Today’s post would be covering discussion on Section 122(1)(iv) of CGST Act, 2017. The relevant clause read as under-
“(1) Where a taxable person who––
(iv) collects any tax in contravention of the provisions of this Act but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due
The clause seeks to cover the situation wherein any amount has been collected as tax in contravention of the provisions of the Act but the person fails to pay the same to the Government beyond a period of three months from the date on which such payment was due. The clause is attracted provided two conditions are satisfied which are as follows:
Condition-1-Amount is collected as tax in contravention of the provisions of the Act.
Provisions of Section 32 of CGST Act, 2017 provides for prohibition of unauthorised collection of tax. The section provides as follows:
Prohibition for an unregistered person from collecting any sum by way of tax- A person who is not a registered person shall not collect in respect of any supply of goods or services or both any amount by way of tax under this Act. Therefore, unregistered person is completely prohibited from collecting any sum by way of tax under the Act in respect of any supply of goods or services made by him.
Prohibition for a registered person from collecting tax except in accordance with the provisions of the Act-No registered person shall collect tax except in accordance with the provisions of this Act or the rules made thereunder.
For e.g. Section 10(4) provides that a person who for composition levy under section 10 of CGST Act, 2017 shall not collect any tax from the recipient on supplies made by him. Further similarly explanation to section 11 of CGST Act, 2017 provides that where an exemption in respect of any goods or services or both from the whole or part of the tax leviable thereon has been granted absolutely, the registered person supplying such goods or services or both shall not collect the tax, in excess of the effective rate, on such supply of goods or services or both. Therefore, if a registered person has collected tax on any of the situation mentioned in the above two provision say for e.g. levied tax @ 12% on goods which are absolutely exempted form levy of tax, then it would be treated that he has not collected tax in accordance with the provisions of the Statute and has committed an offence as per the provisions of Section 122(1)(iv) of CGST Act, 2017.
Thus, any unauthorised collection of tax by a taxable person i.e. a person who is registered or liable to be registered would be covered under the provision of Section 122(1)(iv) of CGST Act, 2017.
Condition-2-The person fails to the pay the amount so collected to the account of the Government beyond a period of three months from the date on which such payment becomes due.
Meaning of the tern “Fail”-As per Bouvier’s Law Dictionary, the term “fail” has been defined as “to leave unperformed”; to omit; to neglect; as distinguished from refuse, which latter involves an act of the will, while the former may be an act of inevitable necessity.
Failure beyond a period of three months from the date on which such payment becomes due-The failure to pay the tax collected should be for a period beyond three months from the date on which such payment becomes due. The question is when the amount becomes due.
For registered person, whether amount so collected in contravention of the provisions of the Act becomes due to be paid from the date when GSTR-3B is required to be filed or since it is unauthorized collection therefore, it becomes due from the date when it was collected. There is no clarity in this respect, however the amount which is collected in excess of the amount which could have been legally collected, it should become due from the date when it was collected in contravention of the provisions of the Act and rest of the amount which is collected in accordance of the provisions of the law should become due from the date when GSTR-3B was required to be filed.
Further since the provision of Section 122 are also applicable on person who is liable to be registered but not registered, the issue would be when such tax becomes due for them whether it becomes due from the day when it was collected since he is not required to file return under section 39 and entire amount collected by him is unauthorized collection. There again seems to be lack of clarity in this respect but since the entire amount collected by way of tax by him is unauthorized collection and therefore it should become due from the date when it was collected.
A clarity in this regard by the Government would be welcome.
No intent to evade tax required to be proved for the purpose of arriving at the conclusion that whether offence has been committed or not
The offence provided in the clause is for failure to pay the collected tax to the government beyond a period of three months from the date on which such payment becomes due. There is no intent of mens-rea being incorporated into the offence under Clause 122(1)(iv) and a simple failure to pay the tax might amount to offence under the clause without the intent to evade tax being there.
However, another important aspect would be quantifying the penalty. The clause itself might not have the intent to evade present at the time of identifying the offence but whether the quantification clause contains the provision of mens-rea or not is equally important to arrive at the amount of penalty. The manner of quantification of penalty would be discussed later on in the series of article.