System error: How automated notices under GST is leading to proliferation of disputes and litigations

The Goods and Service Tax (GST) has been one of the most complex yet progressive indirect tax reforms implemented in the history of India. The reform involved the integration of the nation’s diverse indirect tax horizon into a single indirect taxation code bringing about a massive responsibility of developing a robust, unified and interactive IT architecture to not just integrate the taxation platform of 36 States, Union Territories and the Union Government, but also to sculpt a single interface structure for all the taxpayers for compliances and reporting.

The Goods and Services Tax Network (GSTN) was entrusted with the complex and herculean task of building the platform to service the needs of diverse stakeholders, be it taxpayers, tax authorities or other governmental agencies, featuring interoperability with other systems such as that of Customs authorities. The responsibilities included the taxpayer migration from the erstwhile regime to GST, registrations, filings, tax remittance, refunds, validating appropriateness of Input Tax Credit (ITC), etc.

During the pre-GST regime, tax officers conducted audits/assessments to ascertain whether there are short payments of taxes, excess availment of tax credits, non-compliances, etc. After detailed analysis and discussions with the assessee, the officers issued notices to the assesses. However, under the GST regime, the notices are auto-triggered basis the intelligences, checks and balances, configurations, analytics and functionalities in-built in the technology platform, relying on data captured from the taxpayer returns/declarations.

This has resulted in a significant spurt in the issue of show-cause notices on taxpayers without any intervention of the tax officers, but solely basis information available on the GSTN, automatically. The issue of system-generated notices are on account of many reasons such as reconciliation of turnover reported in monthly return/declaration in Form-GSTR-1 and Form GSTR-3B or Annual Return in Form-GSTR-9, reconciliation of ITC as appearing in Form-GSTR-2A and ITC availed in Form GSTR-3B, difference tax payable and paid as per Form GSTR-9, the difference in E-way bill generated and Form GSTR-1, demand of interest on delayed filings, etc.

The auto-generated notices are sent to the taxpayers through e-mail on their registered email address, which is also hosted in the GSTN portal for download. Often, notices are issued basis analytics of the data reported by the taxpayer. These auto-prompted communications originating from the GSTN portal are without any pre-notice discussion or calling for clarifications from the taxpayer, but arise out of errors that cannot be resolved through machine intelligence. Often it is noticed that these merely proliferate the litigation ecosystem of GST, without any revenue implication.

There have been numerous interpretational issues under GST which have already led to a multiplication of litigations. Reply to these notices and representation before tax officers have resulted in a manifold increase in time, efforts and transaction costs at the taxpayers’ end. This adds up to the additional data reporting by the taxpayer, especially after undertaking time-consuming monthly/annual compliances. It is indeed disconcerting for an honest taxpayer to receive a notice demanding additional tax and/or submit fresh sets of data multiple times, especially in an environment that mandates periodic, multiple and voluminous reporting.

Technology is the backbone for the success of GST. The technology backbone and use of data analytics have significantly contributed to unearthing fraudulent transactions and collecting legitimate taxes. However, that cannot be a validated hardship to honest taxpayers and it calls for an urgent need to upscale the intelligence built-in the technology platform to reduce avoidable pain caused by auto-triggered notices.The Government has initiated many actions to contain litigation and mitigate the grievances of the taxpayers as is apparent from the efforts in issuing clarifications on interpretational issues, the introduction of a new process to weed out reconciliation challenges in the ITC during the initial years of GST, waiver of fines/penalties for minor offences, etc. The system-generated notices are contributing to the proliferation and clogging of the appellate mechanism.

It is thus expected that a suitable approach to allow the taxpayer to participate in pre-notice dialogue, can assuage the concerns of honest taxpayers. Litigation is war and war usually inflicts heavy casualties on either side.

The writer is Partner – Indirect Tax, BDO India

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