
upon for such tax periods are the same as are mentioned in the earlier notice - section73(4) of CGST Act. 
This is only to save paper work at department, where show cause notice on same grounds was issued for 
earlier period. 
Taxable Person  can pay tax on own before SCN - The person chargeable with tax may, before service of 
notice under section 73(1) or statement under section 73(3), pay the amount of tax along with interest payable 
Page 2


about:blank 11/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 28 -Demands  and recovery 
 
 
 
 
 
CHAPTER 28 
 
Demands and recovery 
 
28.1 Demands for tax short paid or not paid or erroneously refunded 
 
Since tax is payable on self assessment basis, it is possible that the taxable person may not have correctly paid 
the tax or may not have paid the tax at a l. It is also possible that the taxable person might have claimed refund 
and got refund of tax or input tax credit. 
In such case, department can issue show cause notice and adjudicate the demand. 
 
In normal cases, such order is required to be passed within three years from the due date of filing return. 
However, if the non-payment was on account of fraud, wilful mis-statement or suppression of facts to evade 
tax, the order can be passed within five years from the due date of f iling return. 
The provisions apply to recovery of interest also. 
 
28.2 Demand when no charge of fraud, wilful mis-statement or suppression of facts 
 
Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or 
where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or 
any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable 
with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously 
been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause why he should 
not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty 
leviable under the provisions of this Act or the rules made thereunder - section73(1) of CGST Act. 
The provisions apply to recovery of interest also. 
 
Notice to be issued at least three months before time limit of issue of order - Notice should be issued 
at least three months before time limit specified in section 73(10) - section 73(2) of CGST Act. 
Statement  instead  of detailed SCN if SCN on same grounds  was issued for earlier  period - Once a 
SCN has been issued, repeat notices are required ti l matter is finally adjudicated. Where a notice has been 
issued for any earlier period under section 73(1), 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 SCN, on the person chargeable with tax - section 73(3) 
of CGST Act. 
The service of such statement shall be deemed to be service of notice on such person, if the grounds relied 
upon for such tax periods are the same as are mentioned in the earlier notice - section73(4) of CGST Act. 
This is only to save paper work at department, where show cause notice on same grounds was issued for 
earlier period. 
Taxable Person  can pay tax on own before SCN - The person chargeable with tax may, before service of 
notice under section 73(1) or statement under section 73(3), pay the amount of tax along with interest payable 
about:blank 22/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
thereon under section 50 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 73(5) of CGST Act. 
The proper officer, on receipt of such information, shall not serve any show cause notice in respect of the tax 
so paid or any penalty leviable under the provisions of this Act or the rules made thereunder - section 73(6) of 
CGST Act. 
However, if the taxable person has not paid self assessed tax or any amount co lected as tax within 30 days 
from due date of payment, penalty of 10% of tax will be payable - section 73(11) of CGST Act. 
This is to promote vol untary compliance and reduce litigation. 
 
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be closed. However, 
prosecution under section 132 of CGST Act can continue - Explanation (1)(i) to section 73 of CGST Act. 
Where the notice under the same proceedings is issued to the main person liable to pay tax and some other 
persons, and such proceedings against the main person have been concluded under section 73 or section 74, 
the proceedings  against a l the persons liable to pay penalty under sections 122, 125, 129 and 130 are 
deemed to be concluded - Explanation (1)( i) to section 73 of CGST Act. 
Any notice even for penalty or late fee or co-noticees cannot be issued. 
 
Show cause notice if amount  short  paid by taxable person - Where the proper officer is of the opinion 
that the amount paid under section 73(5) fa ls short of the amount actua ly payable, he shall proceed to issue 
the notice under section 73(1), in respect of such amount which fa ls short of the amount actua ly payable - 
section 73(7) of CGST Act. 
No penalty if tax with interest  paid within 30 days from issue of SCN - Where any person chargeable 
with tax under section 73(1) or 73(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 a l proceedings in respect of the said 
tax shall be deemed to be concluded - section73(8) of CGST Act. 
'A l proceedings in respect of the said tax shall be deemed to be concluded' means any further notice even to 
co-noticee for penalty, late fee etc. cannot be issued. However, prosecution under section 132 of CGST Act 
can continue. 
Further, if the taxable person has not paid self assessed tax or any amount co lected as tax within 30 days from 
due date of payment, penalty of 10% of tax will be payable - section 73(11) of CGST Act. 
Demand with maximum 10% penalty - If taxable person does not voluntarily pay the tax and interest, the 
proper officer sha l, after considering the representation, if any, made by person chargeable with tax, determine 
the amount of tax, interest and a penalty equivalent to ten percent of tax or ten thousand rupees, whichever is 
higher, due from such person and issue an order - section73(9) of CGST Act. 
Penalty equivalent to 10% means lower penalty cannot be imposed. 
 
Time limit  for  issue  of order  is three  years  -  The proper officer shall issue the order under section 
73(9)within three years from the due date for furnishing annual return for the year to which the tax not paid or 
short paid or input tax credit wrongly availed or utilized relates to or as the case may be, within three years 
from the date of erroneous refund -section73(10) of CGST Act. 
Note that the time limit is for issue of demand order and not only for issuing show cause notice. 
 
However, if the Show Cause Notice was issued but kept pending as department had f iled appeal against an 
order adverse to revenue in some other proceedi ngs on same issue, and appeal of department is pending 
before Appe late Tribunal, High Court or Supreme Court, that time will not be counted for calculating three 
Page 3


about:blank 11/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 28 -Demands  and recovery 
 
 
 
 
 
CHAPTER 28 
 
Demands and recovery 
 
28.1 Demands for tax short paid or not paid or erroneously refunded 
 
Since tax is payable on self assessment basis, it is possible that the taxable person may not have correctly paid 
the tax or may not have paid the tax at a l. It is also possible that the taxable person might have claimed refund 
and got refund of tax or input tax credit. 
In such case, department can issue show cause notice and adjudicate the demand. 
 
In normal cases, such order is required to be passed within three years from the due date of filing return. 
However, if the non-payment was on account of fraud, wilful mis-statement or suppression of facts to evade 
tax, the order can be passed within five years from the due date of f iling return. 
The provisions apply to recovery of interest also. 
 
28.2 Demand when no charge of fraud, wilful mis-statement or suppression of facts 
 
Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or 
where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or 
any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable 
with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously 
been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause why he should 
not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty 
leviable under the provisions of this Act or the rules made thereunder - section73(1) of CGST Act. 
The provisions apply to recovery of interest also. 
 
Notice to be issued at least three months before time limit of issue of order - Notice should be issued 
at least three months before time limit specified in section 73(10) - section 73(2) of CGST Act. 
Statement  instead  of detailed SCN if SCN on same grounds  was issued for earlier  period - Once a 
SCN has been issued, repeat notices are required ti l matter is finally adjudicated. Where a notice has been 
issued for any earlier period under section 73(1), 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 SCN, on the person chargeable with tax - section 73(3) 
of CGST Act. 
The service of such statement shall be deemed to be service of notice on such person, if the grounds relied 
upon for such tax periods are the same as are mentioned in the earlier notice - section73(4) of CGST Act. 
This is only to save paper work at department, where show cause notice on same grounds was issued for 
earlier period. 
Taxable Person  can pay tax on own before SCN - The person chargeable with tax may, before service of 
notice under section 73(1) or statement under section 73(3), pay the amount of tax along with interest payable 
about:blank 22/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
thereon under section 50 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 73(5) of CGST Act. 
The proper officer, on receipt of such information, shall not serve any show cause notice in respect of the tax 
so paid or any penalty leviable under the provisions of this Act or the rules made thereunder - section 73(6) of 
CGST Act. 
However, if the taxable person has not paid self assessed tax or any amount co lected as tax within 30 days 
from due date of payment, penalty of 10% of tax will be payable - section 73(11) of CGST Act. 
This is to promote vol untary compliance and reduce litigation. 
 
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be closed. However, 
prosecution under section 132 of CGST Act can continue - Explanation (1)(i) to section 73 of CGST Act. 
Where the notice under the same proceedings is issued to the main person liable to pay tax and some other 
persons, and such proceedings against the main person have been concluded under section 73 or section 74, 
the proceedings  against a l the persons liable to pay penalty under sections 122, 125, 129 and 130 are 
deemed to be concluded - Explanation (1)( i) to section 73 of CGST Act. 
Any notice even for penalty or late fee or co-noticees cannot be issued. 
 
Show cause notice if amount  short  paid by taxable person - Where the proper officer is of the opinion 
that the amount paid under section 73(5) fa ls short of the amount actua ly payable, he shall proceed to issue 
the notice under section 73(1), in respect of such amount which fa ls short of the amount actua ly payable - 
section 73(7) of CGST Act. 
No penalty if tax with interest  paid within 30 days from issue of SCN - Where any person chargeable 
with tax under section 73(1) or 73(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 a l proceedings in respect of the said 
tax shall be deemed to be concluded - section73(8) of CGST Act. 
'A l proceedings in respect of the said tax shall be deemed to be concluded' means any further notice even to 
co-noticee for penalty, late fee etc. cannot be issued. However, prosecution under section 132 of CGST Act 
can continue. 
Further, if the taxable person has not paid self assessed tax or any amount co lected as tax within 30 days from 
due date of payment, penalty of 10% of tax will be payable - section 73(11) of CGST Act. 
Demand with maximum 10% penalty - If taxable person does not voluntarily pay the tax and interest, the 
proper officer sha l, after considering the representation, if any, made by person chargeable with tax, determine 
the amount of tax, interest and a penalty equivalent to ten percent of tax or ten thousand rupees, whichever is 
higher, due from such person and issue an order - section73(9) of CGST Act. 
Penalty equivalent to 10% means lower penalty cannot be imposed. 
 
Time limit  for  issue  of order  is three  years  -  The proper officer shall issue the order under section 
73(9)within three years from the due date for furnishing annual return for the year to which the tax not paid or 
short paid or input tax credit wrongly availed or utilized relates to or as the case may be, within three years 
from the date of erroneous refund -section73(10) of CGST Act. 
Note that the time limit is for issue of demand order and not only for issuing show cause notice. 
 
However, if the Show Cause Notice was issued but kept pending as department had f iled appeal against an 
order adverse to revenue in some other proceedi ngs on same issue, and appeal of department is pending 
before Appe late Tribunal, High Court or Supreme Court, that time will not be counted for calculating three 
about:blank 33/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
year/five year limit - section 75(11) of CGST Act. 
 
[In such cases, the SCN is transferred to 'ca l book' in customs department]. 
 
28.2-1 Demand when there is fraud, wilful mis-statement or suppression of facts 
 
Where it appears to proper officer that any tax has not been paid or short paid or erroneously refunded or 
where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful- misstatement 
or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not 
been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has 
wrongly availed or utilized input tax credit. 
The notice should require him to show cause why he should not pay the amount specified in the notice along 
with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice - 
section74(1) of CGST Act. 
The provisions apply to recovery of interest also. 
 
Notice to be issued at least six months before time limit - Notice to be issued at least six months before 
time limit specified in section 74(10) - section 74(2) of CGST Act. 
Statement if SCN on same grounds was issued for earlier period - Once a SCN has been issued, repeat 
notices are required ti l matter is finally adjudicated. Where a notice has been issued for any earlier 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 
SCN, on the person chargeable with tax - section 74(3) of CGST Act. 
The service of such statement under section 74(3) shall be deemed to be service of notice on such person, 
subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any 
wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under section 
74(1) are the same as are mentioned in the earlier notice. - section74(4) of CGST Act. 
 
The specific provision has been as once show cause notice charging suppression or fraud or wilful statement 
has been issued, such charge cannot be sustained for later period, even if issue is same. 
Taxable Person  can pay tax with 15% of tax as penalty on own before SCN - The person chargeable 
with tax may, before service of notice under section 74(1), pay the amount of tax along with interest payable 
thereon under section 50 and 15% of tax as penalty 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 
74(5) of CGST Act. 
 
The proper officer, on receipt of such information, shall not serve any show cause notice in respect of the tax 
so paid or any penalty leviable under the provisions of this Act or the rules made thereunder - section74(6) of 
CGST Act. 
This is to promote vol untary compliance and reduce litigation. 
 
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be closed. However, 
prosecution under section 132 of CGST Act can continue - Explanation (1)(i) to section 73 of CGST Act. 
Where the notice under the same proceedings is issued to the main person liable to pay tax and some other 
persons, and such proceedings against the main person have been concluded under section 73 or section 74, 
the proceedings  against a l the persons liable to pay penalty under sections 122, 125, 129 and 130 are 
deemed to be concluded - Explanation (1)( i) to section 73 of CGST Act. 
Any notice even for penalty or late fee or co-noticees cannot be issued. 
Page 4


about:blank 11/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 28 -Demands  and recovery 
 
 
 
 
 
CHAPTER 28 
 
Demands and recovery 
 
28.1 Demands for tax short paid or not paid or erroneously refunded 
 
Since tax is payable on self assessment basis, it is possible that the taxable person may not have correctly paid 
the tax or may not have paid the tax at a l. It is also possible that the taxable person might have claimed refund 
and got refund of tax or input tax credit. 
In such case, department can issue show cause notice and adjudicate the demand. 
 
In normal cases, such order is required to be passed within three years from the due date of filing return. 
However, if the non-payment was on account of fraud, wilful mis-statement or suppression of facts to evade 
tax, the order can be passed within five years from the due date of f iling return. 
The provisions apply to recovery of interest also. 
 
28.2 Demand when no charge of fraud, wilful mis-statement or suppression of facts 
 
Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or 
where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or 
any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable 
with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously 
been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause why he should 
not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty 
leviable under the provisions of this Act or the rules made thereunder - section73(1) of CGST Act. 
The provisions apply to recovery of interest also. 
 
Notice to be issued at least three months before time limit of issue of order - Notice should be issued 
at least three months before time limit specified in section 73(10) - section 73(2) of CGST Act. 
Statement  instead  of detailed SCN if SCN on same grounds  was issued for earlier  period - Once a 
SCN has been issued, repeat notices are required ti l matter is finally adjudicated. Where a notice has been 
issued for any earlier period under section 73(1), 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 SCN, on the person chargeable with tax - section 73(3) 
of CGST Act. 
The service of such statement shall be deemed to be service of notice on such person, if the grounds relied 
upon for such tax periods are the same as are mentioned in the earlier notice - section73(4) of CGST Act. 
This is only to save paper work at department, where show cause notice on same grounds was issued for 
earlier period. 
Taxable Person  can pay tax on own before SCN - The person chargeable with tax may, before service of 
notice under section 73(1) or statement under section 73(3), pay the amount of tax along with interest payable 
about:blank 22/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
thereon under section 50 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 73(5) of CGST Act. 
The proper officer, on receipt of such information, shall not serve any show cause notice in respect of the tax 
so paid or any penalty leviable under the provisions of this Act or the rules made thereunder - section 73(6) of 
CGST Act. 
However, if the taxable person has not paid self assessed tax or any amount co lected as tax within 30 days 
from due date of payment, penalty of 10% of tax will be payable - section 73(11) of CGST Act. 
This is to promote vol untary compliance and reduce litigation. 
 
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be closed. However, 
prosecution under section 132 of CGST Act can continue - Explanation (1)(i) to section 73 of CGST Act. 
Where the notice under the same proceedings is issued to the main person liable to pay tax and some other 
persons, and such proceedings against the main person have been concluded under section 73 or section 74, 
the proceedings  against a l the persons liable to pay penalty under sections 122, 125, 129 and 130 are 
deemed to be concluded - Explanation (1)( i) to section 73 of CGST Act. 
Any notice even for penalty or late fee or co-noticees cannot be issued. 
 
Show cause notice if amount  short  paid by taxable person - Where the proper officer is of the opinion 
that the amount paid under section 73(5) fa ls short of the amount actua ly payable, he shall proceed to issue 
the notice under section 73(1), in respect of such amount which fa ls short of the amount actua ly payable - 
section 73(7) of CGST Act. 
No penalty if tax with interest  paid within 30 days from issue of SCN - Where any person chargeable 
with tax under section 73(1) or 73(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 a l proceedings in respect of the said 
tax shall be deemed to be concluded - section73(8) of CGST Act. 
'A l proceedings in respect of the said tax shall be deemed to be concluded' means any further notice even to 
co-noticee for penalty, late fee etc. cannot be issued. However, prosecution under section 132 of CGST Act 
can continue. 
Further, if the taxable person has not paid self assessed tax or any amount co lected as tax within 30 days from 
due date of payment, penalty of 10% of tax will be payable - section 73(11) of CGST Act. 
Demand with maximum 10% penalty - If taxable person does not voluntarily pay the tax and interest, the 
proper officer sha l, after considering the representation, if any, made by person chargeable with tax, determine 
the amount of tax, interest and a penalty equivalent to ten percent of tax or ten thousand rupees, whichever is 
higher, due from such person and issue an order - section73(9) of CGST Act. 
Penalty equivalent to 10% means lower penalty cannot be imposed. 
 
Time limit  for  issue  of order  is three  years  -  The proper officer shall issue the order under section 
73(9)within three years from the due date for furnishing annual return for the year to which the tax not paid or 
short paid or input tax credit wrongly availed or utilized relates to or as the case may be, within three years 
from the date of erroneous refund -section73(10) of CGST Act. 
Note that the time limit is for issue of demand order and not only for issuing show cause notice. 
 
However, if the Show Cause Notice was issued but kept pending as department had f iled appeal against an 
order adverse to revenue in some other proceedi ngs on same issue, and appeal of department is pending 
before Appe late Tribunal, High Court or Supreme Court, that time will not be counted for calculating three 
about:blank 33/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
year/five year limit - section 75(11) of CGST Act. 
 
[In such cases, the SCN is transferred to 'ca l book' in customs department]. 
 
28.2-1 Demand when there is fraud, wilful mis-statement or suppression of facts 
 
Where it appears to proper officer that any tax has not been paid or short paid or erroneously refunded or 
where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful- misstatement 
or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not 
been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has 
wrongly availed or utilized input tax credit. 
The notice should require him to show cause why he should not pay the amount specified in the notice along 
with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice - 
section74(1) of CGST Act. 
The provisions apply to recovery of interest also. 
 
Notice to be issued at least six months before time limit - Notice to be issued at least six months before 
time limit specified in section 74(10) - section 74(2) of CGST Act. 
Statement if SCN on same grounds was issued for earlier period - Once a SCN has been issued, repeat 
notices are required ti l matter is finally adjudicated. Where a notice has been issued for any earlier 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 
SCN, on the person chargeable with tax - section 74(3) of CGST Act. 
The service of such statement under section 74(3) shall be deemed to be service of notice on such person, 
subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any 
wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under section 
74(1) are the same as are mentioned in the earlier notice. - section74(4) of CGST Act. 
 
The specific provision has been as once show cause notice charging suppression or fraud or wilful statement 
has been issued, such charge cannot be sustained for later period, even if issue is same. 
Taxable Person  can pay tax with 15% of tax as penalty on own before SCN - The person chargeable 
with tax may, before service of notice under section 74(1), pay the amount of tax along with interest payable 
thereon under section 50 and 15% of tax as penalty 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 
74(5) of CGST Act. 
 
The proper officer, on receipt of such information, shall not serve any show cause notice in respect of the tax 
so paid or any penalty leviable under the provisions of this Act or the rules made thereunder - section74(6) of 
CGST Act. 
This is to promote vol untary compliance and reduce litigation. 
 
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be closed. However, 
prosecution under section 132 of CGST Act can continue - Explanation (1)(i) to section 73 of CGST Act. 
Where the notice under the same proceedings is issued to the main person liable to pay tax and some other 
persons, and such proceedings against the main person have been concluded under section 73 or section 74, 
the proceedings  against a l the persons liable to pay penalty under sections 122, 125, 129 and 130 are 
deemed to be concluded - Explanation (1)( i) to section 73 of CGST Act. 
Any notice even for penalty or late fee or co-noticees cannot be issued. 
about:blank 44/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Show cause notice if amount  short paid - Where the proper officer is of the opinion that the amount paid 
under section 74(5) fa ls short of the amount actua ly payable, he shall proceed to issue the notice as provided 
in section 74(1) in respect of such amount which fa ls short of the amount actua ly payable - section 74(7) of 
CGST Act. 
25% penalty if tax with interest paid within 30 days from issue of SCN - Where any person chargeable 
with tax pays the said tax along with interest payable under section 50 and 25% of tax as penalty within thirty 
days of issue of show cause notice, a l proceedings in respect of the said tax shall be deemed to be concluded 
- section74(8) of CGST Act. 
 
'A l proceedings in respect of the said tax shall be deemed to be concluded' means any further notice even to 
co-noticee for penalty, late fee etc. cannot be issued. However, prosecution under section 132 of CGST Act 
can continue. 
Demand with penalty equal  to tax, in case of suppression,  misstatement  etc. - If taxable person does 
not voluntarily pay the tax and interest, the proper officer sha l, after considering the representation, if any, 
made by person chargeable with tax, determine the amount of tax, interest and penalty equal to tax, due from 
such person and issue an order - section74(9) of CGST Act. 
There  is no discretion to reduce  penalty in case of fraud,  suppression of facts and wilful mis-statement. 
However, if the taxable person pays tax, interest and 50% penalty within 30 days of communication of order, 
balance 50% penalty stands waived - section74(11) of CGST Act. 
Time limit for issue of order is five years in case of suppression,  wilful misstatement  - The proper 
officer shall issue the order under section 74(9) within five years from the due date for furnishing of annual 
return for the 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 refund - section74(10) of CGST Act. 
Note that the time limit is for issue of demand order and not only for issuing show cause notice. 
 
However, an issue on which the Appe late Authority or the Appe late Tribunal or the High Court has given its 
decision which is prejudicial to the interest of revenue  in some  other proceedings  and an appeal to the 
Appe late Tribunal or the High Court or the Supreme Court against such decision of the Appe late Authority or 
the Appe late Tribunal or the High Court is pending, the period spent between the date of the decision of the 
Appe late Authority and that of the Appe late Tribunal or the date of decision of the Appe late Tribunal and 
that of the High Court or the date of the decision of the High Court and that of the Supreme Court shall be 
excluded  in computing the period referred to in section 73(10) or section 74(10) where proceedings  are 
initiated by way of issue of a show cause notice under said sections - section 75(11) of CGST Act. 
Thus, if the Show Cause Notice was issued but kept pending as department had f iled appeal against an order 
adverse to revenue in some other proceedings on same issue, and appeal of department is pending before 
Appe late Tribunal, High Court or Supreme Court, that time will not be counted for calculating three year/five 
year limit. 
[In such cases, the SCN is transferred to 'ca l book' in customs department. Possibly same practice may be 
fo lowed in GST]. 
28.3 Meaning of fraud or any wilful-misstatement or suppression of facts to evade tax 
 
Time  limit  for  raising  demand  and  penalty  amount  increases  if there  is  charge  of fraud  or  any  wilful- 
misstatement or suppression of facts to evade tax. Hence, this issue becomes litigation prone. 
The expression "suppression" shall mean non-declaration of facts or information which a taxable person is 
required to declare in the return, statement, report or any other document furnished under this Act or the rules 
Page 5


about:blank 11/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 28 -Demands  and recovery 
 
 
 
 
 
CHAPTER 28 
 
Demands and recovery 
 
28.1 Demands for tax short paid or not paid or erroneously refunded 
 
Since tax is payable on self assessment basis, it is possible that the taxable person may not have correctly paid 
the tax or may not have paid the tax at a l. It is also possible that the taxable person might have claimed refund 
and got refund of tax or input tax credit. 
In such case, department can issue show cause notice and adjudicate the demand. 
 
In normal cases, such order is required to be passed within three years from the due date of filing return. 
However, if the non-payment was on account of fraud, wilful mis-statement or suppression of facts to evade 
tax, the order can be passed within five years from the due date of f iling return. 
The provisions apply to recovery of interest also. 
 
28.2 Demand when no charge of fraud, wilful mis-statement or suppression of facts 
 
Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or 
where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or 
any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable 
with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously 
been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause why he should 
not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty 
leviable under the provisions of this Act or the rules made thereunder - section73(1) of CGST Act. 
The provisions apply to recovery of interest also. 
 
Notice to be issued at least three months before time limit of issue of order - Notice should be issued 
at least three months before time limit specified in section 73(10) - section 73(2) of CGST Act. 
Statement  instead  of detailed SCN if SCN on same grounds  was issued for earlier  period - Once a 
SCN has been issued, repeat notices are required ti l matter is finally adjudicated. Where a notice has been 
issued for any earlier period under section 73(1), 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 SCN, on the person chargeable with tax - section 73(3) 
of CGST Act. 
The service of such statement shall be deemed to be service of notice on such person, if the grounds relied 
upon for such tax periods are the same as are mentioned in the earlier notice - section73(4) of CGST Act. 
This is only to save paper work at department, where show cause notice on same grounds was issued for 
earlier period. 
Taxable Person  can pay tax on own before SCN - The person chargeable with tax may, before service of 
notice under section 73(1) or statement under section 73(3), pay the amount of tax along with interest payable 
about:blank 22/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
thereon under section 50 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 73(5) of CGST Act. 
The proper officer, on receipt of such information, shall not serve any show cause notice in respect of the tax 
so paid or any penalty leviable under the provisions of this Act or the rules made thereunder - section 73(6) of 
CGST Act. 
However, if the taxable person has not paid self assessed tax or any amount co lected as tax within 30 days 
from due date of payment, penalty of 10% of tax will be payable - section 73(11) of CGST Act. 
This is to promote vol untary compliance and reduce litigation. 
 
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be closed. However, 
prosecution under section 132 of CGST Act can continue - Explanation (1)(i) to section 73 of CGST Act. 
Where the notice under the same proceedings is issued to the main person liable to pay tax and some other 
persons, and such proceedings against the main person have been concluded under section 73 or section 74, 
the proceedings  against a l the persons liable to pay penalty under sections 122, 125, 129 and 130 are 
deemed to be concluded - Explanation (1)( i) to section 73 of CGST Act. 
Any notice even for penalty or late fee or co-noticees cannot be issued. 
 
Show cause notice if amount  short  paid by taxable person - Where the proper officer is of the opinion 
that the amount paid under section 73(5) fa ls short of the amount actua ly payable, he shall proceed to issue 
the notice under section 73(1), in respect of such amount which fa ls short of the amount actua ly payable - 
section 73(7) of CGST Act. 
No penalty if tax with interest  paid within 30 days from issue of SCN - Where any person chargeable 
with tax under section 73(1) or 73(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 a l proceedings in respect of the said 
tax shall be deemed to be concluded - section73(8) of CGST Act. 
'A l proceedings in respect of the said tax shall be deemed to be concluded' means any further notice even to 
co-noticee for penalty, late fee etc. cannot be issued. However, prosecution under section 132 of CGST Act 
can continue. 
Further, if the taxable person has not paid self assessed tax or any amount co lected as tax within 30 days from 
due date of payment, penalty of 10% of tax will be payable - section 73(11) of CGST Act. 
Demand with maximum 10% penalty - If taxable person does not voluntarily pay the tax and interest, the 
proper officer sha l, after considering the representation, if any, made by person chargeable with tax, determine 
the amount of tax, interest and a penalty equivalent to ten percent of tax or ten thousand rupees, whichever is 
higher, due from such person and issue an order - section73(9) of CGST Act. 
Penalty equivalent to 10% means lower penalty cannot be imposed. 
 
Time limit  for  issue  of order  is three  years  -  The proper officer shall issue the order under section 
73(9)within three years from the due date for furnishing annual return for the year to which the tax not paid or 
short paid or input tax credit wrongly availed or utilized relates to or as the case may be, within three years 
from the date of erroneous refund -section73(10) of CGST Act. 
Note that the time limit is for issue of demand order and not only for issuing show cause notice. 
 
However, if the Show Cause Notice was issued but kept pending as department had f iled appeal against an 
order adverse to revenue in some other proceedi ngs on same issue, and appeal of department is pending 
before Appe late Tribunal, High Court or Supreme Court, that time will not be counted for calculating three 
about:blank 33/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
year/five year limit - section 75(11) of CGST Act. 
 
[In such cases, the SCN is transferred to 'ca l book' in customs department]. 
 
28.2-1 Demand when there is fraud, wilful mis-statement or suppression of facts 
 
Where it appears to proper officer that any tax has not been paid or short paid or erroneously refunded or 
where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful- misstatement 
or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not 
been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has 
wrongly availed or utilized input tax credit. 
The notice should require him to show cause why he should not pay the amount specified in the notice along 
with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice - 
section74(1) of CGST Act. 
The provisions apply to recovery of interest also. 
 
Notice to be issued at least six months before time limit - Notice to be issued at least six months before 
time limit specified in section 74(10) - section 74(2) of CGST Act. 
Statement if SCN on same grounds was issued for earlier period - Once a SCN has been issued, repeat 
notices are required ti l matter is finally adjudicated. Where a notice has been issued for any earlier 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 
SCN, on the person chargeable with tax - section 74(3) of CGST Act. 
The service of such statement under section 74(3) shall be deemed to be service of notice on such person, 
subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any 
wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under section 
74(1) are the same as are mentioned in the earlier notice. - section74(4) of CGST Act. 
 
The specific provision has been as once show cause notice charging suppression or fraud or wilful statement 
has been issued, such charge cannot be sustained for later period, even if issue is same. 
Taxable Person  can pay tax with 15% of tax as penalty on own before SCN - The person chargeable 
with tax may, before service of notice under section 74(1), pay the amount of tax along with interest payable 
thereon under section 50 and 15% of tax as penalty 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 
74(5) of CGST Act. 
 
The proper officer, on receipt of such information, shall not serve any show cause notice in respect of the tax 
so paid or any penalty leviable under the provisions of this Act or the rules made thereunder - section74(6) of 
CGST Act. 
This is to promote vol untary compliance and reduce litigation. 
 
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be closed. However, 
prosecution under section 132 of CGST Act can continue - Explanation (1)(i) to section 73 of CGST Act. 
Where the notice under the same proceedings is issued to the main person liable to pay tax and some other 
persons, and such proceedings against the main person have been concluded under section 73 or section 74, 
the proceedings  against a l the persons liable to pay penalty under sections 122, 125, 129 and 130 are 
deemed to be concluded - Explanation (1)( i) to section 73 of CGST Act. 
Any notice even for penalty or late fee or co-noticees cannot be issued. 
about:blank 44/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Show cause notice if amount  short paid - Where the proper officer is of the opinion that the amount paid 
under section 74(5) fa ls short of the amount actua ly payable, he shall proceed to issue the notice as provided 
in section 74(1) in respect of such amount which fa ls short of the amount actua ly payable - section 74(7) of 
CGST Act. 
25% penalty if tax with interest paid within 30 days from issue of SCN - Where any person chargeable 
with tax pays the said tax along with interest payable under section 50 and 25% of tax as penalty within thirty 
days of issue of show cause notice, a l proceedings in respect of the said tax shall be deemed to be concluded 
- section74(8) of CGST Act. 
 
'A l proceedings in respect of the said tax shall be deemed to be concluded' means any further notice even to 
co-noticee for penalty, late fee etc. cannot be issued. However, prosecution under section 132 of CGST Act 
can continue. 
Demand with penalty equal  to tax, in case of suppression,  misstatement  etc. - If taxable person does 
not voluntarily pay the tax and interest, the proper officer sha l, after considering the representation, if any, 
made by person chargeable with tax, determine the amount of tax, interest and penalty equal to tax, due from 
such person and issue an order - section74(9) of CGST Act. 
There  is no discretion to reduce  penalty in case of fraud,  suppression of facts and wilful mis-statement. 
However, if the taxable person pays tax, interest and 50% penalty within 30 days of communication of order, 
balance 50% penalty stands waived - section74(11) of CGST Act. 
Time limit for issue of order is five years in case of suppression,  wilful misstatement  - The proper 
officer shall issue the order under section 74(9) within five years from the due date for furnishing of annual 
return for the 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 refund - section74(10) of CGST Act. 
Note that the time limit is for issue of demand order and not only for issuing show cause notice. 
 
However, an issue on which the Appe late Authority or the Appe late Tribunal or the High Court has given its 
decision which is prejudicial to the interest of revenue  in some  other proceedings  and an appeal to the 
Appe late Tribunal or the High Court or the Supreme Court against such decision of the Appe late Authority or 
the Appe late Tribunal or the High Court is pending, the period spent between the date of the decision of the 
Appe late Authority and that of the Appe late Tribunal or the date of decision of the Appe late Tribunal and 
that of the High Court or the date of the decision of the High Court and that of the Supreme Court shall be 
excluded  in computing the period referred to in section 73(10) or section 74(10) where proceedings  are 
initiated by way of issue of a show cause notice under said sections - section 75(11) of CGST Act. 
Thus, if the Show Cause Notice was issued but kept pending as department had f iled appeal against an order 
adverse to revenue in some other proceedings on same issue, and appeal of department is pending before 
Appe late Tribunal, High Court or Supreme Court, that time will not be counted for calculating three year/five 
year limit. 
[In such cases, the SCN is transferred to 'ca l book' in customs department. Possibly same practice may be 
fo lowed in GST]. 
28.3 Meaning of fraud or any wilful-misstatement or suppression of facts to evade tax 
 
Time  limit  for  raising  demand  and  penalty  amount  increases  if there  is  charge  of fraud  or  any  wilful- 
misstatement or suppression of facts to evade tax. Hence, this issue becomes litigation prone. 
The expression "suppression" shall mean non-declaration of facts or information which a taxable person is 
required to declare in the return, statement, report or any other document furnished under this Act or the rules 
about:blank 55/18 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer - 
Explanation 2 to section 74 of CGST Act. 
 
There can be no suppression of facts if facts which are not required to be disclosed are not disclosed - Smt. 
Shirisht Dhawan v. Shaw Brothers - 1992 (1) SCC 534 = 1992 AIR SCW 1649 = AIR 1992 SC 1555* 
CCE v. Ranka Wires (2015) 322 ELT 410 (SC). 
28.3-1 Suppression should be wilful 
 
Supreme Court in Rainbow Industries v. CCE - 1994 (74) ELT 3 (SC) = 1994 (6) SCC 563 = AIR 1994 
SC 2783 = 1994 AIR SCW 4465 have held that in order for the extended period to apply, two ingredients 
must be present - wilful suppression, mis-declaration etc., and the intention to evade duty - fo lowed in ONGC 
v. CCE - 1995 (79) ELT 117 (CEGAT). Same view in Tamil Nadu Housing Board v. CCE - 1995 Suppl 
(1) SCC 50 = 74 ELT 9 (SC). In this case, it was held that the powers to extend period from one year to 5 
years are exceptional powers and hence have to be construed strictly. 
Intention to evade payment of duty is not mere failure to pay duty. It must be something more, i.e. that 
assessee must be aware that duty was leviable and he must deliberately avoid payment of duty. 'Evade' means 
defeating the provision of law of paying duty. It is made more stri ngent by the use of word 'intent'. In other 
words, the assessee must deliberately avoid payment of duty payable under the law. Where there was scope 
of doubt whether duty was payable or not, it is not 'intention to evade duty'. - Tamilnadu Housing Board v. 
CCE 1995 Supp(1) SCC 50 = 1994 (74) ELT 9 (SC) = 55 ECR 7. In this case, it was held that the powers 
to extend period from one year to 5 years are exceptional powers and hence have to be construed strictly. 
28.3-2 No suppression if all facts were disclosed 
 
If a l facts have been disclosed to department, extended period is not applicable - Nestler Boilers (P.) Ltd. v. 
Collector - 1990 (50) ELT 613 (CEGAT) * National Rifles v. CCE 1999(112) ELT 483 (CEGAT) * P R 
Rolling v. CCE (2010) 249 ELT 232 (CESTAT) * Alumeco India Extrusion v. CCE (2010) 249 ELT 577 
(CESTAT) * Delhi Public School Society v. CST (2014) 43 GST 421 = 41 Latest Case377 = 75 VST 
350 (CESTAT) * CC v. A S Moloobhoy and Sons (2015) 51 GST 110 = 57 Latest Case297 (SC). 
 
28.3-3 Mere inaction or mere non-disclosure is not Suppression of Facts 
 
Suppression means not providing information which the person is lega ly required to state, but is intentiona ly or 
deliberately not stated. 
Hon. Supreme Court, in Collector v. Chemphar Drugs 40 ELT 276 = 1989 (2) SCC 127 = AIR 1989 SC 
832, has held that mere inaction or failure on part of manufacturer will not amount to suppression of facts. 
Conscious or deliberate withholding of information when the manufacturer knew otherwise, is required to be 
established,  before saddling the manufacturer  with liability for extended  period [reiterated  in Lubri-Chem 
Industries Ltd. v. Collector - 1994 (73) ELT 257 (SC) = 1994(2) Supp SCC III 258 = 1994 AIR SCW 
3672 = AIR 1994 SC 2604 = 1994(4) RLT 239 (SC)] - same view in M K Kotecha v. CCE AIR 2005 SC 
1147 = 179 ELT 261 (SC 3 member bench) * Nestle India v. CCE (2009) 235 ELT 577 (SC). 
 
In the case of Padmini Products v. CCE - 1989 (43) ELT 195 (SC) = (1989) 4 SCC 275 = AIR 1989 SC 
2278 = 25 ECR 289 = (1990) 76 STC 411 (SC), it has been held by Apex Court that mere non-declaration 
is not sufficient to i nvoke larger period but some more positive act is required. It was held that mere failure or 
negligence on part of manufacturer to take licence or pay duty in case where there was scope for doubt as to 
whether goods were dutiable or not, could not attract the extended limitation. In this case, the assessee did not 
obtain excise licence under belief that the goods are exempt from duty. There was scope of doubt regarding 
liability of duty. Hence, demand for period beyond period of one year (that time six months) was set aside - 
fo lowed in Jaiprakash Industries v. CCE 2002 AIR SCW 4840 = (2003) 1 SCC 67 = 146 ELT 481 (SC