A worker holds his goods and services tax (GST) papers. (Photographer: Anindito Mukherjee/Bloomberg)

GST Notices In Gujarat, Karnataka And Hyderabad Have Taxpayers Worried

As the Goods and Services Tax regime nears one year of implementation, the tax department is starting to tighten the screws on inconsistencies in the returns filed and credits claimed.

BloombergQuint knows of instances in which taxpayers in at least three states -- Gujarat, Karnataka and Hyderabad -- have received two kinds of notices from the department. It could not be ascertained if similar notices have been sent out in other states as well.

The first type of notice, mostly issued to clients in Karnataka and Hyderabad, has to do with an alleged mismatch in input tax credit as per GSTR-2A and GSTR-3B. GSTR-2A is an automatic return that GSTN generates for a buyer based on the information provided by his sellers in GSTR-1.

Notices have been sent out for two quarters: July to September and October to December, Pratik Jain, head of indirect tax practice at PwC India pointed out.

The notices essentially say that in these three months, this is what is reflected in GSTR 2A and this what you’ve claimed as credit as per GSTR- 3B. So, either explain the difference in 30 days or pay the balance
Pratik Jain, Head- Indirect Tax, PwC India

Tax officers are incorrectly interpreting the decision taken by the GST Council in its 27th meeting, Jigar Doshi, an indirect tax partner at SKP Business Consulting said. In this meeting, the Council had spelled out a three-phase process of return filing. The concept of matching credits claimed under GSTR-3B with GSTR-2A is to be implemented starting next year.

The Council did provide a mechanism to validate the provisional credit availed but such mechanism was to be implemented at future date in a phased manner. However, before the GST Council could set a process in place, the jurisdictional officers have begun to question the sanctity of credit claimed by the assessees based on vendor returns.
Jigar Doshi, Partner - Indirect Tax, SKP Business Consulting

Principally, this is overriding the powers and decisions of the GST Council and something that should be looked into on priority, Doshi said.

Effectively companies have to match their own purchase records with GSTR-2A, which is available on GSTN, but since GSTR-2A got deferred, very few companies were doing it. But companies will now have to chase their vendors and persuade them to add the complete data, Jain pointed out.

‘If they don’t do that, as a purchaser you’re supposed to reverse the credit, along with interest, and you can avail it when the vendor adds the entire sales data,’ Jain added.

The second set of notices has highlighted the difference in the tax paid as per GSTR-3B and sales disclosed in GSTR-1. Suppliers of goods are required to file invoice-level details of the sales in GSTR-1. GSTR- 3B is a simple, summary return form that doesn’t require invoice-level details and based on which taxpayers claim credit.

This is surprising because it’s the same entity that is filing GSTR-1 and GSTR - 3B; so, the data in most cases that we’ve looked at is accurate. It’s the GST Network that is reading this data incorrectly but the reason for it is unclear since the process is automated, Doshi pointed out.

At the outset, we have seen that notices are being issued electronically and with the difference thrown by the GSTN system which is still building its architecture to handle the technical glitches and number of taxpayers accessing it. Hence, the accuracy of data and issue raised in such notices in most cases is not valid.
Jigar Doshi, Partner - Indirect Tax, SKPBusiness Consulting

Further, the law prescribes a 30-day timeline within which taxpayers should file their replies, but jurisdictional officers are using their discretion to provide timelines as short as three to five days, he added. BloombergQuint has reviewed a copy of such a notice.

A clarification, sought from Central Board of Indirect Taxes & Customs, on reasons for mismatch of data remained unanswered.