What are GST notices and assessment processes in the GST Act?

GST is a trust-based tax regime where the taxpayer is required to self asses the tax payable and file the returns without any initiation by the tax officer or department. For effective implementation, collection of tax, and administration of dealers with approved GST registration, and other dealers, there are various provisions in the GST Act regarding scrutiny and assessment of dealers under the GST Act.

Self-assessment is mandatory and where it is not possible the dealer has to apply provisional assessment this occurs in cases where tax rates cannot be determined, the value of supplies cannot be determined, etc.

Any action as per the GST act can be taken only after issuing proper documents by the taxpayer and the department officer, one of the important documents that need to be issued notice which gives power to the officer to take certain actions based on the outcome of reply.

Assessment by the officer means the process by which tax, interest, or any other amount payable is determined by scrutiny of returns, the best judgment, etc.

What is GST notice?

GST notice is a communication document sent by the GST department, the GST notices can be called in the form of the following types, we had discussed only critical notices which would result in a huge amount of tax and penalties for simplicity.

• Show cause notice (SCN) – Show cause notice is a notice sent by the department requiring the dealer to communicate why action should not be taken by the department for the discrepancies mentioned in the show cause notice. One of the classic examples of show cause notice is “show cause notice for cancellation of GST registration” in case of GST monthly return is not filed for a continuous period of 6 months. Once the reply is submitted to the show cause notice if the officer is satisfied with the reply, the notice will be withdrawn, else further notices and orders are issued.
• Demand notice is issued when tax is determined to be payable by the dealer in case of finalization of assessment by scrutiny assessment, the best judgment assessment, difference tax, or interest payable on account of wrong computation.
• Notice for intimating discrepancies is one of the common and widely issued GST notices when discrepancies are found in GST returns filed such as mismatch between GSTR-1 and GSTR-3B, mismatch in ITC between 2A and ITC claimed.
• Assessment notices are one of the critical notices sent in the process of assessment, for taking the next step under the GST act, the notice is sent by the GST department for taking further action.

What is the importance of GST notices?

GST notice is one of the important documents to be issued to the dealer for taking any actions under the GST act, oral communication or issue of a statement not in the form of GST notice is not valid to take any action under the GST act, there is a certain limitation in case of serious offenses to initiate action without issuing GST notice.

There are time limits for the issue of GST notices under various provisions of the GST Act, notices issued after the expiry of the time for issuing the notice are not valid. Once notice is issued, it shall be responded to appropriately concerning GST.

In case you have received a GST notice from the department, it is recommended to consult and seek the services of a GST consultant for GST notices to avoid further action and submit a proper response.

Let us discuss certain important assessment processes and relevant notices and orders in the GST Act. 

Best judgment assessment U/s 62

• The best judgment assessment order can be issued by the proper officer only when a return for the period is not filed and notice U/s.46 to file a return for the period should be issued.
• The proper office shall issue notice U/s 61 after considering relevant data and information available, for
• For example, if a return is not filed by a dealer running a supermarket for July 2023, notice U/s.46 is issued to furnish a return within 15 days. The dealer had not filed the return within the time allowed now the officer can initiate the proceeding U/s 62 to assess turnover at purchase turnover plus margin at 10 %.  Tax can be determined on turnover so arrived, this is one of the ways to arrive at an estimated turnover and the officer will consider multiple factors.
• If a return is filed within 30 days of passing, the best judgment order proceeding shall be deemed to be concluded, there is no necessity that the amount mentioned in the best judgment order and return should match.
• This is one of the provisions that aim to make dealers file GST returns on time, there is no penalty of additional amount payable just because the order is passed U/s.62.

Scrutiny of GST returns U/s 61

Scrutiny of returns is a process by which the officer scrutinizes returns filed, other particulars, and data submitted by the taxpayer in the periodic returns, to ensure the value of taxable supplies is declared correctly, the correct tax rate is applied, tax is calculated properly, input tax credit taken correctly.

• This is the frequent assessment process undertaken on the majority of dealers based on data available in GST returns furnished.
• Scrutiny of returns can be initiated only after GST return filing for the period is completed
• Scrutiny of returns for the period can be initiated only when the return is filed by the taxpayer
• In the case where the officer finds any discrepancies in the return scrutiny of returns, the same shall be intimated to the dealer by issuing notice under rule 99 where the taxpayer should reply to the same within 30 days of notice.
• In case the notice for intimating discrepancies is not responded to by providing a response within 30 days or the reply provided by the dealer is not satisfactory or after providing the satisfactory reply if the corrective measures are not taken further action will be taken.
• Once the time expires or proper action is not taken by the dealer in most of the cases action will be taken U/s 73 or 74 as the case may be.

Determination of tax not paid or short paid u/s 73(1)

• Notice under section 73(1) can be issued where tax had been not paid, short paid, tax has been erroneously refunded, excess ITC availed due to reasons other than fraud, wilful misstatement, suppression of facts, etc.
• The officer can initiate action U/s 73(1) by issuing a show cause notice mentioning tax amount, interest payable @ 18(p.a) along with reasons for such demand.
• In case tax along with interest is paid within 30 days of the issue of notice U/s 73(1), no penalty shall be leviable and proceedings shall be deemed to be concluded.
• In case the dealer complies with the notice requirement within 30 days, an order shall be passed including 10 %  of tax and interest or Rs.10,000 whichever is higher.
• The maximum penalty of Rs.50,000 (Rs.25000 CGST and Rs.25000 SGST) U/s 125 may be invoked in case tax and interest are not paid within 30 days of notice.
• In the case where there is any tax and interest determined U/s 73 (1) for subsequent periods and the reasons are the same, then there is no requirement to issue fresh notice for subsequent periods.
• Order U/s 73(1) shall be passed before 3 years from the date of expiry of the time limit for filing the annual return for the financial year for which notice is issued. For example in the case of FY 2022-2023, the due date for filing the annual return is 31st December 2023, therefore, an order shall be passed on or before 31st December 2026.
• Show cause notice shall be issued at least 3 months before the time limit for issue of order U/s 73(1) so for the financial year 2022-2023 for initiating action U/s 73(1) show cause notice shall be issued on or before 30th day of September 2026.

Determination of tax not paid or short paid u/s 74(1)

• Section 74(1) deals with the initiation of proceedings for the determination and collection of tax in the event of fraud, wilful misstatement, suppression of facts, etc.
• The reason for the issue of notice is the same as that of Section 73(1) but should be because of fraud, wilful misstatements, suppression of facts, etc.
• The time limit for issuing the order and completing the proceeding is 5 years from the due date of filing the annual return for the financial year.
• Therefore, for the financial year 2022-2023, the final order U/s 74(1) shall be passed on or before 31st December 2028.
• Notice shall be issued at least 6 months before the time limit for issuing order U/s 74(1) therefore for the financial year 2022-2023, notice U/s 74(1) shall be issued on or before 30 June 2028.
• Notice shall mention the amount of tax and interest, along with a penalty equal to 100 % of such tax amount.
• In case the amount of tax is suppressed due to the above grounds and the dealer can pay such amount with a 15 % penalty and interest before the issue of show cause notice, action U/s 74(1) can be avoided if proper action is taken on receipt of notice for scrutiny of returns U/s.61.
• If tax and interest along with a penalty of 25 % of tax are paid on or before 30 days from the date of notice, then proceedings shall be deemed to be concluded.
• If tax and interest along with a penalty of 50 % of tax are paid on or before 30 days from the date of order, then proceedings shall be deemed to be concluded. So to avoid a 100 % penalty, we shall pay the same within the time limit.
• In case of the expiry of the time limit for issues of notice U/s 73 (1), the department issues notice U/s 74(1) therefore it is recommended to consult an experienced knowledgeable GST consultant to challenge the notice.

How to reply to the GST notice, and how close GST case?

From the above discussion, we would like to give a special mention that GST notices should be replied to, and appropriate back-end processing like reconciliation, and audit of GST documents should be performed to analyze the correctness of tax and interest amount mentioned in the notice. The time limit for replying to GST notices and preparation of necessary data on time is an important factor when considering issues like, how to reply to GST notices, and how to reduce GST demand raised in GST notices.

We provide professional services relating to GST notices to save penalties and to arrive at the correct amount of taxes, in the majority of cases we had saved a considerable amount of tax determined by the department after conducting an in-depth analysis of data and returns.