Deluge of GST Notices to Peak in January, Expected to Wane Post April

Several companies in India were greeted by the taxman at the onset of the festival season four months ago. Central, state, and investigative GST authorities have sent out a flurry of goods and service tax notices since September, and these are likely to continue till the end of April, experts said.

The spike in GST notices, expected to peak this month, is on account of approaching deadlines for issuing notices and orders for the assessment year 2018-19 (Apr-Mar), they said.

“The spurt in issuing notices will be in January for the assessment period 2018-19 owing to the deadline,” one of the expert said. The deadlines for issuing GST show cause notices and orders for the assessment year 2017-18 were Sep 30, 2023 and Dec 31, 2023, respectively, while for 2018-19 they are Jan 31, 2024 and Apr 30, 2024. Assessments for these two years were delayed due to the COVID-19 pandemic.

Media reports said GST authorities have issued demand notices totalling about 1.45 trln rupees in December alone over discrepancies in annual returns and claims for input tax credit for financial year 2017-18.

The frequency of these notices will decline over time, another expert said. “The scrutiny notices might go down, and the only relevant ones may be the ones issued by investigating offices like Directorate General of GST Intelligence and other anti-evasion authorities applicable only in exceptional circumstances.”

In the last few months, state and central GST authorities have issued GST notices to some of the biggest public and private sector companies in India, including Life Insurance Corp of India, NTPC Ltd, Asian Paints Ltd, Vedanta Ltd, Nestle India Ltd, Grasim Industries Ltd, Maruti Suzuki India Ltd, ICICI Bank, Hindustan Unilever Ltd, UltraTech Cement Ltd, and Bharti Airtel Ltd.

The GST authorities are issuing scrutiny notices through their system-generated process that flags cases if there are discrepancies in the details filled by companies in their GSTR form 1 and 3B, experts said. Some of these notices involve large sums, especially for insurance companies. The New India Assurance Co Ltd, for instance, has received a GST demand for 23.8 bln rupees, while LIC has got notices for over 8 bln rupees.

“We have seen more than 40,000 show cause notices being sent for 2017-18, which are system-driven. Whenever the system is not able to reconcile, it issues notices automatically in case of any deviation,” said Bimal Jain, an indirect tax expert at A2Z Taxcorp LLP. 

The reasons for issuing scrutiny notices are discrepancies in annual compliances, reversals of input tax credit, and reconciliation of form GSTR 2A with form GSTR 3B – essentially matching of input tax credits and reversal of common input tax credit in case of exempt supplies, she said.

The GST regime was rolled out on Jul 1, 2017. Considering 2017-18 was the first year of the entirely new indirect taxation regime, there were a lot of discrepancies in the filing of returns due to lack of clarity, the experts said.

“Unlike value-added tax, when yearly assessment was a must, under GST, yearly assessment is not mandatory. But considering the discrepancies in the initial years, scrutiny notices are being issued,” Gupta said. “The entities can clarify and respond to the notices and, in case of negative orders, can move to appellate level as well,” he added.

Most companies that have received the orders have said they will appeal to the respective appellate.

“A lot of notices have been sent to insurance companies and online gaming companies,” she said. According to Jain, notices were served to insurance companies also on account of the investigation launched by the Directorate General of GST Intelligence two to three years ago. The investigations showed insurers had availed input tax credit on marketing expenses.

“Just to get credit, they have taken invoices, whereas they have actually not got any services. This needs to be proven,” Jain said. Big insurers have collectively received notices worth more than 100 bln rupees in the course of this investigation, he said.

Online gaming companies have been in the headlines after the GST Council clarified in July that the sector, as also betting and gambling, will attract 28% tax on full face value from Oct 1.

The government believed that some of these firms had leveraged the lack of clarity on taxation of ‘game of chance’ and ‘game of skill’ before Oct 1. GST on game of skill was 18% and game of chance was 28% before Oct 1. Putting ambiguity to rest, the government made the GST rate uniform at 28% on the full value of bets placed on online gaming platforms from Oct 1.

Last month, the finance ministry said that between April 2022 and October 2023, the government had issued GST-related notices worth 1.12 trln rupees to online gaming companies.

Mr. Jain said GST notices are also being sent to micro, small and medium enterprises because many are not that equipped to file the returns. “They might have made some mistake while filing their (GSTR) 1 and 3B. Medium to large taxpayers are more careful and tax compliant.”

REVENUE PROSPECTS

Experts said the spike in GST notices was not an attempt to shore up revenues of the government but a fallout of a nascent taxation system and then the lull in activity during the pandemic. However, given the massive volume of notices sent for 2017-18 and 2018-19 assessment periods, the government may actually make some money, they said.

“If we consider 2017-18 and 2018-19 primarily, the recovery percentage is high, but from 2019 onwards, the recovery will be low… entities have matured, authorities have matured, and the system has become more formalised. So in the first two years, demand and recovery are quite high and definitely add to the Centre’s kitty, but in subsequent years, the demand and recovery may not be that much,” he said.

Although the aggregate amount of the tax notices looks substantial, it is tough to hazard a guess on the extent to which they will help shore up the government’s revenues, if at all they do. The automated processes that generated these notices picked up the slightest of discrepancies, each of which may or may not translate into a genuine tax demand. There is a good chance that the amount of tax notices might be exaggerated, experts said.

Considering these factors, the government would not be eyeing any major GST gains from these notices. At least not in the coming few months. Just like the companies that have been served notices, the government may also have to wait till April, when the notice-sending drill ends, to actually get clarity on how much of the alleged evaded money will flow into its kitty.

Source from: https://www.informistmedia.com/chome/deluge-gst-notices-peak-jan-wane-post-apr/

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