Methods of Demand and Recovery by the authorities when a taxpayer pays the wrong taxes

Under the Goods and Services Tax (GST) system in India, the tax authorities have the power to demand payment of tax from registered taxpayers in certain circumstances. This means that if the tax authorities believe that a taxpayer has not paid the correct amount of GST, they may issue a demand notice to the taxpayer, requesting payment of the outstanding amount.

The demand for tax under GST can be made for a variety of reasons, including non-payment or short payment of GST, incorrect input tax credit (ITC) claims, or failure to file GST returns on time. The tax authorities may also demand tax if they believe that the taxpayer has engaged in tax evasion or any other fraudulent activity.

Taxpayers need to ensure that they comply with all GST rules and regulations to avoid receiving a demand notice from the tax authorities. Let us understand a bit more about this topic further in this article

When can a Demand Under GST be raised by the Tax Authorities?

The tax authorities may raise a demand under GST in the following situations:

1. Non-payment or short payment of GST

If the tax authorities believe that a registered taxpayer has not paid the correct amount of GST, they may issue a demand notice requesting payment of the outstanding amount.

2. Incorrect Input Tax Credit (ITC) claims

If the tax authorities find that a taxpayer has claimed ITC incorrectly, they may issue a demand notice to recover the excess amount.

3. Failure to file GST returns

If a registered taxpayer fails to file their GST returns on time, the tax authorities may issue a demand notice to recover the tax due.

4. The discrepancy in GST returns

If the tax authorities find any discrepancy in the GST returns filed by a registered taxpayer, they may issue a demand notice to recover the tax due.

5. Detection of tax evasion or fraud

If the tax authorities suspect that a registered taxpayer has engaged in tax evasion or any other fraudulent activity, they may issue a demand notice to recover the tax due.

Once a demand notice is issued, the taxpayer has a specified period to respond and pay the outstanding amount. The taxpayer may also challenge the demand notice if they believe it to be incorrect and can do so by filing an appeal with the appropriate authority.

GST Demand when there is No Fraud (Section 73)

Under Section 73 of the Central Goods and Services Tax (CGST) Act, 2017, a demand for payment of GST can be raised by the tax authorities even in cases where there is no fraud or wilful misstatement or suppression of facts by the taxpayer.

Section 73 provides for the circumstances in which demand can be raised by the tax authorities. These include:

1. Short payment or non-payment of tax or any other amount payable under the CGST Act, which is not covered under Section 74 or Section 75 of the CGST Act.

2. Incorrect refund or input tax credit availed or utilized in contravention of the provisions of the CGST Act or the rules made thereunder.

3. Any other reason, including a mistake or an omission in any return or document furnished by the taxpayer.

In cases where a demand is raised under Section 73, the tax authorities must issue a show-cause notice to the taxpayer explaining the grounds for the demand and allowing the taxpayer to respond within a specified period. The taxpayer can then provide their response and explain their position to the tax authorities.

If the tax authorities are satisfied with the response of the taxpayer, they may drop the demand. However, if they are not satisfied, they may issue a demand order, requiring the taxpayer to pay the outstanding amount within a specified period. The taxpayer may also appeal against the demand order if they believe it to be incorrect.

GST Demand when there is a Fraud (Section 74)

Under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, a demand for payment of GST can be raised by the tax authorities in cases where there is fraud or wilful misstatement or suppression of facts by the taxpayer.

Section 74 provides for the circumstances in which demand can be raised by the tax authorities. These include:

1. Where the tax authorities have reasons to believe that a registered person has fraudulently availed input tax credit (ITC) or has fraudulently carried out any transaction with the intention of evading tax under the CGST Act.

2. Where the tax authorities have reasons to believe that any outward supply of goods or services or both have been made without the issuance of any invoice or any other document as required under the CGST Act, or where such invoice or document has been issued without actual supply of goods or services or both.

3. Where the tax authorities have reasons to believe that a registered person has wilfully suppressed any transaction or has supplied any goods or services or both without issuing any invoice or any other document as required under the CGST Act, or has collected any amount as tax but has not deposited the same with the Government.

In cases where a demand is raised under Section 74, the tax authorities must issue a show-cause notice to the taxpayer explaining the grounds for the demand and allowing the taxpayer to respond within a specified period. The taxpayer can then provide their response and explain their position to the tax authorities.