237.            The taxable person manufactures cigarette paper chargeable @ 18% & aseptic packaging paper chargeable @ 12%. In order to evade tax, cigarette papers were wrongly charged @ 12%. The proper officer noticed that this is a case of misclassification. He issued a show cause notice on 1.4.2017 raising the following demand:

Tax short levied = 10 lacs

Interest u/s 50

Penalty = 100% of tax short paid with an option to pay 25% penalty if paid within 30 days.

What shall be the liability if:

a.                   A- has paid full tax= 10 lac & full interest thereon on 27.4.2017

b.                  B- has short paid tax = 8 lac & short paid interest thereon on 30.4.2017

c.                   C- has paid tax =  Rs 10 lac, interest paid= nil on 30.4.2017

d.                  D- has neither paid any tax nor interest

Since the misclassification was done to evade tax, thus, it is a case of fraud & section 74 is applicable accordingly. As per section 74(8) of the CGST Act, where a taxable person pays the amount of tax with interest in full and penalty equivalent to 25% of tax within 30 days of issue of SCN, then all proceedings shall be deemed to be concluded.

(i) A has discharged his tax with interest liability in full within 30 days of SCN. The taxable person shall pay penalty@ 25 % of tax

      =25% (10 lac)

      = 2.5 lac

 Proceedings concluded.

(ii) B has paid tax= 8 lac & interest thereon paid within 30 days of SCN. Proceeding will continue for remaining tax and penalty.

      Further, B has short paid tax & interest by Rs. 2 lac & Rs 30,000 respectively. The proper officer shall after giving an opportunity of being heard to B pass order demanding:

 Tax = Rs 2 lac

Interest u/s 50 = Rs 30,000

Penalty = 50% of tax, to be paid within 30 days of order  

= 50% (2 lacs)

= Rs. 1lacs

(iii) C has paid his tax liability in full but no interest is paid within 30 days of SCN. The proper officer shall after giving an opportunity of being heard to the taxable person, issue order demanding:

 Interest payable on 10 lacs u/s 50  &

Penalty = 50% of tax, to be paid within 30 days of order  

= 50% (10 lac)

= 5lac

(iv) D has not paid any amount within 30 days of SCN, therefore, the proper officer shall after giving an opportunity of being heard to the taxable person, issue an order demanding:

Tax = Rs. 10 lacs

Interest payable thereon u/s 50

Penalty = 50% of tax, to be paid within 30 days of order  

= 50% (10 lacs)

= 5lacs