Is Taxman getting over-aggressive? – The Hindu BusinessLine

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While many recent searches may be justified, more clarity in the GST law is needed to ensure fairness

During the first few years of GST, the menace of fake invoicing kept troubling the Tax Department. The introduction of e-invoicing curtailed fake invoicing to some extent. Over the last year or so, there have been reports about the GST Department going aggressive by conducting searches and intelligence-gathering visits — most of which are effectively raids.

The arrest memo detailed many Sections of the CGST Act that Odochem Industries had violated — Section 67 (power of inspection, search and seizure), Section 49 (payment of tax, interest and penalty), Section 70 (power to summon persons to give evidence and produce documents), Section 132(1)(a) (punishment for certain offences) and many Sections in Chapter VII (on tax invoice, credit and debit notes).

Many tax defaulters in India have a false sense of bravado — Odochem Industries was no different. When the special public prosecutor made an assessment that the total tax evaded was around ₹52 crore, Odochem Industries nonchalantly asked to take ₹52 crore and refund the balance of cash seized. This case becomes even more intriguing if we consider the fact that political parties have indulged in blame-game, with one of them stating that searches were conducted on the wrong entity.

On the heels of the Odochem search, the Tax Department searched the offices of WazirX — a crypto exchange — and detected evasion of around ₹49.2 crore. Notices have also been issued to other crypto exchanges. Is the GST Department getting needlessly over-aggressive is a question that is on the minds of taxpayers.

Taxpayers in India

Taxpayers in India can be divided into three categories — the good, the okay and the bad. The good taxpayers are the ones who do everything by the book and even when searches are made and information sought, they have it in them to provide it. The ‘okay’ are ones that will comply with the laws after some hesitation and delay. During search, they will provide some information but with time lag since the data may not be readily available. The bad taxpayers are the ones who would state that they were unaware that an indirect tax was applicable to the transactions they are involved in.

In an ideal situation, the Tax Department should leave the good taxpayer to do what he has been doing, ask some additional information from the okay taxpayer, and really go after the bad taxpayer to collect their pound of flesh. Many are of the opinion that the Tax Department is taking an aggressive stance against all taxpayers.

There could be a couple of reasons for this. One, the law is not clear on many aspects, which prompts the Department to take a pro-revenue stance. For instance, in the case of WazirX, the crypto exchange was discharging its liability to GST on fees and commissions but not on its own currency. Till date, there is no clarity on how GST should be levied on cryptos, yet the Department chose to go after WazirX knowing this.

The terms and conditions for getting input tax credit under GST are changing ever so often that a lot of effort and time (for both the Department and the taxpayer) go into getting a definitive answer as to what is eligible and what is not. Another reason why the Department may be taking an aggressive stance towards the entire population of taxpayers could be that they have not been adequately trained on how to interpret generally-worded Sections in the Act/Rules.

This, in turn, forces them to issue show-cause notices that sound more like a threat than a notice. Some notices inform the taxpayers that they should not leave the GST office premises till all information has been provided.

Some summon the CEO of the company to attend a hearing in person despite the company having deputed a person to attend. And some others pass assessment orders considering income tax revenues as a basis — though it is common knowledge that what is taxed under income tax need not be taxed under GST and vice-versa.

Since the appeal mechanism under GST is not yet completely functional, it is imperative that the Central Board of Indirect Taxes and Customs (CBIC) lay out clear guidelines on assessment procedures to be followed to their officers and train them in detail on it. Once this is done, all State governments should issue similar instructions for their respective GST laws.

State governments need to do this as there is a wide disparity between how CGST officers and their SGST counterparts do their assessments. The GST Council can also do its bit by bringing in some stability to the laws and rules. Instead of taking a cursory view, they should take a complete relook at the entire gamut of laws and do a one-time amendment to ensure that the laws abide by the principles laid down by Adam Smith — fairness, certainty, convenience and efficiency.

From experience, this appears impossible but in the remote event that it does happen, it will ensure that the Tax Department turns aggressive only towards the bad taxpayers leaving the good and the okay alone. The Department should be comforted by the fact that such taxpayers are a minority and not the majority.

The writer is a chartered accountant

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