Recovery process to be initiated only after improper explanation, not paying unpaid tax

Goods & Services Tax (GST) assessees can breathe easy, as Central Board of Indirect Taxes & Custom (CBIC) has prescribed explanation first before initiating recovery of unpaid taxes, which is part of self-assessed liability

CBIC has issued a detailed guidelines for recovery proceedings under the provisions of section 79 of the CGST Act,2017 in cases covered under explanation to sub-section (12) of section 75 of the same law. New provisions have come into effect from January 1. Guidelines for new provision have been issued to remove the apprehension of unauthorised visits of the GST officials to the premises of the taxpayers for such recoveries

According to guidelines, where, self-assessed tax reported in GSTR-I is found to be short paid or not paid in GSTR-3B, the proper officer may send a communication to explain the reasons for such short payment or non-payment within a reasonable time. There may not be any requirement to initiate proceedings for recovery under section 79, where the explanations are proper.

However, “if the said registered person either fails to reply, or fails to make the payment of such amount short paid or not paid, within the time prescribed in the communication, then the proceedings for recovery of the said amount as per provisions of section 79 may be initiated by the proper officer,” guidelines said.

Under the present system, the registered person declares his outward supplies in GSTR-1, and is required to discharge his tax liability through GSTR-3B return. The recipient is able to avail input tax credit (ITC) on supplies declared by his suppliers in their GSTR-1 and in respect of which tax has been paid. There are instances when suppliers either do no file GSTR-3B return, or do not discharge full tax liability in GSTR-3B return in respect of declared outward supplies in GSTR-1. This not only results in short payment of tax to the government, but also adversely impacts the recipients, as they are not entitled to avail input tax credit is respect of such supplies, on which tax has not been paid by their suppliers. In many cases, the recipient may already have settled the payment for the supply too. 

In order to remove this difficulty, through the Finance Act 2021, an explanation was added in section 75(12) of CGST Act to clarify that “the tax on self-declared supplies by the registered person in GSTR-1, which has not been paid through GSTR-3B, will be considered as his self-assessed (and admitted) liability and can be recovered.” This explanation is also in line with the legal position taken by Courts in some cases, the official explained while adding that this addition addresses the concerns of the recipients that they are not able to avail ITC if the supplier does not pay the due tax on the said supply. 

According to Rajat Mohan, Senior Partner of AMRG & Associates, a tax advisory firm, with this circular Board has tried its best to mellow down the poisonous fangs of the newly introduced provision of section 75(12). This circular from the apex central tax authority would arrest the misuse of such provisions by the central tax officers; however, the adherence by the state-level officers is still doubtful. “With this circular, the board has mandated an opportunity of being heard before the said recovery proceedings. Businesses can now safeguard themselves from a broad taxing and recovery power given to every tax officer on the block,” he said.