Challenges in Taxation: The Surge in GST Notices for Numerous Companies

On New Year's Day, Life Insurance Corporation of India (LIC) received a demand notice of approximately Rs 806 crore for an alleged shortfall in Goods and Services Tax (GST) payment for the fiscal year 2017-18. LIC received this communication, including a demand order, on Monday, covering GST, interest, and penalties for the state of Maharashtra. A day later, LIC faced another tax demand, this time for the state of Telangana.

In a separate development, Hindustan Unilever (HUL) revealed that it has received a GST demand with penalties totaling Rs 447.5 crore from authorities in five states. The issues raised include the disallowance of GST credit and the treatment of salaries, including allowances, paid to expatriates. Last week, the food-delivery platform Zomato reported receiving notices from tax authorities in Delhi and Karnataka regarding an alleged shortfall in GST payment in 2018, amounting to Rs 4.2 crore.

Eicher Motors, Asian Paints, Nestle India, and ICICI Pru, among many other prominent companies, have recently received tax demand notices related to GST payments. The substantial number of GST notices has taken the corporate sector by surprise. These notices aim to recover tax liabilities, addressing issues such as non-payment, underpayment, or the erroneous claiming of input tax credit for the financial years 2018-19 and 2019-20. 

In response to these developments, the government has granted GST officers an extended timeframe to issue demand notices for discrepancies in annual returns. As of Thursday, the deadline for the 2018-19 fiscal year has been extended to April 30, 2024, and for the 2019-20 fiscal year to August 31, 2024.

The gaming industry is grappling with a tax demand of approximately Rs 1.5 lakh crore, while the insurance sector is challenging a demand exceeding Rs 5,500 crore. In a similar vein, the real estate sector is contending with a demand surpassing Rs 2,000 crore.

Tax authorities have been actively issuing tax demand notices for several months. As of early December, a CBIC official reported that tax officers had dispatched around 33,000 GST notices to businesses. These notices address discrepancies in returns filed and instances of short payment of taxes for the financial years 2017-18 and 2018-19.

Why the Surge in Tax Notices?

GST officials attribute the sudden influx of notices to potential time constraints. The official reasoning is that the GST law was enacted in 2017, with pandemic-related relaxations in effect. However, as the pandemic subsides and many cases approach the time limit, a flurry of show cause notices (SCNs) was issued before September 30. The goal was to prevent litigation based on time constraints, according to a senior government official.

Exemptions and relaxations during the Covid period resulted in a buildup of tax demands. If notices are not sent promptly, the cases could become time-barred later. Experts anticipate that these notices will lead to legal challenges, given the vagueness of many concepts with unclear guidelines for both regulators and assessors.

The significant increase in GST notices can also be attributed to technological advancements. Tax authorities utilize technology to issue thousands of time-sensitive notices efficiently. An automated return scrutiny module, integrated into a backend application, employs data analytics to identify discrepancies and risks in GST returns. Consequently, discrepancies in statutory returns trigger system-generated scrutiny notices to taxpayers, as reported by soruces.

Another contributing factor to the surge in notices towards the end of 2023 was an impending deadline. For the fiscal year 2018-19, the original deadline of December 31, 2023, was extended to March 31, 2024.

An official mentioned last month that efforts were underway to establish the GST appellate tribunal within the next four to five months. The focus was on identifying infrastructure, paving the way for the selection process of members to commence.

Also Read: LIC Receives GST Demand Notice of Rs 806 Crore; Plans to Appeal the Order

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