In recent weeks, the central and state GST authorities have issued demand notices to companies spanning a range of sectors — from consumer durables to smart phones, insurance, online gaming and service providers. As reported in this paper, LIC has received one notice for Rs 290.5 crore in September. HDFC life insurance has received a notice for non-payment of GST to the tune of Rs 942 crore. FMCG major Dabur has received a notice of tax shortfall amounting to Rs 320 crore. Gaming major Delta Corp has received several notices which run into thousands of crores. While it can be nobody’s case that tax authorities should not pursue legitimate demands, some of the issues raised over the nature of these notices warrant closer examination.
The notices seem to largely pertain to the initial period after the shift to the GST regime — a time marked by considerable uncertainty and teething problems — and gathered momentum towards the end of the limitation period on September 30. Their scope was expanded to include “underpayment” of tax, “incorrect availment of input tax credit” and “reconciliation differences” between returns filed and financials. The concerns raised revolve around the multiplicity of notices, the absence of a uniform process and lack of coordination between the Centre and state tax authorities. In one particular case, state tax authorities have sought information about GST payments from a firm “based on media reports” of its merger with a company in a different state. Recently, GST notices have also been sent to several multinational companies on the levy of tax on expats and seconded employees working with them, following a court judgment on the issue.
Since its inception, the GST system has been marked by constant tweaking and significant leakages. The tax administration has over the years worked to address the gaps in the system. Between April 2020 and September 2023, more than 6,000 cases of fake input tax credit have been detected. These involved tax evasion of more than Rs 57,000 crore. In the ongoing financial year, so far, 1,040 such cases involving Rs 14,000 crore have been identified. While the tax system must ensure that firms pay their fair share of taxes, and leakages are minimised, it must also work towards simplifying the tax rules, reducing uncertainty and discretion in the system and easing the compliance burden. Not doing so will only lead to more litigation, with the amounts under dispute in the case of direct taxes, both corporate and personal income tax, already in lakhs of crores.