SECTION 20 REGARDING RECOVERY OF TAXES NOT PAID OR SHORT PAID IN CASES OF FRAUD

GST Update 27.01.2016

GST DAILY DOSE OF UPDATION:-

SECTION 20 REGARDING RECOVERY OF TAXES NOT PAID OR SHORT PAID IN CASES OF FRAUD:-

The proposed section 20 of the GST Act, 2016 is being bifurcated into 3 parts being A, B and C. Part A pertaining to recovery of taxes not paid or short paid or erroneously refunded for reasons other than fraud or any willful misstatement or suppression of facts was discussed in our earlier update. This update seeks to discuss the provisions proposed in Part B pertaining to recovery of taxes in cases of fraud.

The time limit for issuing show cause notice in case of extended period of limitation is being specified in sub-section (1) of Part B as five years from the relevant date. Presently, in Excise Laws and Service Tax Laws, the time limit to issue show cause notice in cases involving fraud wherein larger period of limitation is invocable is five years from the relevant date. There has been no change in the time limit for issuing show cause notice in cases where larger period of limitation is invocable. However, by increasing the time limit for issuance of show cause notice in case of normal period of limitation from one year in Excise/eighteen months in service tax to three years has lead to reduction of gap for invoking normal period of limitation. This will definitely ignite the fire of litigation as the revenue department by defaults invokes extended period of limitation in all cases.

The sub section (2) states that where notice has been issued for any period under sub-section (1), the proper officer may service within one year from the date of service of the said notice, a statement containing details of tax not paid or short paid or erroneously refunded for the subsequent period and it will be deemed to be service under sub-section (1) subject to the condition that the grounds relied upon for the subsequent period are the same as mentioned in earlier notice. This provision has disastrous consequence as it seeks to cover the subsequent period also in the extended period of limitation. This seeks to nullify the judicial pronouncements rendered by Apex Courts in the following cases wherein it was held that extended period cannot be invoked in case of subsequent show cause notices on the same issue:-
·        NIZAM SUGAR FACTORY VERSUS COLLECTOR OF CENTRAL EXCISE, A.P.[ 2006 (197) E.L.T. 465 (S.C.)]

·        HYDERABAD POLYMERS (P) LTD. VERSUS COMMISSIONER OF C. EX., HYDERABAD [2004 (166) E.L.T. 151 (S.C.)]

·        ECE INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, NEW DELHI [2004 (164) ELT 236 (SC)]

Furthermore, if the tax along with interest and 15% penalty is voluntarily paid along with interest and is intimated to the proper officer, no show cause notice will be issued thereafter. However, in case the show cause notice has been issued, the proceedings will be concluded when tax along with interest and 25% penalty is paid within 30 days of communication of notice. Furthermore, in case the order has been issued, the proceedings will be concluded if tax along with interest and 50% penalty is paid within 30 days of communication of order. The Existing provisions in Central Excise and service tax provided for 15% penalty from the date of issue of show cause notice and 25% in case of 30 days from the date of communication of order. Hence, the penal provisions have been increased in the new draft GST bill.

The important sub-section which needs attention is (7) which is similar to Part-A wherein it is stated that the proper officer SHALL issue order within eighteen months from the date of issue of notice thereby mandatorily requiring speedy disposal of show cause notices. Presently, there are instances wherein show cause notices are being issued and personal hearings are also convened but order in originals are passed after a considerable lapse of time as there is no mandatory time limit to pass order in originals. Consequently, there are unnecessary delays and mental harassment to assessees. Not only this, there have been judicial pronouncements by High Courts that orders passed after a reasonable period of time are not valid and are not legally sustainable. It is hoped that this provision would speed up the litigation disposal mechanism.

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GST Update 27.01.2016

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