QUESTION

In which circumstances Show Cause Notice be issued Section 74 and Section 76 of CGST Act`2017. Please clarify with example. Can we issue Show Cause Notice to registered taxable person under Section 76 of CGST Act`2017 as there is no time limit for issuance of Show Cause notice under Section 76 of CGST Act`2017.

ANSWER

Law Applicable:

1. Section 74(2) specifies the time limit for issuing of notice as follows;
" The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order. "

2. Subsection (2) of section 76 is laid as under
" Where any amount is required to be paid to the Government under sub-section (1), and which has not been so paid, the proper officer may serve on the person liable to pay such amount a notice requiring him to show cause as to why the said amount as specified in the notice, should not be paid by him to the Government and why a penalty equivalent to the amount specified in the notice should not be imposed on him under the provisions of this Act. "

Interpretation:

Service of notice under section 76:
Subsection (1) of the said section specifies that "every person who has collected from any other person any amount as representing the tax under this Act, and has not paid the said amount to the Government, shall forthwith pay the said amount to the Government, irrespective of whether the supplies in respect of which such amount was collected are taxable or not."
It is in a violation of this law that a notice under section 76 can be served on the taxable person.
To illustrate;
Mr. A charges an invoice of Rs 100 + 18 and collects Rs 118 from Mr. B but does not deposit Rs 18, that is the amount represented as tax, to the credit of the government. Therefore Mr A can be served with a notice u/s 76..
Section 76(2) empowers the proper officer to serve a show cause notice for recovery of any amount which is collected as an amount representing tax but is not deposited to the credit of the government. However the said section does not specify any time limit for service of this notice. As per the Income Tax Act of India, the preservation of books of accounts and financial records is mandated for a time period of 6 Years and as per the Companies Act this period is 8 years. Therefore, the service of notice under section 76(2) is practical only for a period of 8 years, in case of a company, and 6 years, in other cases, from the end of the relevant financial year because after this time limit the taxable person is not mandated by any law to keep the financial records.

Service of notice under section 74:
Subsection (1) of section 74 empowers the proper officer to serve a notice in case of short payment of tax, wrongful receipt of refund or wrongful availment of ITC. Therefore this section is broader in its perspective since it covers the cases of erroneous refund and wrongful ITC as well. Intention and proof of fraud, wilful misstatement and suppression of fact is also mandatory under this section unlike section 76.
To illustrate;
Mr X is in receipt of erroneous refund of tax and the suppression of fact can be proven. Therefore for recovery of this refund, the proper officer can issue a notice u/s 74 to Mr X.
Section 74(2) dictates the time limit for service of notice under the section and the same is specified as "at least six months prior to the time limit specified in sub-section (10) for issuance of order". Also the last date to pass the order under sub section (10) is " five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund. "
Suppose, Mr X is in receipt of an erroneous refund on 1.08.2021. The order under section 74(10) can be passed till 1.08.2026 and the notice under section 74(2) can be issued till 1.02.2026.

Conclusion:

Notice u/s 74(2) is broader in its perspective and also covers situations of erroneous refund and wrongful ITC. Intention of fraud, wilful misstatement or suppression of fact is mandatory under this section. Time limit to issue the notice is 6 months prior to the last date of passing the order under section 74(10).
Notice u/s 76(2) covers only the cases where an amount representing as tax is collected and is not deposited to the credit of the government. The last date to issue this notice, although not specified in GST law, is practically the last date till when the taxable person is required to keep the financial records, i.e 8 years in case of companies by virtue of the Companies Act and 6 years in all other cases, by virtue of Income Tax Act. (Reply dt. 31/03/2022)