Paradox Of “Self-Assessed Tax” Under Section 73 Of CGST Act, 2017: Reconciling Voluntary Compliance With Mandatory Penalty

This philosophy finds clear expression in Section 73 of the CGST Act, 2017 which governs determination of tax not paid, short paid, or erroneously refunded in cases not involving fraud, wilful misstatement, or suppression of facts. The provision incorporates mechanisms enabling taxpayers to voluntarily discharge tax liabilities before or shortly after the initiation of formal proceedings. In particular, Section 73(5) permits a taxpayer to pay tax along with applicable interest on the basis of his own ascertainment prior to the issuance of a show cause notice. Correspondingly, Section 73(6) provides that once such payment is made and the same is intimated to the proper officer, no notice shall be issued for the amount so paid.

At a conceptual level, these provisions, which have been borrowed from similarly existing provisions under the erstwhile laws, embody a clear legislative policy to encourage taxpayers to rectify errors and settle liabilities voluntarily rather than engage in protracted litigation. However, a significant interpretational difficulty arises due to the inclusion of Section 73(11). This provision, introduced with a non-obstante clause, mandates penalty where “self-assessed tax” remains unpaid beyond thirty days from the due date of payment.

This gives rise to an important interpretational question: Can a taxpayer who voluntarily discharges tax liability upon discovering an omission still be subjected to mandatory penalty under Section 73(9) of the CGST Act, 2017 on the ground that such liability constitutes “self-assessed tax”?

The resolution of this question lies in understanding the scope of the expression “self-assessed tax”, a term that assumes critical importance within the GST framework but remains inadequately defined for the purposes of Section 73.

The only statutory reference appears in the Explanation to Section 75(12), which provides that:

“self-assessed tax includes tax payable in respect of outward supplies furnished under Section 37 but not included in the return furnished under Section 39.”

This explanation is specifically limited to the operation of Section 75(12), which deals with recovery of self-assessed tax without issuance of show cause notice. As a result, the meaning of “self-assessed tax” for the purposes of Section 73 remains open to interpretation.

A plausible view that may be taken is that the expression “self-assessed tax” covers only those tax liabilities which have been expressly disclosed by the taxpayer in the statutory returns, but for which the corresponding tax has not been paid. On the other hand, a liability which was neither reported in the returns nor otherwise identified by the taxpayer at the relevant time, but is subsequently discovered and discharged, may not fall within the scope of “self-assessed tax.” This view also finds some support from the scheme of the Central Excise Act, 1944, particularly Section 11A(16), where “self-assessed duty” is understood as duty declared in the returns but remaining unpaid.

However, in the absence of a clear definition of 'self-assessed tax' under Section 73, the tax authorities may take a broader view and argue that any liability identified by the taxpayer himself, even at a later stage, should be treated as self-assessed tax. If such an interpretation is adopted, even liabilities identified during internal review and voluntarily discharged may fall within the ambit of Section 73(11).

A particularly difficult situation arises where a taxpayer discovers an omission during internal review and voluntarily discharges tax liability under Section 73(5) before issuance of notice. In such circumstances, the statutory scheme appears to contemplate closure of proceedings without penalty. However, disputes arise where the department characterizes such liability as self-assessed tax that remained unpaid beyond the due date, thereby invoking Section 73(11).

The uncertainty surrounding the meaning of “self-assessed tax” raises several practical questions within GST administration:

• At what stage does a tax liability acquire the character of self-assessed tax?
• Does a liability discovered through internal reconciliation qualify as self-assessed tax?
• Does departmental intervention alter the character of the liability?

In order to address such interpretational ambiguities, a definitive clarification either through judicial interpretation or legislative intervention would help ensure that the statutory scheme preserves the delicate balance between effective enforcement and voluntary tax compliance.

Authors:

Sudeshna Banerjee, Partner,

Akshay Purohit, Principal Associate

Sainag N, Senior Associate . Views are personal.