GST Council Addressing Tax Notice Challenges as Need for Tax Compliance Grows

🔍Insights

Prithvi Durai, Apoorva Bajj

Nov 7, 2023 — 4 min read

GST Council Addressing Tax Notice Challenges as Need for Tax Compliance Grows

Amid the deluge of tax notices being slapped on companies, the GST (Goods and Services Tax) Council is receptive to complaints and is said to be providing clarifications on the same. However, the onus lies on companies to be prudent in their tax and financial compliance, said tax experts that StartupTalky spoke with.

The GST Council is an apex body appointed by the government to make recommendations and modifications pertaining to GST.

"In many cases, the GST council is proactively looking into the issues. Some of the issues are getting resolved due to clarifications issued from time to time, but not all of them. The individual taxpayer or their associations are approaching the GST council and they are trying to get a resolution,” said Sunil Gabhawala, chairman of the Indirect Tax Committee at the Institue of Chartered Accountants of India and former president of the Bombay Chartered Accountants’ Society. Gabhawala was also a member of the Study Group constituted by the Maharashtra Government for implementing GST.

The tax department has been slapping tax notices on a number of companies, catching them by surprise.

“To some extent the GST Council is receptive, they are open to hearing the representation and if they feel that there is something where they could give a clarification then they are trying. It is only that the point has to fit into the decision-making process,” Gabhawala said.

GST was implemented in 2017, replacing a multilayered tax system. The first few years of the new tax regime were marked by implementation issues. However, over the past few years, the tax department has tightened the corks and screws of the GST framework.

Recently, the tax department unveiled its GST report, which gave a sneak peek into how the new tax regime had reformed the taxation process.

“The GST was structured to be technology-driven so that there is less scope for compliance issues, tax evasion, and corruption, and to enhance the user experience for both taxpayers and tax officers,” said a report released in April by the Director General of Taxpayer Services commemorating five years of the GST regime.

Need for Tax Experts and Auditors
Notice Corner

Evasion
Mismatches
Input Tax Credit
Change of Rules
Interest and Penalties

Need for Tax Experts and Auditors

A no-frills approach could make business sense at times, but when it comes to financial reporting and compliance, ‘less is never more’, according to some tax consultants.

“It's crucial for companies to maintain accurate records, comply with GST (Goods and Service Tax) laws, and stay informed about any changes in regulations to avoid large tax liabilities and the associated penalties,” said Yogesh Singhania, Chief Business Officer of Hostbooks, which provides digital accounting services.

The need for hiring a professional in matters of taxation and finances has gained further importance as businesses, especially startups, seem unsustainable.

“You cannot always bear the flag of a ‘startup', or a small company, when it comes to compliance. Just to save money, you cannot have a consultant who is not qualified,” said Jatin Chedda from the GST Practitioners of Maharashtra.

Notice Corner

A number of companies from various sectors have received the taxman's notice. We enlist a few types of notices that companies have received:

Evasion

A number of companies have simply not paid up their tax liabilities. In July, Finance Minister Nirmala Seetharaman informed the Parliament that 2784 cases worth INR 14,302 crore of GST tax evasion were detected in April–May, out of which INR 5,716 crore were recovered.

Mismatches

A majority of companies that have received GST notices are where the tax authority has observed discrepancies in the taxes filed. The government had rolled out an automated scrutiny of GST returns, which led to notices being triggered wherein there were data mismatches. These mismatches pertain to different types of returns being filed i.e. monthly and annual.

Input Tax Credit

Of the many mismatches that have been found, those pertaining to taking undue advantage of the input tax credit a number of companies, especially insurance companies, availed of the input tax credit using fake invoices. These fake invoices were issued by intermediaries for services such as marketing, branding, and advertising without actually providing for the underlying service. In September 2022, the DGCI said fraudulent input tax credit to the tune of INR 824 crore had been availed of by 16 insurance companies, out of which some of them had already paid INR 217 crore.

Change of Rules

Companies have to cough up money when tax authorities change laws. The tax department and a number of gaming companie s have been at loggerheads since the former tweaked its law pertaining to gaming companies. The DGCI issued a statement earlier this year stating that from October 1, GST of 28% would be levied on the full value of bets and not on the gross gaming revenue. However, a number of companies are also contesting notices wherein GST has been applied to bets placed before October 1.

Interest and Penalties

Companies such as LIC have been slapped with penalties for paying GST at lower rates. Infosys Limited has been charged a penalty and interest for non-receipt of inward remittances from export proceeds.

Conclusion

The unification of tax laws and technology has added more weapons to the taxman’s arsenal. There is no escaping their hawk-like scrutiny. With a more formal structure in place, the tax department is focusing on its core objective of vigilance. This calls for heightened self-regulation and surveillance from corporations themselves. At the same time, companies must be aware of the procedures and the corporate bodies to approach if they have been erroneously penalized. Henceforth, cutting corners may not be the brightest of ideas when it comes to hiring experts in taxation and financial matters.