Why are so many companies getting GST notices; Know Here
On the New Year day, Life Insurance Corporation of India (LIC) got a demand notice of about Rs 806 crore for alleged short payment of Goods and Services Tax (GST) for 2017-18. LIC has received the communication/demand order on Monday for collection of GST along with interest and penalty for Maharashtra state. A day later. LIC was slapped with another tax demand, this time for Telangana state.
Yesterday, Hindustan Unilever (HUL) said it has received a GST demand with penalties of Rs 447.5 crore from authorities of five states over issues such as disallowance of GST credit and salaries including allowances paid to expats. Last week, food-delivery platform Zomato said it received notices from the tax authorities in Delhi and Karnataka over alleged short payment of GST in 2018 amounting to Rs 4.2 crore.
Eicher Motors, Asian Paints, Nestle India and ICICI Pru are some of the other dozens of big companies that have received tax demand notices for the GST payment. The flurry of GST notices have stunned the corporates. These notices are for the recovery of tax liabilities, whether due to non-payment, underpayment, or erroneous claim of input tax credit, for the financial years 2018-19 and 2019-20. Last week, the government gave GST officers more time to issue demand notices for discrepancies in annual returns for 2018-19 and 2019-20 financial years. On Thursday, the government extended the deadline in this regard for 2018-19 fiscal to April 30, 2024 and for 2019-20 fiscal to August 31, 2024.
The gaming industry is facing a tax demand of around Rs 1.5 lakh crore; the insurance industry is contesting a demand of over Rs 5,500 crore; and the real estate sector has received a demand of over Rs 2,000 crore.
The tax authorities have been shooting off tax demand notices for several months now. Tax officers sent around 33,000 GST notices to businesses for discrepancies in returns filed and short payment of taxes in 2017-18 and 2018-19 financial years, a CBIC official told ET in early December.
Notices worry companies
While these tax notices have become a source of worry for companies on various counts (even though they don’t impact business of these companies), they are slowing down mergers and acquisitions (M&As). India Inc is now going back to the drawing board to account for tax liabilities before inking deals and finalising other business transactions.
Several M&As are understood to have been delayed or put on the backburner as tax experts assist companies in figuring out the impact of GST on proposed deals, ET has reported. Many companies have also approached various high courts challenging these GST notices.
For multinationals, so-called secondment remains an issue. Essentially, GST authorities are seeking to tax Indian units of MNCs that are paying salaries to expatriates, on grounds that this constitutes provision of a service to the parent.
Several highly placed officials in top corporations confirmed to ET in November, on condition of anonymity, that there had been a surge in GST notices recently, to which the managements had to devote a considerable amount of time. The chairman of a leading conglomerate said that while GST, introduced in 2017, sought to simplify the tax system and encourage compliance, there was no clarity on why and how the tax was being levied on transactions.”Today, so many resources are wasted on understanding demands and clarifying with concerned officials. Notices, which we have to clarify, should not be sent by multiple authorities,” he said.
One of the expert had told ET, “Several thousands of system-generated notices have been sent to taxpayers without specific allegation and without any application of human mind, merely on the basis of mismatch between GSTR1, GSTR 3B, GSTR 2A, GSTR 9, e-way bills and some reports generated through GST portal.” He said these notices lack clarity on tax applicability. “Also, many taxpayers are… (receiving) notices issued by multiple authorities on the same subject. Corporates are agonising over this,” he said, adding that they were seeking legal recourse, wasting significant time and energy to counter the unwanted litigation.
Why the tax notices are raining
The GST officials say the reason behind a sudden surge in notices is because they could be time-barred. “The law came into effect in 2017,” an official told ET. “However, the government offered relaxation during the pandemic. But now, with the pandemic behind us and many cases getting time-barred, a slew of show cause notices (SCNs) were issued before September 30. This was done with the purpose that there is no litigation on the ground of time-barring,” said a senior government official.
Exemptions and relaxations during Covid times led to piling up of tax demands. And if the motices are nits ent now, the cases could be time-barred later. Experts say the notices will lead to litigation as many concepts are vague, and both regulator and assessee have no clarity.
A flood of GST notices can also be attributed to technology. Tax authorities use technology to issue thousands of time-sensitive notices at the click of a button. An automated return scrutiny module is integrated into a backend application that leverages data analytics to identify discrepancies and risks in GST returns. Consequently, discrepancies in statutory returns are flagged up and a system-generated scrutiny notice is issued to the taxpayer, ET has reported.
Another reason why so many companies got notices in the last months of 2023 was a looming deadline. For the fiscal 2018-19, the deadline December 31, 2023, which was extended to March 31, 2024.
An official had told PTI early last month that the GST appellate tribunal would be put in place in the next four-five months and efforts were being made to identify infrastructure, following which selection process of members would start.