CENTRAL and state Goods and Services Tax authorities have shot off a spate of notices to companies over the last few months. This is likely to only increase in the coming months.
Consider these:
–Summons issued by a state tax authority seeking details about GST payments from a company “based on media reports” of its merger with another company in a different state.
Form 10/10BB rule change: Details of donors giving above Rs 50,000 and their relatives required
A notice issued to a company just by levying a flat 18 per cent GST on the entire turnover raising tax demand of Rs 1,400 crore, without taking into account the tax already paid.
–In the first case, revenue department officials argue the jurisdictional powers of the state GST authority arose as the company had taken registration in that particular state even though its key operations and headquarter were located in another.
But tax notices have been issued to companies across sectors from consumer durables and smartphones to insurance and banking to online gaming and service providers. What has left India Inc worried is not just the multiplicity of notices, lack of uniform process, poor coordination between Centre and state tax authorities, and even understanding in the case of certain tax officials of the VAT (Value-Added Tax) era. Concerns around interpretation also exist as such notices mostly pertain to the initial implementation phase of GST, when there were several teething troubles and constant tweaks in policy decisions.
After sector-specific probes, the scope of the notices over the past few months expanded to cover “underpayment” of tax, “incorrect availment of input tax credit” and “reconciliations differences” between returns filed and financials. This picked up pace before the end of three-year limitation period on September 30 for sending show cause notices for FY 2017-18, which was the first year of the GST regime. The limitation period begins after the filing of annual returns for the year to which the demand is related. Deadlines for filing annual returns had been repeatedly extended during the initial GST phase and later during the COVID-19 pandemic, hence, the limitation period for 2017-18 was also extended till September 30 this year.
Notices have also been sent for subsequent years from FY19 to FY22. Dabur India, LIC, Bajaj Allianz, ICICI Prudential, Star Health and Allied Insurance, Maruti Suzuki, Akzo Nobel, Sheela Foam and ICICI Lombard General Insurance are among companies that have received notices or tax demands.
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A key concern flagged by companies and tax experts is the multiplicity of notices being issued and no uniform process or coordination between state and central GST authorities. In some cases, both have issued notices to the same company. “Many of these notices are pre-intimation notices or summons, a step before the issuance of show cause notices. More information is being sought often with ill-prepared notices asking companies to give details asking for explanations. If in some cases, like it happened in a case where the tax demand was raised based on the turnover, the officer then realises the error, it takes a long time to correct it since the demand has been raised on an official document by them. To withdraw it, a proper explanation from the officer is required to justify the reduction or complete removal of the tax demand, which takes time and makes it cumbersome for the company,” another person aware of the developments said.
In some cases, the notices have been issued by officers who dealt with only value-added tax in the pre-GST regime and not service tax. “There have been some understanding issues as some of these VAT officers have not dealt with service tax matters, which lies in a mix of jurisdiction between Centre and the states,” the person said. Service sector companies are facing a higher brunt of these GST notices as they are required by law to take multiple registrations in every state wherever they are present, which is different from a manufacturing company, which may have limited operations in a few states only.
Abhishek Jain, Indirect Tax Head & Partner, KPMG said, “With normal period of limitation ending on September 30 for adjudication of issues linked to FY 17-18, multiple notices were issued to taxpayers including substantive interpretative ones like taxation of online gaming, taxation of intra company supplies without a consideration, sector specific issues including rate of GST, credit reversals, etc. Similarly, various notices have been issued on routine reconciliation matters like differences in auto populated inward supplies, qua credit claimed by businesses, inward supplies which were blocked under Section 17(5) but have not been reported as ineligible credit.”
In addition, GST notices have also been issued to many multinational companies seeking details of expats and seconded employees working with them, based on a Supreme Court ruling which had ruled that tax is payable for such deputation/secondment. In May last year, the apex court in the case of Northern Operating Systems Pvt. Ltd had held that secondment/deputation of employees from the overseas company to an Indian entity is in the nature of “manpower recruitment and supply services” and hence, would be liable to service tax. This has been extended under GST too by the authorities.
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Some companies on their part have defended the GST levy on expats in many cases by citing enrolment of such employees in India’s social security schemes such as the EPFO, which brings them at par with employees in India who do not face GST on their salary payments. “Some officers agree with the explanation, some don’t, and that then proceeds towards further litigation,” an industry expert said.
The Tax Department has said that cases have been booked using “data analysis aided by advanced technical tools”.
In a statement on October 18, DGGI said it detected GST evasion of Rs 1.36 lakh crore so far during FY24 involving voluntary payment of Rs 14,108 crores. “Since June 2023, special emphasis has been to identify and apprehend the masterminds and disrupt syndicates, operating across the country. Cases have been booked using data analysis aided by advanced technical tools which lead to the arrest of masterminds. These masterminds/syndicates used gullible persons and enticed them with job/commission/bank loan etc. to extract their KYC documents which were for creation of fake / shell firms/companies without their knowledge. In some cases, KYCs were used with the knowledge of the concerned person by paying them small pecuniary benefits,” it said.
In the first six months of FY24, 1040 cases involving GST evasion of around Rs 14,000 crore input tax credit have been detected and a total of 91 fraudsters have been arrested. Queries sent by The Indian Express to DGGI and CBIC did not elicit a response.
The implication of these notices is being viewed as the start of a long battle of litigation under GST which will take the next few years to resolve. For instance, the casino gaming company, Delta Corp Ltd, has already got orders from the Goa Bench of the Bombay High Court and Sikkim High Court restraining tax authorities from any further action on multiple GST demand notices. Tribunals are expected to become functional by next year, which will help businesses to make appeals against the tax demands. “The recent spurt in GST notices makes it essential for businesses to be well prepared with record and reconciliations in place for the periods since July 2017,” MS Mani, Partner, Deloitte said.
The notices are expected to increase hereon as GST authorities will audit cases for financial years after 2017-18. “Owing to the approaching time barring date, notices were issued so that orders for short payment of tax or non-payment of tax or incorrect claim of input tax credit, for cases not involving fraud or other malafide on part of taxpayers. Now, notices for the subsequent periods, for situations with alleged contumacious conduct, to address controversial issues will come to be issued. Hence, taxpayers will have to buckle up and address the barrage of notices,” Ranjeet Mahtani, Partner, Dhruva Advisors said.
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Some experts pointed out the need for the government to bring an amnesty scheme for these GST disputes. “Given that the GST legislation has evolved over a period of time, the government should come up with a one-time amnesty scheme and set up benches of the Tribunal to ensure certainty of taxes for the industry and speedy recovery of taxes for the exchequer,” Saurabh Agarwal, Tax Partner, EY said.
