QUESTION

When is Sec 73 (5) applicable and when is Sec 122 (2)(a) applicable? Suppose Mr. A has raised an invoice on a client where he charged 12 % tax instead of 18% and later after 6 months he raised a debit note of differential tax of 6% on the client. Is he liable to pay interest and penalty? Explain when would 73(5) applicable and when Sec 122 (2) (a) would be applicable?

ANSWER

LAW APPLICABLE:

1. Section 73(5) is laid as under

" The person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. "

2. Section 122(2)(a) is laid as under

" for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher; "

INTERPRETATION:

Section 122 of CGST Act quantifies the amount of penalty to be levied when certain offences are committed. Various sections of the CGST Act are constructed as "Charging Sections". The purpose of these sections is to charge or levy the penalty when certain law is not complied with. However, these sections often do not prescribe the amount of penalty to be levied and instead use the words " Penalty as may be prescribed shall be applicable ".

Section 73 of CGST Act is constructed for the purpose of taxing the supply that had escaped taxation for reasons other than fraud/ wilful misstatement. Subsection (5) of this section gives an option to the taxable person to voluntarily deposit the tax and interest as applicable without any charge of penalty if the mistake is self discovered by the taxable person without service of a show cause notice to him. Further Subsection (8) addresses the cases where the taxable person has been served a show cause notice. Penalty would again not be levied if tax and interest is deposited within 30days of the service of show cause notice.
Section 73(10) is applicable if the deposit is not made within 30days of service of show cause notice and now the penalty shall be applicable.
This sub section specifies the situation in which the penalty is to be levied.

For the above case, penalty has been quantified in section 122(2)(a) as " ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher "

CONCLUSION:

Section 73(5), 73(8) and 73(10) specifies three different cases and the penalty is applicable only in the third case, that is 73(10).
Section 122(2)(a) and section 73(9) quantifies this penalty.

In case penalty has been wrongly deposited under section 73(5) the same maybe applied for refund under section 54 CGST. (Reply dt. 02/06/2022)