The Institute of Chartered Accountants of India (ICAI) has raised concerns over the recent mass issuance of Show Cause Notices (SCNs) by the Goods and Services Tax (GST) Department in Assam. These notices, dated September 2023, have been a point of contention due to their apparent rushed issuance and failure to consider individual case specifics.
ICAI, a statutory body established under the Chartered Accountants Act of 1949, has been instrumental in regulating and developing the profession of Chartered Accountancy in India. Recognizing the challenges associated with the implementation of the GST system, particularly during its initial phase when the GST portal faced technical glitches, the government had assured stakeholders that bona fide errors made during the early stages would be treated leniently.
However, it appears that these assurances have not been heeded in the case of the mass SCNs issued by the GST Department. These notices pertain to recovery of alleged GST shortfalls, reversal of Input Tax Credit (ITC) due to mismatches under various GST tables, ineligible ITC claims, and discrepancies related to GST returns. The trouble pointed out by ICAI is that these notices seem to have been dispatched mechanically and in haste, often right before the extended deadline for their issuance in September 2023.
The ICAI’s representation has highlighted several issues with these notices, including:
- Notices are issued based on GSTR-9 filings for FY 2017-18, despite necessary corrections and rectifications made in GSTR-9/9C, along with the filing of DRC-03, which have not been considered when these notices are issued.
- When ASMT-10 notices are issued to taxpayers, replies have already been filed in response to ASMT-11, and orders have been issued under ASMT-12. However, these responses and orders are not taken into account when issuing new notices.
- In some cases where ASMT-10 notices have been issued and replies filed in ASMT-11, proceedings have not been completed, and orders under ASMT-12 are pending. Nevertheless, new notices are issued without acknowledging the ongoing proceedings under Section 61.
- Despite the prior issuance of DRC-01 notices under Section 73 or Section 74 by either SCST or CGST, new DRC-01 notices are issued based on auto-populated figures, without reference to previous proceedings or stated reasons for the issuance of additional notices.
- In cases where GST audits under Section 65 have been completed by either COST or SCST and DRC-01 has been issued, ADT-02 notices have been sent as part of the audit’s closure, even when all audit points have been resolved. Despite this, new notices are issued without recognizing the completion of Section 65 proceedings.
- Even when enforcement activities have been carried out by either SCST or CCST, and show cause notices have been issued, additional notices are sent without acknowledging ongoing or completed enforcement proceedings, and reasons for the new notices are not stated.
- In instances where registered persons are already in the appeal stage for FY 2017-18, new DRC-01 notices are issued on the same issues.
- Notices have been issued for the reversal of Input Tax Credit (ITC) based on the assumption of a “Common Credit” in an arbitrary manner. This approach is flawed, as it considers the total ITC without accounting for Rule 42 or ITC related to taxable supplies. This has led to unrealistic and excessive amounts being included for the purpose of reversal under Rules 42 and 43, including certain items on which GST is not levied.
- DRC-01 notices have been issued in many cases under Section 17(5) of CGST/SGST without taking into account the specific exclusions provided under Section 17(5). These notices rely solely on the HSN code filed by the supplier for invoices in GSTR-2A, without considering whether the taxpayer has actually claimed the credit or the nature of the taxpayer’s business.
- Notices have been issued based on differences between the tax declared and the tax paid in cash or through ITC adjustments, without considering corrections made in subsequent GSTR-1 filings or returns. Mistakes in GSTR-1 and GSTR-3B have been rectified in later returns, but this has not been recognized.
- Notices have been issued based on differences in ITC between GSTR-3B and Table 8A of GSTR-9, despite the unavailability of GSTR-2A for FY 2017-18. The figures auto-populated in Table 8A were only up to a certain date, which is not specified as a cutoff date in GST law. In reality, for the period from July 2017 to March 2018, only the conditions of Section 16(2), as applicable at that time, should be considered for claiming ITC. However, these crucial factors have been disregarded, and notices have been issued, linking ITC eligibility to Table 8A of GSTR-9/GSTR-2A.
The ICAI has made several recommendations to address these issues:
- Prioritizing the disposal of cases with defective notices, dropping the demand, and withdrawing the notices if the highlighted defects are found. Taxpayers should be informed of these actions to avoid unnecessary litigation.
- Developing a standard operating procedure for dealing with such notices and creating a specialized cell to scrutinize them before further action.
- Implementing a special procedure for closing businesses or handling cases of deceased individuals with surrendered registrations and final returns.
- Ensuring sufficient time for personal hearings, following principles of natural justice, and providing relied-upon documents to taxpayers.
- Recommending to the GST Council the waiving of interest and penalties on demands arising from these notices for the FY 2017-18 period as an amnesty measure, given earlier assurances by the government.
ICAI also stated that the deadline for issuing a show cause notice for the financial year 2018-19, as specified under Section 73 of the CGST/Assam GST Act, is also set to expire on or before December 31, 2023. Thus, requested that the aforementioned concerns be addressed before the issuance of notices for FY 2018-19, with the aim of reducing legal disputes and facilitating a business-friendly environment in the state of Assam.
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