GST UPDATE No 177 ON DOUBLE TAXATION IN CLANDESTINE CASES:-

GST law is a new avatar of indirect taxation regime in the Country and many provisions are similar to the erstwhile provisions contained in the indirect tax laws prevalent prior to introduction of GST with certain exceptions. If we refer to the provisions regarding levy of taxes with respect to clandestine cases in the erstwhile regime, they were slightly different from the GST laws as under Central Excise Laws, if clandestine case was booked against an assessee, then the seized goods were provisionally released and duty was required to be paid at the time of clearance. However, in the GST era, the provisions are framed in such a manner that is leading to double taxation of the same transaction. The analysis of the provisions contained in section 35(6) vis a vis section 73/74/129 of the CGST Act, 2017 is the subject matter of discussion of our present update. It is pertinent to refer to the relevant provisions of CGST Act, 2017 which are produced hereunder for the sake of convenience as follows:- Section 35 Accounts and other records (6) Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax. The provision contained in sub-section (1) reads as follows:- (1) Every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of— (a) production or manufacture of goods; (b) inward and outward supply of goods or services or both; (c) stock of goods; (d) input tax credit availed; (e) output tax payable and paid; and CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??4 (f) such other particulars as may be prescribed: It is submitted that the provision contained in section 35(6) of the CGST Act, 2017 states that when goods are not being accounted for properly, the proper officer may determine tax payable on such goods as if they are supplied and the provisions for determination of demand under section 73/74 shall apply. Now the question arises is how to reflect this transaction in the GST returns filed by the assessee. This is for the reason that the tax paid by the assessee under section 73/74 of the CGST Act, 2017 is altogether different from the tax liability discharged through self-assessment mechanism. The tax paid under section 73/74 of the CGST Act, 2017 requires filing of FORM GST DRC-03 which cannot be reflected anywhere in the GST returns filed by the assessee. It is submitted that in such case, the assessee is also liable to reflect and pay tax through self-assessment procedure by way of filing GSTR-1 and GSTR-3B which leads to payment of tax on the same transaction twice which is unreasonable. It is pertinent to mention here that even the input tax credit of the tax paid under section 74/129 and 130 is restricted as per section 17(5)(i) of the CGST Act, 2017. Hence, this is one of the major concerns for the assessee in the GST era wherein in the case of excess stock is seized by the department, double tax payment is required by them with no explicit provision to claim refund of the same from the department. In contrast to this, in Central Excise Laws, taxes were required to be paid only once at the time of clearance of goods as seized goods were being provisionally released on bank guarantee. Therefore, the above cited provision needs to be re-visited by the government in the interest of the trade and industry. Another point that needs to be addressed is regarding the situation wherein during the course of proceedings under section 35(6) of the CGST Act, 2017, no duty is determined but only redemption fine in lieu of confiscation is leviable. The question arises is whether it is possible for the adjudicating authority to levy penalty under section 73/74 of the CGST Act, 2017 in a situation where there is no determination of tax. In this context, the relevant provision contained in section 73 and 74 of the CGST Act, 2017 is worth noting which reads as follows:- CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 73 (9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order. 74. (1) 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 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 utilised input tax credit, 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 equivalent to the tax specified in the notice. The provision contained in section 73 indicates that the levy of penalty is dependent on determination of tax and in cases where no tax has been determined in terms of provision contained in section 35(6) of the CGST Act, 2017, penalty of Rs. 10,000/- will be leviable. Similarly, the provision contained in section 74 indicates that penalty under this section is to be levied equivalent to the tax specified in the notice. However, in cases where no duty has been determined by the officer with respect to non-accounting of goods, no penalty under section 74 of the CGST Act, 2017 can be levied as the imposition of penalty under these sections is directly related to the amount of tax determined. This is inbuilt lacunae in the provisions of GST Law. In this context, it is worth mentioning that as per the amendments made in section 129 of the CGST Act, 2017 vide Notification No. 39/2021-Central Tax dated 21.12.2021, applicable w.e.f. 01.01.2022, the requirement of payment of tax in case of detention of goods in transit has been dispensed with leading to situation that only penalty is payable by the noticee. The amendment appears to resolve the issue of double taxation as discussed above for the cases of detention and seizure booked under section 129 of the CGST Act, 2017 but in reality, the quantum of penalty has been doubled CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??6 in the amended section leaving no difference to the assessee as far as quantum of amount to be payable for release of detained goods. Hence, the issue of double taxation for the transactions in case of clandestine cases booked in GST Law should be seriously addressed to the Government so that suitable favourable amendments are carried out in the GST Law.

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GST UPDATE No 177 ON DOUBLE TAXATION IN CLANDESTINE CASES:-

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