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Published by Enhelion, 2020-08-24 08:09:05

Module 4

Module 4



Like every other tax collection system, the current system employed in India doesn’t
come without problems. Some of the situations that are likely to arise are :

• When no tax was paid by the taxpayer
• When taxes are paid short
• There was non – levy or short levy
• There fund granted was erroneous
• Input Tax Credit that was wrongly availed or utilised
• There was fraudulent evasion of tax

Under such circumstances, demand needs to be put forth and recovery proceedings need
to be initiated on the taxpayer. The first step is to issue a show-cause notice and to
present it to the taxpayer via the taxman. An adjudication order is further issued on the


Section 73 of the CGST Act provides guidelines when demand is put forward in regards
to payment of tax. When a situation arises wherein the tax is not paid, short-paid, or
erroneously refunded or when the input tax credit is availed or utilised incorrectly ( for
reasons that are not fraudulent) then a detailed procedure for issuance of demand notice
and adjudication is to be followed in accordance with the above-mentioned section.

The CGST Act provides for the procedure for raising demand in situations where there
was fraud, wilful misstatement, suppression of facts1. Further section 75 and its
subsections provide for general provisions in regards to determination of a tax amount.
Section 76 lists out the circumstances under which tax is to be collected by the supplier
when payments are yet not made to the government.

1 Section 74, The Central Goods and Services Tax Act, No. 12 of 2017 (2017).

The above-mentioned sections also address various aspects that are related to demand
and adjudication and are as follows.

● Demand for normal period
● Demand for an extended period
● Self-ascertainment of demand dispensation of notice
● Voluntary payment after issuance of notice
● Adjudication and determination of tax
● Payment that is done voluntarily before issuance of notice for an extended

period and dispensation of notice
● Voluntary payment after the notice for an extended period
● Suppression defined
● other miscellaneous actions relating to demand and adjudication


Provisions that are related to the recovery of tax are further classified into two

● Tax that is short paid or erroneously refunded or when input tax credit is not
availed in accordance with the law.

● When self-assessed tax is not paid or amount collected as representing the tax.2

Encouraging voluntary compliance
There can be situations wherein there is short payment or non-payment of tax. Further,
input tax credit can be wrongly availed due to a bonafide mistake or a deliberate
attempt. The regulatory provisions that govern the recovery of tax are distinct in both
the cases as the nature of the offences mentioned are of its own kind. Additionally, there
are provisions that provide for voluntary compliance by non-issuance of penalty or
lesser penalty if the tax is not paid within the specified time period.

The table below provides a comprehensive summary as to the provisions that encourage
voluntary compliance:

2 Section 73 (1), The Central Goods and Services Tax Act, No. 12 of 2017 (2017)

S. no Action by Amount of Amount of Remarks
2 taxpayer penalty that is penalty that is
4 payable for payable for

normal cases fraud cases

Tax amount that No penalty and 15% of the There would be no

is to be paid with no notice will be taxable amount penalty charged in

the interest issued and no notice cases where the self-

before the will be issued assessed tax or the

issuance of amount of tax

notice collected is paid

Tax amount that No penalty. All 25% of the within 30 days
is to be paid with proceedings are taxable amount. (alongside interest)

interest within 30 assumed to be All the from the due date.

days from the concluded. proceedings

issuance of against the

notice. taxpayer will

cease to exist.

Tax amount that 10% of the tax 25% of the

is to be paid with amount or taxable amount.

interest within 30 rupees 10000 All the

days from the whichever is proceedings

issuance of an higher. against the

order. taxpayer will

cease to exist.

Tax amount that 10% of the tax 100% of the tax

is to be paid with amount or amount

interest within 30 rupees 10000,

days from the whichever is

issuance of higher.


of the order.

There are incentives that are provided to people who accept the liability to pay tax and
readily discharge the same. The law provides the taxpayer with the opportunity to pay
tax alongside interest with a nominal penalty depending on the nature of the offence.
However, if the tax is paid before the issuance of notice there shall be no consequences
for such default.

If the taxpayer does not avail the benefit of these opportunities, then the inevitable
consequences for the same would be to issue a show-cause notice and to pass an order.
3 The GST Act ensures that all of these procedures are completed in accordance with a
fixed timeline for issuance of notice and order. The GST Act further ensures that the
cases are timely disposed by providing a procedure wherein the non-issuance of an
order within the time period of three to five years would deem the adjudication
proceedings to be concluded4. From these provisions, it can be clearly concluded that
the non-payment of self-assessed tax or the amount collected is to be treated differently
than short payments.


There are various enforcement provisions that are integral to the taxation system. These
provisions cover a wide range of issues such as inspection, search, seizure, arrest etc.

These provisions are as follows:
● Section 67 – Power provided for inspection, Search and Seizure.
● Section 68 – Inspection of goods In movement.
● Section 69 – Power to Arrest.
● Section 70 - The power provided to Summon persons, to give evidence and to
produce documents.
● Section 71 – When access is provided to business premises.
● Section 72 – Other officers from Police, Railways Customs, etc. to assist proper
officers of GST.

3 Section 73 (1), The Central Goods and Services Tax Act, No. 12 of 2017 (2017).
4 Section 74(11), The Central Goods and Services Tax Act, No. 12 of 2017 (2017).

The safeguards provided under the GST Act in regards to search and seizure are as
● The goods that are seized cannot be detained for a period beyond the period that is

necessary for the examination.
● A photocopy of the documents can be taken by the person from whom documents

are seized.
● When goods are seized and notice is not issued within 6 months of the seizure of

the goods, then the goods have to be returned to the person from whom it was
seized. The period of six months that is provided can be extended to a further period
of 6 months.
● An inventory for all the goods seized is to be made by the seizing officer.
● Certain categories of goods that are specified under CGST Rules (such as perishable
and hazardous) are to be disposed of immediately.
● In regards to search and seizure, the provisions of the Code of Criminal Proceedings
(CrPC) 1973 becomes applicable. However, there is an important modification in
regards to subsection (5) section 165 of the Code of Criminal Procedure. Instead of
sending copies of any record to the nearest magistrate it can be sent to the Principal
Commissioner / Commissioner of SGST or CGST.

There are certain safeguards that are provided under the GST Act to a person who is
placed under arrest:6
● When a taxpayer is arrested for an offence that is cognisable, he should be informed

in writing as to the grounds of arrest and should be produced before a magistrate
within 24 hours.
● When a person is arrested for an offence that is non–cognizable and bailable, the
Deputy/Assistant Commissioner of CGST and SGST is to release him on bail and
is governed by the same provisions as an officer in charge as per Section 436 of
● All the arrests that occur must be in accordance with the provisions of the criminal
procedure code.

5 Section 67, The Central Goods and Services Tax Act, No. 12 of 2017 (2017).
6 Section 69, The Central Goods and Services Tax Act, No. 12 of 2017 (2017).

Given below are the penal provisions related to offences. It also governs penalties,
prosecution and the compounding of offences :

Section of the CGST Act Offences
Section 123 Penalty for failure to furnish information return.
*Third party information is to be produced in
Section 124 Form of information return.
Section 125 Failure to furnish statistics
Provision for penalty for acting against the general
Section 126 rules of the Act.
Section 127 General disciplines related to penalty
Power to impose a penalty that is not provided
Section 128 under the provisions of the Act.
Section 129 Power to waive penalty or a fee.
Detention, release. Seizure of goods and
Section 130 conveyances in transit.
The confiscation of goods and the levying of
Section 131 penalty as a result.
Confiscation or penalty not to interfere with or to
Section 132 prevent punishments under other laws.
Section 133 Punishment for twelve specified offences.
Section 134 The liability of officers.
Cognisance of an offence is to be taken by a court
Section 135 above that of magistrate first class.
Section 136 Presumption of a culpable mental state.
Relevancy of statements under certain
Section 137 circumstances.
Section 138 Offences by companies
Compounding of offences (explained later)


Apart from the penalties that are prescribed under Section 10, such as the availing of
compounding by a taxable person that is not eligible to avail the same, there are
numerous other offences provided for under the CGST Act. The various offences are

● Making a supply with a false or incorrect invoice.
● The issuance of an invoice without making s supply.
● The non – payment of tax beyond a period of three months.
● Not paying the tax collected in contravention of the CGST / SGST for a period that

exceeds three months.
● Fraudulently obtaining any refund.
● Not deducting or lowering the deduction of tax that is collected at source or by not

depositing tax deducted at source under section 51.
● Under Section 52 the non – collection, lower collection or non – payment of tax

collectable at source.
● Availing and utilizing input tax credit without the actual receipt of goods and

● Availing and distributing input tax credit by an input service distributor in violation

of the guidelines provided under Section 20.
● Furnishing of false information or by falsifying financial information, or by

furnishing fake accounts with an intent to evade the liability to pay tax.
● Failure to register despite being liable to pay tax.
● Obstructing or preventing any official from discharging his duty.
● Transporting goods without prescribed documents.
● Suppressing the turnover amount which in turn leads to tax evasion.
● The failure to maintain or retain accounts and documents in a manner specified in

the Act.
● Failure to furnish information and documents that are required by an officer.
● The supplying, transportation and storing of goods that are to be confiscated.
● Where an invoice or document is issued using the GSTIN of another person.

7 Section 112, The Central Goods and Services Tax Act, No. 12 of 2017 (2017).

● The tampering or destroying of any evidence that is material to a case.
● When goods that are detained or seized are disposed of or tampered with.

Whoever commits the above mentioned offences will be subjected to different degrees
of punishments. They are as follows:8

(a) Supplies of goods and services that are made without the issuance of an invoice and
is violative of the general provisions of the act.

(b) When a bill or invoice is issued without the supplies of goods or services: and is
done in violation of the provisions of the act which in turn leads to the
wrongful manner in claiming input tax credit.

(c) When the input tax credit is availed using an invoice or a bill referred to in clause

(d) When an amount is collected but is not paid to the government after a period of 3
months from the due date of payment.

(e) When a person evades tax, or avails input tax credit fraudulently or obtain a refund
due to fraud and when such offences are not provided clauses [a] to [d].

(f) When a person falsifies, substitutes financial records, produces fake accounts
or furnishes information with intent to evade the payment of tax.

(g) When a person obstructs or prevents any officer from discharging his duties under
this Act.

(h) When a person acquires possession of or is engaged in transporting, removing,
depositing, feeling, keeping, supplying any goods wherein he has a reason to
believe that the goods are to be confiscated.

(i) When a person receives or is in any way concerned with the supply of, or in any
other manner deals with any supply of services which he knows or has reasons to
believe are in contravention of any provisions of this Act or the rules made

(j) When the person tampers with or destroys any evidence which includes
documents that are material to the case.

(k) If a taxpayer furnishes false information the burden of proving the accuracy of the
information rests upon him.

8 Section 132, The Central Goods and Services Tax Act, No. 12 of 2017 (2017).

(l) If a person attempts or abets the commotion of an offence mentioned in clauses [a]
to [k].

The above offences shall be punishable––
(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly
availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh
rupees, with imprisonment for a term which may extend to five years and with fine;

(ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly
availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh
rupees but does not exceed five hundred lakh rupees, with imprisonment for a term
which may extend to three years and with fine;

(iii) in the case of any other offence where the amount of tax evaded or the amount of
input tax credit wrongly availed or utilised or the amount of refund wrongly taken
exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with
imprisonment for a term which may extend to one year and with fine;

(iv) in cases where he commits or abets the commission of an offence specified in clause
(f) or clause (g) or clause (j), he shall be punishable with imprisonment for a term which
may extend to six months or with fine or with both.

When a penalty is levied on a person, it is subject to a certain disciplinary regime that
is based on jurisprudence and principles of natural justice that govern international trade
and agreements. Accordingly, penalty is levied according to the following principles:9
● A penalty cannot be imposed without the issuance of a show cost notice and proper

hearing in the matter.
● The taxpayer should be provided with an opportunity to rebut allegations against

● The penalty that is imposed should take into consideration the totality of the facts

and circumstances in any given case, the degree and severity of reach should be
taken into consideration.
● The nature of the breach is to be specified clearly when a penalty is imposed.

9 Section 126, The Central Goods and Services Tax Act, No. 12 of 2017 (2017).

The circumstances wherein no substantial penalty can be imposed are:10
● Any minor breach [a minor breach is when the taxable amount involved is less than

five thousand rupees].
● A procedural requirement of the law
● A mistake that is easily rectifiable or has been made without gross negligence or

with an intent to do fraud another party.

Section 132(1) provides for the requisite punishment on being convicted for a particular

Offences Involved Punishments (Imprisonment
extending to )
When a taxpayer evades his liability to pay an 5 years and fine
amount that is exceeding Rs 5 crore. 3 years and fine
When a taxpayer evades his liability to pay an 1 year and fine
amount that is exceeding Rs 2 crore.
When a taxpayer has evaded his liability to 6 months
pay an amount that is between Rs 1 crore and
Rs 2 crore.
· False records
· Obstructing officer
· Tampering of records


When recovery proceedings are undertaken by a taxpayer, it is the final step towards
the realisation of any taxable amount. There has to be a confirmation as to the due
amount that is payable after the process of adjudication by the requisite officer.

The recovery provisions under the CGST Act are as follows:11

10 ibid.
11 Section 78, The Central Goods and Services Tax Act, No. 12 of 2017 (2017), § 80, The Central Goods
and Services Tax Act, No. 12 of 2017 (2017).

● When an order is passed that requires an amount to be paid, it is to be paid within a
period of three months from the date of receipt of order.

● If the amount is not paid within this time period, then the recovery proceedings shall
be instituted by the recovery officer for realisation of the taxable amount. There are
numerous options that are opted by the government in order to recover the amount
that is due. These options include reduction of money from the total taxable amount
by - (i) detaining and selling any goods, (ii) directing a person to pay his dues (iii)
by attaching a property that belongs to the defaulter.

● In cases where the taxable amount is self-assessed, there are provisions enabling
the payment for such an amount to be made in instalments. However, the payment
has to be made alongside interest.

Section 80 authorizes for the payment of tax and any other due amount to be paid in

Section 81 explains the cases where transfer of property would be void.

Section 82 mandates tax to be first charged on property recovered.

Section 83 authorizes the attachment of any property and bank of count in certain cases.

Section 84 provides for continuation and validity of recovery proceedings.

The time limit provided for the adjudication of cases is three years.12 In cases where
there is fraud or suppression of facts, the time limit for adjudication has been extended
to five years. When a notice is issued under section 74(1) and the taxpayer pays the
amount due with interest within 30 days of issuance of notice, then there will be no
further need to adjudicate the case. However, the penalty imposed must be 25% of the
total taxable amount.

There are several modes of recovery available to the proper officer. They are as

12 Section 73, The Central Goods and Services Tax Act, No. 12 of 2017 (2017).
13 Section 226, The Income Tax Act, No. 43 of 1961 (1961); § 142, The Customs Act, No. 52 of 1962

● The utilization of any movable or immovable property that belongs to the taxpayer
until the due amount is paid. If the amount is not paid within 30 days, the property
is to be sold and the proceeds of such sale, the amount payable and cost of sale shall
be recovered.

● The amount due can be recovered through the collector of the district in which such
a person is resident or owns property or has his place of business, as if it was an
arrear of land revenue.

● The person aggrieved can file an application before a magistrate who shall issue the
necessary instructions required to recover the amount.

● Through the enforcement of a bond, instrument or any other rules or regulations
made thereunder.

If a taxable person transfers his business to another person, then the transferee will
jointly and severally be liable to pay the tax, interest, or penalty that is due from the
taxable person up to the time of such transfer.

When a company is wound up, the liquidators will provide the intimation of his
appointment to commissioner within 30 days. When the commissioner receives such
an intimation, he is to notify the sufficient amount due to the liquidator within 3

When a private company is wound up or goes into liquidation, the directors of the
company become jointly and severally liable to pay the due amount. The director cannot
evade his liability unless he proves to the commissioner in charge that the non–recovery
of the amount is not caused due to neglect, misfeasance, breach of duties on his part. 15

The information as to the retirement of the partner must be intimated to the
commissioner within one month from the date of retirement.

14 Section 88 (2), The State Goods and Services Tax Act, No. 12 of 2017 (2017).
15 Section 88 (3), The Central Goods and Services Tax Act, No. 12 of 2017 (2017).


The contextual definition of the terms ‘search’ and ‘inspection’

The meaning of the term ‘search’ as gathered from different judicial pronouncements
is an action taken by a government machinery to go, look through, or to examine a
place, person, area or object carefully. This must be done in order to discover evidence
of a crime or to find something that has been concealed.16 The search that is to be
undertaken can only be done so under the authority of law.

The term ‘inspection’ is a softer provision than the term ‘search.’ It enables officers to
access a place of business that is used for commercial purposes or transporting goods17.
It also allows for the search of a godown or a warehouse that is owned by the taxpayer.18

The GST officers have to adhere to the following during search operations:19

● One cannot undertake the search of a premises unless a valid warrant is issued by
the proper officer.

● When a person’s residential premise is searched, there is a mandate for a lady officer
to accompany the search team.

● Before the commencement of search, the officers have a duty to disclose their
identity through their identity cards to the person who is in–charge of the premises.

● The search warrant is to be presented to the owner of the premises before the search.
His signature is to be taken on the body of the warrant alongside the signatures of
two other witnesses.

● The search must be made in the presence of two independent witnesses within the
locality. If no such witnesses are available, then a person from another locality can
be sought. However, the witness must be briefed in regards to the purpose of the

16 ibid, section 67.
17 ibid, section 68.
18 ibid, section 67(1)(b).
19 Section 100, Code of Criminal Procedure, No. 02 of 1974 (1974).

● The officers and the witnesses that are undertaking the search proceedings have to
offer themselves for search before and after the proceedings.

● The Panchnama is required to be prepared on the spot and the list of all the goods,
documents recovered and detained should be produced immediately. The
Panchnama is to be signed by the witnesses, owner of the premises before whom
such search is conducted, and the officer that is duly authorised to conduct the

● A copy of the Panchnama is to be produced before the person in charge and the
premises are to be searched under his acknowledgement.

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