‘Be Consistent With Info To Regulators': Tax Expert Rohit Jain On Increasing GST Notices

There has been a flurry of notices to listed and non-listed companies from the Goods & Services Tax (GST)  department in the last three months. Last week, the GST department conducted a search and seizure at the manufacturing unit of listed company Prataap Snacks, causing its shares to drop. Before that, Delta Corp, the country’s only listed casino operator, was also served a notice of Rs 16,821 crore from the Directorate General of GST Intelligence. The GST department also conducted searches at chemicals manufacturer SRF’s plant in August. 

Other non-listed companies have also received notices and search visits. Insurance companies, both private and public have been getting hefty notices, running once again, into thousands of crores each. Online gaming companies are facing a close to Rs 55,000 crore demand.

Why are GST authorities revving up the action? One of the reasons is the rush to avoid the time-barred assessment deadline. “We have a five years outer limit to complete the assessment,” said indirect tax expert Rohit Jain, Partner at the Mumbai headquartered Economic Laws Practice. “First year of GST implementation, which is 2017-18 is likely to get time barred soon. And therefore it is important for the GST authorities to start the assessment process,” he said. 

There are also industry-wide issues the department is pursuing, for example, in the online gaming industry. “You would see that once you have one industry wide issue being picked up, the GST authorities are now applying that across the players in the same sector and trying to collate it,” Jain explained.

While the notices and visits may be amped up due to the assessment, Jain cautioned companies to stay updated with GST regulations and remain consistent with information to various regulators like the Income Tax department and the GST department. “All the regulators are completely synchronised, the data has been shared among them,” he pointed out. 

Jain spoke to The Core’s Govindraj Ethiraj on the increasing tax notices to companies, what businesses can do to ensure no slip-ups, and his view on the ongoing online gaming industry issue. 

Here are edited excerpts from the interview: 

In the last two or three months, we've seen several cases of companies including listed companies being searched by the GST authorities in all these cases, the stock price fell. So there was an impact on the markets. There’ve been searches on non-listed companies as well, including some prominent ones. Now, and more recently, we've of course seen the fairly aggressive orders being on GST notices being served on the gaming companies. Is this happening because companies are not doing what they should be in terms of paying up on time or making sure their accounts are proper? Or is it that the department is getting more aggressive than perhaps it has ever been?

 

What you read in the newspaper – that there has been searches by GST authorities – the only reason at this point in time is the time barring assessments. First year of GST implementation, which is 2017-18 is likely to get time barred soon. And therefore it is important for the GST authorities to start the assessment process. So what we can see today is all the first year of assessments are being done by GST authorities. 

The second important trend that I see is the industry-wide issue. Because once GST authorities looked at it in one of the instances, the assessments and the inquiry and collate the data, and they identify some of the issues there. They are applying this across the industry. And that's why you would see that be it insurance sector, be it online gaming sector, be it on some of these all sorts of transactions in manufacturing on the damages, you would see that once you have one industry wide issue being picked up, the GST authorities are now applying that across the players in the same sector and trying to collate it. 

And third most important thing unlike in the erstwhile era, GST authorities have actually got more data. Every day the returns have been filed online, the invoices have been generated online and GST authorities are using all the AI tools effectively to mine those data and identify the issues and effectively start looking at the inquiries. So all of these have culminated together, where you will see there have been lots of inquiries by the GST authorities.

 

Can you explain the time-barred assessment a little more? Does this mean that if it's 2017-18 that you talked about, the next round will be 2018-19, and so on? 

What is happening is that we have a five years outer limit to complete the assessment, beyond five years, it becomes a time-barred assessment. More importantly, because of Covid, there has been an extension by the Supreme Court order for two years. And in a normal period, they will have to complete the assessment within three years. In an extended period, they can go up to five years. So March 2018, returns should have been filed sometime in September - December 2018. December ‘18 to December ‘23 becomes a five year period where they have to complete the first year of assessment. 

That is the reason they are now getting into the time barring pressure for the normal period. But once they start the assessment, and if they start for ‘17-’18, they are actually taking up all the five years thereafter as well. Because it is not necessary that they have to complete one after the other assessments. They can do all four or five years assessments together.

 

You talked about industry wide – is it that then some companies will get disproportionately penalised because of one bad egg? Secondly, in some of the cases that I talked about, particularly those listed companies, the GST authorities landed up at the premises of the company. So does that mean that they've gone through a prior process in terms of warning them, alerting them, and then maybe they didn't respond, which is why this happened? Or is it that the GST authorities will land up regardless?

No, I don't think they need to warn before they go on their first search. That's not the process. They can land straight with the search warrant. There could be three reasons behind this – one, they would have got some data which has been suspicious in terms of their data analysis, and therefore, they didn't want to warn them. 

The second could be that they have got the link. One of the things that you have seen in all those fake invoicing cases, where there has been a chain of suppliers raising invoices, so, if they get a link from one supplier, they could easily trace in the GST network the entire link of suppliers. They would have got that information that's why they are straight landed in relation to that. 

Third could be, as I said, industry wide issues where they have started getting that interpretational issue like what we have seen in the recent past in online gaming. So, once they have got some issue in the Gameskraft case, they are applying across all the online gaming entities and to collate the data, different GST authorities are landing at the company's premises.

 

So for those who run enterprises small and large and are in charge of their accounting – what would you recommend, what are the slip-ups that people should ensure that they don't do so as to ensure that no one lines up at their doorstep?

Three points of caution are very critical. One, the GST law has been evolving. There have been more than 1000 amendments plus judgments which have come through since implementation of GST. And therefore it is important for businesses, particularly small and medium sector businesses, to stay updated in terms of the changes in the GST regulations. 

Second point, don't go by the erstwhile regulation. We used to do this in VAT, we used to do this in excise regime or we used to do this in service tax may not hold good under the GST law. GST law has its own nuances, its own set of provisions that one needs to really comply with. 

And third, the most critical point of caution is to be consistent. Income tax we say something else GST we say something else. Other sector-specific regulation, we say something else. That won't get along well. All the regulators are completely synchronised, the data has been shared among the regulators. And therefore be consistent in your position, be consistent in your practice, and don't do any hanky panky stuff in relation to any of these activities. 

 

You did mention Gameskraft and the online gaming industry facing pretty large taxes, running into tens of thousands of crores. What's your reading of that right now?

I believe that the GST authorities have been more aggressive. They have already amended the law prospectively from October 1, 2023, so the GST council should take a view that even if it was an interpretational issue, they should give up and tax it going forward. Why don't they penalise such large taxes which have not been collected? It is even beyond their revenue and turnover. I don't think this is what the industry is looking at. Even on the interpretation of the provisions, we believe that the industry has a very strong case.

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