Determination of Tax Without Fraud or Wilful Misstatement – Section 73 of GST

Section 73 of the CGST Act, 2017 plays a crucial role in the determination and recovery of taxes where there is no element of fraud, wilful misstatement, or suppression of facts. The section specifically applies to cases where tax has been short paid, not paid, erroneously refunded, or input tax credit (ITC) has been wrongly availed or utilised, for reasons other than fraud or deliberate tax evasion.

As per the recent amendment inserted by Section 136 of the Finance Act (No. 2), 2024, Section 73 now explicitly applies only up to the financial year 2023–24.

Let’s break down the key provisions, procedures, and implications of Section 73 of the CGST Act.

Scope of Section 73

Section 73 addresses situations where:

• Tax has not been paid or short paid.

• Refunds have been erroneously granted.

• Input tax credit has been wrongly availed or utilised.

However, it only applies when these discrepancies are not a result of fraud, wilful misstatement, or suppression of facts. Such cases are dealt with separately under Section 74 of the CGST Act.

Issuance of Show Cause Notice [Section 73(1)]

If the proper officer finds any discrepancy in payment of tax or utilisation of ITC, they shall issue a show cause notice (SCN) to the concerned taxpayer. This notice demands an explanation for:

• Non-payment or short payment of tax,

• Wrongful ITC claims, or

• Erroneous refunds.

The SCN must also include the amount of interest under Section 50 of the CGST Act and applicable penalty.

Time Limit for Issuance of Notice [Section 73(2)]

The notice must be issued at least three months before the time limit prescribed under Section 73(10) for passing the adjudication order.

Service of Statement for Additional Periods [Section 73(3) & (4)]

For subsequent periods not covered in the original SCN, the officer can issue a statement with relevant details. This statement is treated as a deemed SCN, provided the grounds are the same as the original notice.

Voluntary Tax Payment Before SCN

Pre-Notice Payment Option [Section 73(5) & (6)]

Before the SCN or statement is served, the taxpayer may voluntarily pay the tax and interest and inform the proper officer in writing. If satisfied, the officer will not issue any notice for that particular shortfall, nor impose any penalty.

Shortfall in Payment [Section 73(7)]

If the officer finds that the amount paid voluntarily is less than the actual liability, they may proceed to issue the SCN for the remaining amount.

Benefits of Timely Compliance After SCN

Payment Within 30 Days of SCN [Section 73(8)]

If the taxpayer pays the demanded tax and interest within 30 days of receiving the SCN, no penalty will be levied, and the proceedings will be considered closed.

Final Adjudication and Penalty

Determination and Order [Section 73(9)]

The proper officer, after evaluating the taxpayer’s response, will determine the final liability and issue an order. A penalty of 10% of tax or ₹10,000, whichever is higher, is levied, unless already paid under Section 73(8).

Time Limit for Passing Order [Section 73(10)]

The officer must issue the adjudication order within three years from:

• The due date of filing the annual return for the relevant financial year, or

• The date of erroneous refund.

This strict timeline ensures timely closure of proceedings.

Exceptions: Mandatory Penalty in Certain Cases

Penalty for Delayed Payment of Self-Assessed Tax [Section 73(11)]

Even if no SCN is issued, if a taxpayer fails to pay self-assessed tax or collected tax within 30 days from the due date, they are liable for penalty under Section 73(9).

Applicability Up to FY 2023-24 Only

Scope Limitation [Section 73(12)]

The section explicitly applies to tax matters only up to the financial year 2023–24. For tax periods from FY 2024–25 onwards, new Section 74A of the CGST Act is applicable.

Related Notification

Taxpayers and professionals must also refer to:

• Notification No. 13/2022 – Central Tax dated 5th July 2022
  (Effective from 1st March 2020)

This notification provides clarity on procedural aspects and updates related to Section 73.

Final Thoughts: Importance of Timely Action Under Section 73

Section 73 of the CGST Act offers a fair opportunity for taxpayers to rectify genuine errors without facing harsh penalties, provided there is no fraudulent intention. With clearly defined timelines and options for voluntary compliance, it promotes a trust-based taxation system.

Taxpayers should:

• Regularly reconcile GST returns and ITC claims.

• Respond promptly to notices from the GST department.

• Consider voluntary payment options to avoid penalties.

• Maintain clear documentation and transaction trail.

As the section’s applicability is now limited to FY 2023–24, it’s crucial for taxpayers to address any pending discrepancies within the prescribed timelines.

Need Expert Help?

If you’re facing GST audits or have received a show cause notice under Section 73, consult with a qualified Chartered Accountant to ensure compliance and minimize legal risks.

For more updates on GST law, notifications, and practical compliance tips, stay tuned to our blog.