I have been part of Indian indirect tax system for the past 45 years in different capacities – execution, implementation, enforcement, administration, dispute resolution and finally consultation. The law before the introduction of GST was not considered simple and after introduction of GST it is anything but simple despite our Prime Minister calling it good and simple. Besides the fact that the law is complicated, which is the position in the case of most of the statutes, the tragedy in the case of GST is the fact that the consequences of inadequate understanding are quite often disproportionate to the mistake/avoidance/evasion of the tax involved. In this article I am making an attempt to briefly explain the problems and suggest some remedies.
Mistakes/provisions which can have serious financial consequences for the taxpayers (The list below contains only a few):
1. Non-payment for the supply received beyond 180 days – Payback the ITC with interest.
2. Failure to ensure that the supplier has paid the tax – Payback the ITC with interest.
3. Failure to ensure that the job worker does not return inputs/capital goods within time – Payback the ITC with interest.
4. Pay the differential customs duty without getting the bill of entry reassessed – No credit.
5. Any error in payment of tax including the errors arising because of advice of departmental officers/professionals. Department has up to 4½ years maximum to issue notice – Pay differential tax with 18% interest.
6. Contest the show cause notice and the departmental officer passes order against the taxpayer, mandatory penalty of 10% must be imposed (Penalty for disputing the stand of the department).
7. Non-payment/short payment due to suppression, fraud, misdeclaration – Department has up to 6½ years maximum to issue notice.
8. Litigation is costly – Taxpayer must deposit 10% of the tax for filing first appeal and 20% of the tax for second appeal – Amount returnable with 9% interest if taxpayer wins the case.
9. Transportation of even tax paid goods without documentation/proper documentation – Release of vehicle and goods only on payment of entire tax and penalty equal to tax.
10. Demands for past taxes can cripple an industry in the form of huge demands, interest and penalties besides recurring effect and the long time taken for
11. Draconian legislative provisions regarding attachment of property and other coercive measures to recover the amounts.
The tradition of the past 70 years of frequent changes keeping the indirect tax laws dynamic and complex by frequent tinkering with the legal provisions and procedures continues unabated. From July 2017 till March 2020, we have seen roughly 70 amendments to the CGST Act, 40 Notifications and 372 circulars.
Since disputes and even difference of opinion with the view of the department is costly, following points must be kept in mind by the professionals and the taxpayers.
1. Professional advice should be based on thorough knowledge of GST law, the judicial precedents available in High Court/Supreme Court judgements. In case a professional is not sure, he should not hesitate to consult fellow knowledgeable professional.
2. Statutory audits must ensure that professionals who undertake GST part of the audit are well versed and apply principle stated in item 1. above.
3. When regular clients of professionals seek advice relating to GST law, the advice given should incorporate the statutory and judicial precedents supporting the advice.
4. GST audit and the audit for the purpose of certification of annual return with books of accounts is a new and a different cup of tea compared to the other audits. It is advisable for even experienced professionals to refer to books on the subject of audit available since earlier experience may not be of great help.
5. It is better for the taxpayers to get GST audits done by knowledgeable professionals on a regular basis so that the chances of costly disputes are reduced. If it is not possible, at least once before the first departmental audit takes place, such an audit can be got done. This is especially important because the departmental auditors also rate the quality of internal controls and compliance levels of the taxpayers after the audit. These ratings will have future consequences as regards frequency of audits as well as verification levels during the audit.
6. Best course is for the taxpayer to have at least one inhouse expert on the subject who can consult others when in doubt. He should be authorised to guide the internal auditors of the company and the accounts and stores departments.
7. If the taxpayer determines to rely on own expertise, it is better for that person to go through good books on GST audit and department’s audit manual.