ABB India Evaded Tax, Suppressed Facts, Says GST Adjudicating Authority

The authority—the first level to resolve tax disputes—ordered the Indian arm of the Swiss-Swedish company to pay a penalty of Rs 5.58 crore, equal to the amount it allegedly evaded, according to an assessment order issued on Sept. 17.

The goods and services tax anti-evasion unit had alleged that the maker of equipment for power and heavy industries deliberately misclassified turbochargers supplied to the railways with “mala fide intention” to evade GST by “suppressing correct classification” of the product.

ABB India, in an emailed response to BloombergQuint, said, “The interpretations of certain evolving laws and policies together with customer isn’t tax evasion but interpretation that’s under clarification with right authorities.”

Prosecution Of Officials?

The company could face more trouble as tax authorities are mulling prosecuting top officials at ABB India, a person with direct knowledge of the matter said on the condition of anonymity since the information is not public yet.

The Central Goods and Services Tax Act, 2017, provides that when the loss caused to the exchequer is more than Rs 5 crore for any offence prescribed under Section 132, then the tax authorities have powers to arrest company officials, Udit Gupta, partner at law firm Udit Kishan & Associates, told BloombergQuint. Since ABB India has paid the tax with interest, its officials can move court and seek protection from arrest, he said.

Sections 132 (1) (e) and 132 (1) (i) of the CGST Act provides for a prison term of up to five years and a fine.

ABB India, in its response, said since the payment of the entire “differential amount and the interest has been done within 30 days of receiving the summons proves the bonafides, we believe that it doesn’t give rise for the requirement of initiating prosecution filing, if any”. It also said the company paid Rs 5.58 crore “under protest”.

According to Krishan Arora, partner at Grant Thornton India LLP, “Prosecution provisions are generally invoked when a mens rea, or a blatant intention, to evade tax is established against an assessee in cases of fraud, misrepresentation, false documents and incorrect disclosures.”

Before deciding whether a matter is fit for prosecution, courts carefully consider factors such as historical facts, sanctity of tax treatment adopted, compliance status and dealings of the assessee, the true legislative intent and any applicable judicial precedents around the matter, Arora said.

The Directorate General of Goods and Services Tax Intelligence had alleged that by misclassifying turbochargers supplied to the Indian Railways, ABB India paid a lower GST rate of 5 percent against the applicable 28 percent and the reduced 18 percent.

The turbochargers misclassified should be classified under Heading 8414 8030 of the GST tariff which specifies it to be taxed at 18 percent, according to the adjudicating authority’s order.

The company said it “continues to hold a view that it has rightly classified the goods under the relevant chapter, and hence it contemplates to contest the matter further”. Since the dispute is one involving classification, there can be no allegation of suppression with an intent to evade payment of duty, as claimed in the order and this would also be contested by ABB India, the company said.

The investigation by the tax authorities relates to the period between July 2017 and December 2018. The company, in its submissions to the department’s investigation, said it classified its product under a lower tax slab based on a letter it received from RITES Ltd. that classified the product under a lower GST rate. The tax department had said RITES isn’t an authority that can decide on classification of GST rates.