Tax terror or deadline rush? Shower of GST notices may not end soon

Other reasons offered to explain the stream of GST notices is the use of artificial intelligence and lack of procedural knowledge and co-ordination issues.

From online gaming firms to even the country's largest insurance company, no entity seems out of bounds from the Goods and Services Tax (GST) regime, with a flurry of notices over the last few weeks sending Indian companies scampering. And the notices are not for recent matters either.

Sample the following: on September 29, Maruti Suzuki was served a demand for Rs 2,160 crore pertaining to 2019-20. A few days later, Life Insurance Corporation of India was told to cough up Rs 36,844 crore for collection of GST dues, penalty and interest. Also caught in the net earlier this year were a few other insurance companies, among others.

Sanjay Kumar Agarwal, Chairman of the Central Board of Indirect Taxes and Customs (CBIC), has explained the increase in the number of notices as being mostly due to an approaching deadline.

"…in the month of September, the time period in which show cause notices could be issued for the year 2017-18 was getting over. So therefore, the investigations have been concluded by the department, and that might have led to a higher number of show cause notices being issued in September," Agarwal said.

According to Sanjeev Sachdeva, Partner at Luthra and Luthra Law Offices India, the limitation for issuance of show cause notices under GST laws for back demand of tax not paid or short-paid is linked with the limitation for passing an order confirming any such demand.

"In normal cases, the order must be issued within three years from the date of filing of the annual return for any financial year. For 2017-18, the last date for filing the annual return was relaxed to December 2020. Hence, for 2017-18, any order confirming short payment of back taxes must be issued by December 31, 2023. The last date for issuing the notices for such demands was September 30, 2023," Sachdeva said.

"This explains the very large number of notices issued by GST authorities in September," he added.

Also Read: Show-cause notices worth Rs 1 lakh cr served to online gaming firms

This, however, may not be the end of the story.

In case the authorities think that the non- or short-payment of GST was with the intent to evade tax, the last date for confirming the demand is five years from the date of filing of the annual return. So, for 2017-18, the last date for issuing such notices is June 30, 2025, Sachdeva added.

The stream of notices can also be explained by another reason. According to Ved Jain, founder of Delhi-based tax advisory firm Ved Jain & Associates, there seems to be no human judgment in the notices, which have been issued in 'bulk'.

"Many individuals have filed their returns, but the department is issuing notices through AI (artificial intelligence), alleging discrepancies… such mismatches can occur for various reasons. If you deal with items like construction, the Input Tax Credit (ITC) may not be allowed, but it's crucial to investigate the specific circumstances of each GST dealer. If the purchases are related to furniture or trading, ITC is applicable, but not for construction," Jain told CNBC-TV18.com on September 29.

And in cases where human judgment has been used, there are procedural and coordination issues as well, according to The Indian Express.

Also Read: Gaming firms facing retrospective taxation in essence, but not in law

Then there is the law and its implementation itself, with new-age businesses bearing the brunt of the ways in which the GST legislation has been interpreted. The travails of online gaming companies have been well-chronicled, with multiple legal battles over thousands of crores of rupees being fought in various courts. Casino operators too have suffered, with Delta Corp breathing slightly better after getting temporary relief from the courts after being served with a notice for more than Rs 16,000 crore.  But this may only be the start.