What is a GST Demand Notice, and why’s everyone getting them?

In the last week, several GST Demand notices were issued to companies in India, including large names like Zomato, LIC, and Kotak Mahindra Bank. This article will dive deeper into what these notices mean, why they’re issued to specific companies, and how they can be addressed.

What are GST Demand notices?

GST, or the Goods and Services Tax, is a self-reported and self-paid tax, which means there can be errors with the amount of taxes paid. If the determination of the tax obligation of the payer goes wrong, particularly when it falls below the right amount, the government can issue tax notices to the payer.

In simpler words, if you calculated your own taxes and the number fell below the right one, you get a GST Demand notice from the government. This is also the case when you have wrongly availed of any tax refunds from the government, whether cash or input tax credits.

The process

GST Demand notices aren’t implications of wrongdoing in themselves, meaning they’re merely to demand an explanation from said taxpayer. This is what the typical scenario looks like according to official tax documents:

Particulars	When there is no fraud (Section 73)	When there is a fraud (Section 74)	Comments
Show cause notice	Yes	Yes	–
Maximum time limit	3 years	5 years	Time is calculated from the due date of filing the annual return for the year to which the demand relates or the date of refund.
The time limit for the Show Cause Notice	3 months before the expiry of 3 years (33 months)	6 months before the expiry of 5 years (54 months)	Hence, 3 or 5 years is the maximum time limit for issuing the order of GST demand payment.
Penalty	10% of tax	25% of tax

As you can see, there are two different situations under which the procedure is decided, and that depends on one thing – fraud.

Fraud, for these purposes, is defined as when a wilful misstatement or suppression of facts exists.

Also Read: The role of the energy sector in powering India’s growth.

Section 73 (no fraud or misrepresentation)

Section 73 is called when there is no reason for fraud, wilful misstatement, or suppression of facts. It focuses on these specific situations:

Misinterpretations of GST rules or complexities
Omissions due to clerical errors or technical glitches
Unforeseen circumstances impacting tax calculations

This is the process which is followed in the case of Section 73, step-by-step:

Show Cause notice – This notice requires the taxpayer to explain the reasons for the discrepancy and justify why they should not be liable for tax, interest, and penalties.
Determination and order – The next step involves the authorised tax officer issuing an order specifying the amount due, including interest (as per Section 50) and penalties under the GST Act or relevant rules.
The time limit for issuing order – Within 3 years from the due date for furnishing the annual return for the financial year in which the discrepancies occurred.

Also Read: IGST explained: Simplifying inter-state taxation in India

Section 74 (fraud or misrepresentation)

Section 74 of the GST Act empowers the country’s tax authorities to address tax fraud, wilful misstatement, or suppression of facts that result in tax evasion. It specifically targets the following scenarios:

Non-payment or short payment of tax
Erroneous refunds
Wrongful availment or utilisation of input tax credit

This is what the process looks like, step by step:

Adjudication – Done within 5 years, this is a thorough assessment of the case to determine the extent of tax liability and penalties.
Notice for recovery – Issued within 6 months before the deadline for adjudication, this document specifies the tax due, interest, and applicable penalties.
Order of adjudication – This finalises the tax liabilities and penalties and is issued within 5 years from the due date for furnishing the annual return for the relevant financial year.
Statement for additional periods – After issuing a notice, the proper officer can serve a statement covering unpaid tax or wrong refunds for other periods not included in the initial notice.