A Demand Notice under the Goods and Services Tax (GST) regime is a formal notice issued by the tax authorities to an individual or a company when they believe that the individual or company owes taxes under GST. The purpose of this notice is to bring the matter to the attention of the individual or company and to give them an opportunity to pay the outstanding tax within a specified period of time.

What is a Demand Notice under GST

The Demand Notice contains information regarding the amount of tax owed, the reason for the demand, and the period within which the tax must be paid. The notice is usually issued after an audit of the individual’s or company’s records and returns has been conducted, and it is determined that tax has been underpaid.

Under the GST regime, the responsibility of assessing the tax liability falls on the taxpayer himself. While self-assessment spares the GST officials from the cumbersome task of furnishing files for over 1 crore taxpayers, it also makes the filing process vulnerable to assessment errors leading to short or unpaid taxes, wrongly availed ITC, and even erroneous ITC refunds.

A demand notice is issued by the GST officials in case of short payment or non-payment of GST. The given notice can be raised in two different situations, as given below:

1. Unintentional misstatement and assessment errors

In absence of any reason for fraud or wilful misstatement, the GST officials can issue a demand notice as per Section 73 of the GST Act. Section 73 is applicable to non-fraud (without any motive to evade tax) cases, involving

• • Unpaid/short paid tax
  • Erroneous Refund
  • Wrongly Availed/Utilized ITC

The GST officer will be required to serve a show-cause notice on the taxpayer, for which he shall be required to pay the due amount, along with the applicable interest and penalty.

Adjudication of Case under Section 73

As per Section 73, the GST authority is required to issue the show-cause notice 3 months before the given time limit, i.e. 3 years from the last date for filing annual returns for the fiscal year to which the amount relates.

Payment of Tax

The taxpayer can choose to voluntarily pay taxes along with interest before issuing of notice and inform the departmental officer regarding the same in writing. For which, if satisfied, the officer may not issue a notice in the case. However, if the officer issues the demand notice, the taxpayer will be required to make payment along with a penalty under Section 73 of the GST Act, as given below:

Penalty under Section 73 of the GST Act

2. Fraudulent or wilful misstatement and suppression of facts

In cases where GST officials are able to track fraudulent or wilful misstatements for the GST filings, the GST officials can issue a demand notice as per Section 74 of the GST Act. Section 74 is applicable for fraudulent, wilful evasion of tax which eventually leads to

• • Unpaid/short paid tax
  • Erroneous Refund
  • Wrongly Availed/Utilized ITC

The GST officer will be required to serve a show-cause notice on the taxpayer, for which he shall be required to pay the due amount, along with the applicable interest and penalty.

Adjudication of Case under Section 74

As per Section 74, the GST officer is required to issue the notice 6 months before the time limit i.e. 5 years from the last date for filing annual returns for the relevant fiscal year. The officer is also required to issue an order of adjudication within the given time span of 5 years.

 Payment of tax

In case the taxpayer wishes to voluntarily pay his taxes, he can do the same along with interest and a 15% penalty before issuance of notice/statement and inform the departmental officer about the same in writing. However, if the officer issues the demand notice, the taxpayer will be required to make payment along with penalty under Section 74 of the GST Act, as given below:

Penalty under Section 74 of GST Act

 P.S, for both Section 73 and Section 74, once the GST officer issues a demand notice within the time limit, he can further serve a statement including details of any unpaid tax/wrong refund, etc. for other periods not covered in the notice, without issuing a separate notice for the same.

Section 75 of the GST Act –

Section 75 of GST relates to the General Provisions related to the determination of tax and demand under GST, consisting of the following:

• If by an order of a Court or Appellate Tribunal, notice or issuance of order is stayed, the period of stay shall be excluded while computing the time period for the issuance of adjudication i.e. 3/5 years.
• If any Appellate Authority (AAR), Appellate Tribunal, or Court comes to a conclusion, stating the notice issued under Section 74 is not sustainable on the grounds of fraudulent or willful misstatement and/or suppression of facts to evade tax has not been established, the officer shall determine the tax payable deeming as if the notice were issued under Section 73.
• If in case, an order is required to be issued as per the direction of the Appellate Authority (AAR), Appellate Tribunal, or a court, the order should be issued within a time span of 2 years from the date of communication of the said direction.
• If in case, a written request is received from a taxpayer deemed chargeable with tax and penalty or has an adverse decision proposed against them, he/ she shall be granted an opportunity for a hearing.
• If the person chargeable with tax shows sufficient cause, the GST officer can adjourn the hearing for reasons to be recorded in writing. However, such adjournments will be allowed for a maximum of 3 times. Furthermore, the officer, in his order, is also required to set out the relevant facts and the basis of his decision.

Limitations of Demand Notices under GST

• The amount of tax, interest, and penalty demanded in the order should not exceed the amount specified in the notice and such demand can be confirmed only on the basis of charges specified in the notice.
• In cases, wherein the penalty is imposed under either Section 73 or section 74, the GST officer cannot impose/omit any penalty for the same act n the same person under any other provision of this Act.
• In case there is no order issued within the respective time limit of Section 73 and Section 74, the adjudication proceedings for such cases shall be deemed completed and no order can be issued afterward.
• The interest applicable on the unpaid/short-paid taxes shall be payable, irrespective of the order determining the tax liability.

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