The Goods and Services Tax (GST) was introduced in India with the promise of simplifying and harmonizing the indirect tax system, reducing the cost of production, and promoting tax compliance. However, the practical implementation of GST has been marked by challenges and technical glitches in the GSTN portal. Taxpayers have faced issues such as incorrect GST return filing and data discrepancies. To address these concerns, the government assured taxpayers that bona fide mistakes during the initial implementation would be considered liberally.
Mass GST Notices in September 2023
In September 2023, a wave of GST notices was sent to taxpayers for alleged shortfalls in GST payments, input tax credit reversals, and other issues. These notices were system-generated and, in many cases, were issued without prior communication or intimation to the taxpayers. The notices seem to have been issued hastily and without due consideration of individual case facts.
The legal procedures outlined in Rule 142(1A) of the GST Rules, which require issuing consultative notices before formal show cause notices, were not followed. This lack of adherence to the law has raised concerns among tax consultants and professionals.
Issues with Mass GST Notices
Several issues have been identified with the mass issuance of GST notices:
1. Notices are issued based on GSTR-9 filed for the FY 2017-18, without considering corrections made in GSTR-9C and filed DRC-03.
2. In cases where Form ASMT 10 notices were issued, replies were already filed in Form ASMT 11, and orders were issued in Form ASMT 12.
3. Notices were issued based on differences in tax declared and tax paid in cash and by adjustment of ITC as per GSTR-9 without considering subsequent rectifications.
4. In many cases, notices were issued based on differences between GSTR 3B and GSTR 2A, ignoring the fact that GSTR 2A was not available for FY 2017-18.
Request for Priority Handling
Tax consultants and professionals have requested that the following steps be taken to address the issues with mass GST notices:
1. Drop notices in cases where inquiries have already been conducted, audits have been completed, or proceedings have been closed with factual submissions.
2. Withdraw notices found to have defects, as highlighted above.
3. Ensure that proper show cause notices are issued, following the legal procedure, in cases where a valid reason exists.
4. Establish a standard operating procedure and a special cell to scrutinize the notices.
5. Instruct officers not to take any action based on mass notices until the suggested mechanism is in place.
6. Provide sufficient time for personal hearings and ensure the principles of natural justice are followed.
7. Share the list of individuals who have received notices with local associations to avoid non-compliance due to lack of awareness.
Impact and Suggestions
The slow issuance of DRC-01/DRC-01A notices for FY 2017-18 has caused a ripple effect in the department’s functioning, resulting in a backlog of show cause notices and adjudications. Taxpayers are facing a heavy interest burden due to the time gap in the issuance of notices.
To mitigate the impact and ease the burden on taxpayers and businesses, it is essential to prioritize the disposal of these cases. Additionally, the government should focus on reducing litigation and promoting ease of doing business in Gujarat.
The mass issuance of GST notices in September 2023 has raised concerns among tax consultants and professionals. Issues with the legality and procedural compliance of these notices have been highlighted. It is imperative that the government takes appropriate measures to address these concerns and ensure that the GST system operates smoothly and fairly for all stakeholders.
All Gujarat Federation of Tax Consultants
Income Tax Bar Association
Dt. 10th October, 2023
Respected Shri Samir Vakil
Chief Commissioner of State Tax- Gujarat,
GST Bhavan, Ashram Road
Sub : Representation with regard to mass Show cause notices issued in the month of September 2023
1. About All Gujarat Federation of Tax Consultants and Income Tax Bar Association:
The All Gujarat Federation of Tax Consultants (AGFTC) founded in 1992, is the first and only Apex Regional Body of Tax Advocates, Chartered Accountants and Tax Practitioners / Tax Professionals of Gujarat, having membership strength of 1500 professional and institutional membership of 37 local bar associations from all the District of Gujarat.
The Income Tax Bar Association (ITBA) is established in 1947 with an aim to represent issues of tax consultants and increase awareness among taxpayers. The Income Tax Bar Association is one of the oldest and active bar association in India. It regularly organizes Conferences, Study Circle Meetings, Two Day Tax Conclave so on & so forth for the benefit of the members. It has a membership strength of more than 1200 Tax Advocates, Chartered Accountants, and Tax Practitioners.
The prime object of the federation and association is not only to work for the cause of the professionals but also educate the public at large. We act as a Catalyst between citizen and Government authorities. We regularly organize Seminars, Webinars, Tax Conclave and Lecture on legal awareness in mofussil areas across the Gujarat. The Two-Day Tax Conclave is the landmark event of the Association which has become an annual bookmark for the tax professionals in the state of Gujarat.
2. The Goods and Service Tax was introduced with an object to simplify and harmonize the indirect tax regime in the country with the expectation to reduce the cost of production and inflation in the economy thereby making the Indian trade and industry more competitive, domestically as well as internationally. It was envisaged that after implementation, the seamless transfer of input tax credit from one stage to another in the chain of value addition would incentivize tax compliance by the The object clause of the Finance Bill also anticipated that the goods and services tax will broaden the tax base, and result in better tax compliance due to a robust information technology infrastructure.
3. At the time of implementation of the Goods and Service Tax regime, it was expected that being a new law there is a possibility of mistakes being committed by many in the practical implementation of the provisions of the In the initial period, the portal has also faced several technical glitches, making it difficult for taxpayers to even log in, file returns on time, etc. The technical issues also resulted in incorrect GST Returns filing and resulting in incorrect data on the portal. Considering the issues of implementation of the New Law and issues faced due to technical bugs of the GSTN, Government had in various forums given assurance that the bonafide mistakes committed in the initial implementation of the law would be considered liberally.???. However, based on analytical data received from the information technology infrastructure set-up, the Department has already initiated inquiry under various modes prescribed under GST, and in most of the cases where the discrepancy in turnover, discrepancy in ITC, Discrepancy in Tax liability, and Payment, etc. have already been the subject matter of inquiry under section 61, 65, and 67 of Central Goods and Services Act, 2017/Gujarat Goods and Services Tax Act, 2017. The initial year of 2017-18 was also no exception to this.
4. Now, during the month of September 2023, taxpayers are in receipt of GST notices in mass, for recovery of the alleged shortfall in payment of GST, for reversal of input tax credit, etc. on issues such as mismatch of output GST liability, input tax credit (ITC), reversals of ITC relating to exempt supplies, etc. under the Central/Gujarat Goods and Services Tax Act, 2017. These are system based notices. In most of the cases, the notices have been communicated over mail in first week of October 2023; although issued at portal with no intimation over mail / messages during September 2023.
5. It seems that the notices are issued in haste and at the last moment in a generic manner without considering the individual facts of each case. The notices have been issued without following the procedures of the Rule 142(1A) of the GST Rules provides for issuing consultative notice in FORM GST DRC-01A before issuing notice in FORM GST DRC-01 which are not issued. Unfortunately, the preliminary requirements of law have not been followed and notices have been issued under section 73 or 74 of the GST Acts without proper application of mind on the last moment.
6. We have been informed by the members at large that such notices are vague and completely lacking in fulfilling the ingredients of a proper Show Cause Notice Under Section 73 / 74 of The CGST/SGST Act. On verification, many such notices are found to be bad and illegal as can be seen from the following :
(1) Notices are issued based on GSTR-9 filed for the FY 2017-18, however, the required correction/rectification has already been made in GSTR-9C, and DRC-03 has already been filed. (Same is not considered while issuing notices).
(2) Where Form ASMT 10 Notice is issued to a tax payer, the reply is already filed in Form ASMT 11, and an Order is issued in Form ASMT 12. (Same is not considered while issuing -notices).
(3) Where Form ASMT 10 Notice is issued, a reply is filed in Form ASMT 11, and Order in Form ASMT 12 is not issued till date. (Same is not considered while issuing – notices).
(4) Where DRC 01 is already issued (either by SGST or CGST) and now new DRC 01 is issued based on system discrepancies are observed herein above. (Same is not considered while issuing notices).
(5) Where GST Audit U/s 65 is completed (either by CGST or SGST) and DRC 01 is issued / Form ADT-02 has been issued as part of completion of audit without any audit para remaining unsettled. (Same is not considered while issuing notices).
(6) Where Enforcement activity is conducted either by SGST or CGST and show cause notice is issued. (Same is not considered while issuing notices).
(7) Where the registered person is already at appeal stage for FY 2017-18 and for the same point still DRC-01 issued yet again; (Same is not considered while issuing notices).
(8) It is also noticed that in some cases proceeding under SGST/CGST has already undergone and tax has been paid in part and for the remaining part department has closed the proceedings, considering factual submission. However still DRC 01 for both para is issued. (Same is not considered while issuing notices).
(9) Notice for Reversal of ITC on a total claim of ITC instead of Common Credit has been made. (Working mechanism adopted is faulty and as total ITC has been taken as common ITC higher amount of reversal worked out by the department in the notices).
(10) In some cases, though expressly provided in Act and Rules to exclude certain exempt supplies for the purpose of calculation of reversal under Rule 42 & 43 same is not taken into consideration. Certain items, on which GST is not levied, have also been considered for the purpose of calculation of reversal under Rule 42 & 43. (Working mechanism adopted is without considering this legal aspect)
(11) DRC-01 has been issued in the cases under section 17(5) of CGST/ SGST without appreciating the fact that restriction under section 17(5) of CGST/ SGST is not applicable when ITC is taken in the furtherance of business or under eligible circumstances. (Notices issued through Form DRC-01only based on HS code appearing in GSTR-2A of the tax payer which is incorrect).
(12) In many cases notices have been issued based on differences in tax declared and tax paid in cash and by adjustment of ITC as per FORM GSTR 9 without taking into consideration the fact that:
– the higher amount in GSTR 1 compared to GSTR-3B has been rectified in the GSTR 1 filed in subsequent periods within allowed timelimits;
– the mistake occurred in filing GSTR 1 and 3B, has been rectified either in the returns filed in subsequent periods or GSTR 9
(13) In all the cases, notices have been issued based on differences of ITC between GSTR 3B and GSTR 2A, without application of logic and the simply ignoring the fact that GSTR 2A was not available and not applicable in FY 2017-18. In fact for the period July 2017 to March 2018, for claiming ITC, only the conditions of section 16(2) are to be considered. However, this fact has been ignored, and notices have been issued, holding that ITC reflected in GSTR 2A is only eligible under section 16(2).
7. It is requested that suitable arrangements be made to prioritize the Disposal of a few categories of cases.
(1) The notices where an inquiry under any of the provisions of CGST/SGST has been made or an audit undertaken should be dropped.
(2) If any defects in notices are found as highlighted above, the notices should be withdrawn without requiring the presence of the taxpayer or their representative, with intimation to the taxpayer.
(3) If the Department believes that the notices issued are for a valid and legal reason, the proper officer may be directed to follow the legal procedure and issue a proper show cause notice to the taxpayer.
(4) A standard operating procedure should be prescribed and to be intimated to all subordinate offices. Additionally, a special cell of high-ranking officials must be constituted to scrutinize the same.
(5) Instructions should be issued to the officers not to take any action based on mass notices issued until the suggested mechanism is evolved.
(6) In case of closure of business or in the case of a deceased person where registration has been surrendered and a final return has been filed, a special procedure should be adopted to avoid litigation.
(7) Instructions should be provided to give sufficient time and allow for a personal hearing in all cases, and to ensure that the principle of nature justice is followed.
(8) It is also requested that the list of person in whose case notices are issued to be circulated to local association for follow up to avoid non-compliance of notice due to unawareness of taxpayer.
8. A large number of taxpayers and the consultants have also expressed the viewpoint that the department has access to all records and Information Technology Infrastructure, and could have processed and issued DRC-01A (and in required cases DRC-01), promptly after furnishing of the Annual Returns in Form GSTR-9 / 9C for the period FY 2017-18, which were available on portal much earlier than September 2023.It would have helped to reduce the time gap of almost six years resulting in a heavy interest burden equaling to the quantum of tax and causes hardship to the businesses and later recovery of the demands on the part of exchequer.
9. Kindly note that this slow process of issuance of DRC-01/ DRC-01A after almost Six years has now led to a butterfly effect on the working of the department till now and another issue is flooding of show cause notices and adjudication to be done within a very short time.
10. The time limit for issuance of Show cause notice for FY 2018-19 under section 73 of CGST/SGST Act is also falls on or before 31.12.2023 and we request that the above issues shall be taken care of before issuance of notices in the similar manner, to reduce litigation and for ease of doing business in the state of Gujarat.
11. We humbly request you to consider the above representation by All Gujarat Federation of Tax Consultants (AGFTC) and Income Tax Bar Association (ITBA), do the needful, and oblige.
Thank you for your attention to this matter. We look forward to a positive response and co-operation.
For All Gujarat Federation of Tax Consultants
|CA Ravi Shah President||Adv. Dhiresh T. Shah, Chairman Representation committee||ADV. Bharat L. Sheth Chairman, Indirect Tax Committee||CA (Dr.) Vishves Shah Sr. Vice President||CA Shridhar Shah Hon. Secretary|
For Income Tax Bar Association
|CA Ashish Tekwani
|Adv. (Dr.) Dhruven V. Shah
Chairman – Representation Committee
|CA Jaykishan Pamnani Hon. Secretary|