PAIN POINTS OF GST – PREVENTION THEREOF

By: Ram Chander Sankhla, Advocate | Managing Partner, Sankhla Law associates | Former Chief Commissioner, GST & Customs |

Author can be reached at www.rrsla.com

 

  1. By now, the GST and its intended benefits are well known. However, in this article, focus will be on various pain points being faced by the Businesses and how to prevent them.

 

  1. GST stands for Goods and Service Tax, having the purpose of ensuring one tax for whole nation. It is one TAX i.e. one rate of tax, be it manufacturing, trading or services. The benefits of GST include One and Common National Market, overall reduction in prices due to reduction in cascading effect of taxes and non-intrusive electronic tech system.

 

PAIN POINTS- CAUSES THEREOF:

  1. Today we are discussing about a specific pain point being faced by the trade in general, and various steps/suggestions to prevent/cure it. In the recent past, there have been unusual and unprecedented increase in the number of Show Cause Notices received by the trade. Among other, the issues in such show cause notices are: –
    1. Mismatch between GSTR-1 and GSTR-3B.
    2. Mismatch between GSTR-2A and GSTR-3B.
    3. Mismatching of GSTR-1 and 9 (annual return).
    4. Allegation of wrong availment of ITC due to Suo Moto cancellation of the supplier’s registration by the department.
    5. Time barred availment of the ITC.
    6. Short payment/Non-payment of tax on outward supply.
    7. Non filing of Returns i.e. GSTR-1, 3B, 9, 9A by supplier.
    8. Non receipt of goods/ services but invoices only, and vice versa.
    9. During audit, objections raised by the department.

 

  1. The unusual/ unprecedented increase in the number of SCN issued is due to various extensions granted in the last date of issuance of SCNs, due to COVID-19. For financial year 2017-18, the last date for issuing the show cause notice was extended to September 2023, vide Noti. No. 09/2023-CT dated 31.03.2023. For financial year 2018-19 to Jan. 2024 and for financial year 2019-20, it has been extended to May 2024, vide Noti. No. 56/2023-CT dated 28.12.2023. Thus to ensure that the show cause notices do not become time barred, there is sudden increase in the number of such notices issued by the department. This trend will remain till May 2024.

 

  1. Due to sheer number of these notices and paucity of time at the disposal of departmental officials, basics mistakes are committed by them. There are notices where reasons and conclusions are contradictory; full and complete details are not there; incomplete and unsigned notices are there; notices without mandatory requirement of DRC-01A are received and many more.

 

PENAL PROVISION:

  1. There are penal provisions under section 122 of CGST Act which provides for penalty for certain offences. The penalty under this section will be ₹10,000 or an amount equivalent to the tax evaded or tax not deducted under section 51 or short deducted or deducted but not paid to the government or tax not collected under section 52 or ITC availed or passed or distributed irregularly or refund claimed fraudulently, whichever is higher.

 

 

  1. STEPS/SUGGESTIONS TO PREVENT SCN:
  • To ensure that the goods have actually been received. In the recent judgement of Hon’ble Supreme Court in E Com Gill and Hon’ble Allahabad High Court in case of Malik Traders, it has been held that besides tax invoice, bank transaction and e-way bill, following may be proved by recipient. i.e. furnishing the name and address of supplier, details of vehicle delivering the goods, payment of freight charges, acknowledgement of taking delivery of goods. it is suggested that other things which can be done are; Taking photo of the vehicle along with driver and goods, copy of DL of driver, RC of vehicle, Toll Plaza receipt or fast tag details if any.
  • To address the mismatching of various returns, it should be ensured that the returns are filed carefully and well in time. The timely submission ensures that returns are not submitted in haste which, many times lead to unintended errors between the returns. Timely submission will also ensure that there is no late fee or penalty.
  • To have periodical and regular audit checkup.
  • To reply to departmental correspondences in time.
  • To have robust IT systems.
  • To have trained and regular manpower. To Avoid ad-hocism and irregular manpower.
  • Always asking for personal hearing.
  • And last but not the least, having good and regular advocate/attorney, preferably having knowledge of other related taxation law like Customs, Foreign Trade, FTAs etc.

 

Rights of Entrepreneur:

  1. It is of utmost importance to know about various rights available to businesses. These rights are either due to judicial judgements or codified in GST law, i.e.,
  • Right of personal hearing.
  • To have DRC-01A before SCN in DRC 01.
  • To have speaking order.
  • To insist on following section 126 (general discipline) by departmental authorities.

 

GENERAL DISCIPLINE FOR DEPARTMENTAL OFFICERS :

  1. Knowing about general discipline for departmental officers will help entrepreneurs in addressing various pain points discussed above. In the Indirect Tax regime, Arguably, for the first time, provision regarding general disciplines have been imposed on the departmental officers while imposing penalty. This is provided under section 126 of CGST Act, where under it is mentioned that no officer under this act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence, shall follow natural justice. It is worthwhile to reproduce this section,

SECTION 126. General disciplines related to penalty — (1) No officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.

Explanation.–– For the purpose of this sub-section, ––

(a) a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than five thousand rupees;

(b) an omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on the face of record.

(2) The penalty imposed under this Act shall depend on the facts and circumstances of each case and shall be commensurate with the degree and severity of the breach.

(3) No penalty shall be imposed on any person without giving him an opportunity of being heard.

 (4) The officer under this Act shall while imposing penalty in an order for a breach of any law, regulation or procedural requirement, specify the nature of the breach and the applicable law, regulation or procedure under which the amount of penalty for the breach has been specified.

(5) When a person voluntarily discloses to an officer under this Act the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the officer under this Act, the proper officer may consider this fact as a mitigating factor when quantifying a penalty for that person.

(6) The provisions of this section shall not apply in such cases where the penalty specified under this Act is either a fixed sum or expressed as a fixed percentage. (Emphasis supplied)

10. In the end, as the saying goes, FIRST TO DIAGNOSE AND THAN CURE. I am pretty sure that this article will help in diagnosing and curing the pain points.

DISCLAIMER:  The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the official policy or position of any other individual, organization, employer or Firm. The information provided in this article is accurate and true to the best of the author’s knowledge, but there may be omissions, errors, or mistakes. The authors shall not be liable for any damages, losses, or injuries arising from the use of or reliance on the information presented in this article. Readers are advised to verify any information provided here and to consult with appropriate professionals for specific advice tailored to their individual circumstances.

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