Equitas SFB receives GST demand order of Rs 14.32 lakh

Equitas Small Finance Bank

Equitas Small Finance Bank (ESFB) has received a tax demand notice by the Delhi GST Department, totaling Rs 14.32 lakh.

The notice, issued under Section 73 of the CGST/DGST Act, 2017, relates to the fiscal year 2019-20 and highlights issues around the bank's input tax credit (ITC) claims.

The total sum of Rs 14,32,343 consists of the following components: Tax: Rs 7,32,365, Interest: Rs 6,08,926 and Penalty Rs 91,052

The primary issues flagged in the notice include the under-declaration of ineligible input tax credit and claims of ITC from canceled dealers, return defaulters, and tax non-payers.

Despite the significant tax demand, ESFB has stated that there is no material impact on its financial or operational activities. The bank is currently assessing whether to pursue this course of action.

The demand pertains to the fiscal year 2019-20, and the bank has assured stakeholders that it will manage this issue as per the applicable legal framework. ESFB is confident that this will not have a significant impact on its financial health.

Sectoral impact

This tax demand highlights a broader issue faced by financial institutions when dealing with GST compliance. Input tax credit (ITC) is a crucial element in managing tax liabilities, and any discrepancies can lead to substantial penalties and interest charges. This case underscores the importance of maintaining strict compliance with GST regulations, especially regarding ITC claims from non-compliant vendors.

The banking sector, with its intricate transactions and services, often faces challenges in interpreting GST rules, particularly around ineligible credits and vendor compliance. As regulatory scrutiny intensifies, banks may need to strengthen their compliance mechanisms to avoid such penalties.

The outcome of the bank’s potential appeal will be closely watched by industry stakeholders.

This incident is also a call to action for businesses across sectors to ensure diligent adherence to GST regulations to avoid similar issues.