In this edition of The Viewpoint, the team from Advaita Legal shares their thoughts on the demand and recovery provisions contemplated under the Goods and Services Bill of 2016.
Introduction:
This note focuses on the provisions dealing with the demands and recovery provisions which are encapsulated under Chapter XIV. We have dealt with the relevant sections in the aforesaid chapter and compared the same with the corresponding provisions (if any) stipulated under the Finance Act, 1994 (“Finance Act”) and a sample VAT legislation [we have used the Delhi Value Added Tax Act, 2004 (“Delhi VAT Act”) as the sample for this].
Relevant provisions:
Model GST Law:
| s. 51A | s. 51B | s. 51C |
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Section 52 of the Model GST Law deals with a situation where the tax (ie., GST) has been collected but, has not been deposited with the appropriate Government. The section provides that a notice has to be issued to the taxpayer and an opportunity of personal hearing should also be given.
Further, the provision states that the proper officer shall pass the order within one year from the date of issue of the notice. Additionally, the provision provides for imposition of penalty, equivalent to the amount specified in the notice, and levy of interest.
Provisions similar to the above in Finance Act and Delhi VAT Act:
Finance Act:
| 73 (1)- non-payment of tax without element of fraud, suppression etc | 73 (1) proviso- non-payment of tax due to fraud, suppression etc |
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Mere statement containing the non-payment or short payment can be served within 30 months, subsequent to the issuance of any notice(s), only if the grounds raised are identical to the ones raised in the previous year.
Section 32 of the Delhi VAT Act states that if a taxpayer has not furnished his returns or has furnished incomplete return then, the Commissioner may assess or reassess the amount of net tax due.
Section 34 provides that the assessment or re-assessment for non-payment shall be done within four (4) years which can be extended to six (6) years where such non-payment is on account of an act of concealment or omission. Further, the taxpayer can file an objection against the assessment order passed in accordance with Section 74 of the Delhi VAT Act.
Comparative analysis and Advaita’s comments:
On the basis of the provisions stated in the foregoing paragraphs, we have discussed a few issues and lacunae in the Model GST Law which might initiate unnecessary litigation on legal principles which have already been settled through a plethora of decisions.
(i) It may be noted that Section 51A and 51B of the GST model law provides for completion of assessment/issue of the order by the proper officer within 3/5 years as the case may be from the date of filing the annual return. However, no time limit has been prescribed for issuance of a show cause notice for initiating the litigation (or demand).
This means that no minimum time gap needs to be maintained between issuance of a SCN and assessment order. Given the casual nature of functioning of the tax departments, they are likely to issue the SCN during the last few months of the aforementioned limitation period, thereby allowing very little or no time to the taxpayer to file their reply.
This would not only lead to unnecessary litigation but also the whole objective of completing the assessment within a given time frame will get vitiated.
(ii) The limitation period for assessment is 3/5 years (as the case may be) from the due date of annual return. For a better understanding of the actual limitation period we have explained the same with the following example:
Thus, the Model GST Law has proposed the limitation period of 4 years 9 months in cases where non-payment is without fraud, suppression etc and 6 years 9 months where the payment is due to fraud, suppression etc – this may be prejudicial to the interest of the taxpayers.
(iii) Here, it is pertinent to discuss that the Model GST Law has also incorporated certain circumstances or situations which would be excluded from the limitation period of 3/5 years. These are:
a. If the service of an SCN is stayed by the court or tribuna
b. If the issuance of the order is stayed by the court or tribunal
c. If a different proceeding involving a similar issue has been decided against the Revenue and Revenue appeal against the same before the relevant appellate forum is pending
It may be noted that the third exception (which seems to be a continuation of the concept of disputes being put in the ‘call book’ in a limited form) is unreasonable and would become a huge impediment in speedy disposal of cases.
The provisions do not give clarity as to who would determine whether the issue is similar or not and in case there are multiple issues then, would the officer decide the case with respect to other issues and if so, what will be the effect of limitation in such a scenario. Thus, these provisions in the Model GST Law promotes pendency in litigation and has left open issues in this aspect.
(iv) The Model GST Law has introduced a section stating that the order cannot travel beyond the allegations or grounds raised in the notice (SCN). This is a welcome change since under the present legal scenario this principle has been established only through decisions of various judicial fora.
(v) Additionally, it may be noted that the Model GST Law does not have a specific section or provision providing for imposition of penalty in cases where there is short payment of tax due to fraud/suppression etc. Simply put, the Model GST Law does not have a corresponding provision for current section 78 of the Finance Act.
Even though Section 51B(1) mentions that penalty imposed would be equivalent to the tax demand, in the absence of a specific section levying the penalty, there may be challenges to such imposition of penalty.
Authored by Kanupriya Bhargava (Managing Associate, Advaita Legal) and Harsh Makhija (Associate, Advaita Legal); with inputs from Sudipta Bhattacharjee (Principal, Advaita Legal)