On the supply of goods and services in India, GST would be the complete indirect tax that would get charged. The Goods and Services Tax (GST) has been in place for more than five years, but the GST litigation is still in its infancy. It is anticipated that as time quickly passes, more and more disputes would arise.
Future legal disputes will be facilitated by issues with transition credits, late or non-filing of GST returns, refunds of taxes, the complexity of import and export levies, e-way bill structures, and many other areas. Given this context, it’s critical to comprehend what GST litigation entails.
Latest Update
- There has been an update regarding the GST (Goods and Services Tax) guidelines, which is Instruction No. 05/2023. This update is related to a legal case involving a company called Northern Operating Systems Private Limited (NOS). Read more
What is the Term GST Litigation Specified?
GST litigation specifically refers to disagreements relating to the interpretation, application, and enforcement of tax laws, the categorization of goods and services, the calculation of tax liability, the applicability of GST exemptions, and other matters pertaining to the administration of GST in India.
Main Reasons for GST Litigation
Retrospective Modifications in the GST Act: Retrospective effects are a result of some Act modifications. The taxpayer, might not be aware of these tax situations and may have adopted different tax positions, resulting in conflicts and arguments.
Pronouncement of Orders: There have been disagreements between taxpayers and tax authorities as a result of decisions made by high courts, apex authorities, and advanced ruling authorities on the same matter. For instance, a number of high courts have issued varying rulings on the issue of refunds resulting from inverted tariff structures. However, the decision made by the supreme authority in the case of VKC Footsteps resolved the same issue.
Understanding of GST Law: Confusion, disagreement, and conflict would get emerge when taxpayers and tax authorities have different interpretations of the law regarding the application of the GST on a particular sale of goods and services.
GST Compliances Mismatch: Mismatches between taxpayer returns and data held by the tax authorities result in the launch of non-compliance proceedings against taxpayers.
What are the Phases of GST Litigation?
GST Audit & Assessment: The tax authorities perform an audit of the information provided by the taxpayer, including returns, tax invoices, and additional pertinent records, during this initial round of the GST litigation. When a tax authority notices some inconsistencies, it sends the taxpayer the following show-cause notice:
- Notice Under Section 73 of the CGST Act, 2017: Show cause notice towards the demand beneath the normal period.
- Notice Under Section 74 of the CGST Act, 2017: For the demand beneath the extended period a show cause notice would get issued.
Protest: The taxpayer may register an objection with the tax authorities if they disagree with the assessment or audit.
Adjudication: For the final decision the case would be referred to the adjudicating authority if the objection would not get solved. Post acknowledging the objections which the assessee filed the adjudicating authority would opt for the final decision.
Appeal: The taxpayer has the right to appeal appellate authority if they are not happy with it.
GST Litigation Deliberated Cases
There are several deliberated cases which occur between taxpayers and tax authorities such as GST rate classification, ITC refusal, place of supply, anti-profiteering, return mismatch, tax refund, etc.
Differences in Classification and GST Rates
The classification of goods and services and the applicable tax rate are two of the main topics of GST disputes. Due to the GST law’s extensive list of categories and rates, taxpayers frequently struggle to determine the appropriate classification and rate for their supplies. The classification of certain commodities or services may give rise to disagreements, which may result in tax authorities sending notices and taxpayers contesting the letters.
Input Tax Credit Refusal
A key component of GST is the input tax credit (ITC), which enables taxpayers to offset their output tax obligation with the tax paid on inputs. However, tax authorities have been strict in determining whether ITC claims are eligible, which has resulted in conflicts and litigation. ITC denials frequently have legal ramifications because of things like non-compliance with paperwork requirements, disagreements over ITC on certain expenses, or discrepancies between invoices and returns.
Main Location of the Supply
Since GST is a destination-based tax, identifying the location of the supply is essential to figuring out the tax obligation. But disagreements frequently occur when defining the place of supply, particularly when commodities or services are exchanged between various states or jurisdictions. Conflicting interpretations between taxpayers and tax authorities may result in legal disputes over the proper location of the supply and the accompanying tax obligations.
Read Also: Best Verified Strategies to Handle GST Litigations Easily
Analyses of Anti-profiteering Activity
To make sure that businesses pass on the advantages of tax rate reductions or input tax credits to customers, the GST law includes an anti-profiteering provision. Anti-profiteering inquiries look into whether companies have actually lowered their pricing to pass along the benefits of the GST. When firms and tax authorities disagree on the size of the price cut or the method used to determine compliance, disputes occur that eventually result in litigation.
Transitional Credit
Businesses were able to claim a transitional credit for the taxes they had already paid under the old indirect tax system due to the introduction of the GST. Regarding the eligibility, calculation, and utilization of transitional credit, there have been disagreements. Tax authorities have been carefully examining requests for transitional credits, and disagreements have led to legal disputes between taxpayers and authorities.
Mismatch B/W GSTR-2A/2B and GSTR-3B Regarding ITC Claim
Businesses would be needed to file distinct returns including GSTR-2A and GSTR-3B under the GST regime. But, the discrepancy between these two returns continues to be a problem for taxpayers. The procedural aspects like Mismatch in GSTR-2A/2B vis-à-vis GSTR-3B are the reason for the most deliberated cases in the current litigation in the present days.
The distinctions in the claimed ITC through the businesses might be directed to the mismatch between GSTR-2A and GSTR-3B. The same things would be directed to the tax liabilities or the losses when the claimed ITC in GSTR-3B would be more than the eligible credit available in GSTR-2A. The mismatch between GSTR-2A and GSTR-3B would get tracked closely by the tax authorities. Disparities may draw scrutiny and audits, which could lead to fines or increased corporate requirements for compliance.
No GST E-way Bills Are Generated
The use of the Electronic Way (e-way) Bill, a document necessary for the movement of goods above a certain value, is a significant component of the GST system. The e-way bill system attempts to make tracking the transportation of products easier and stop tax cheating. However, disregarding e-way bill rules has resulted in a number of lawsuits and legal challenges. Sometimes e-way invoices contain inaccuracies or omissions that lead to disputes. When tax authorities claim anomalies in the information provided, such as wrong values, incomplete addresses, or mismatched product descriptions, taxpayers may face legal problems.
Businesses are frequently required to support their claims on the accuracy of the e-way bill details in these disputes. If tax officials discover irregularities involving e-way bills, they have the authority to seize commodities that are in transit.
This can happen if a bill does not follow the requirements or if products are moved without an e-way bill. Legal disputes may develop when taxpayers protest the seizure, alleging procedural errors or questioning the action’s legitimacy. The deployment of the GST e-way bill system has run into technical issues and sporadic system outages, which has inconvenienced and disrupted enterprises. Legal action has been taken in situations where sincere attempts to generate e-way invoices fail due to technological difficulties.
Disputes Regarding GST Refunds
The GST refund process has several steps and necessitates strict adherence to a number of rules and deadlines. Even small procedural mistakes might result in rejections and delays, which extend the legal process. New rules, notifications, and circulars are periodically published as the GST law is continually changing. These adjustments frequently lead to misunderstandings and discrepancies in interpretation, which result in conflicts between taxpayers and tax authorities.
Refund claims must be verified by tax authorities, and inspection procedures are carried out to guarantee the claims’ veracity and accuracy. However, the subjective character of these verification methods may result in divergent viewpoints and lawsuits. Refund claims must be processed quickly for businesses to keep their cash flow healthy. Regrettably, processing return delays have been a recurring problem, costing taxpayers money and raising the possibility of legal action.
Cross Charge Process Vis-a-Vis ISD Mechanism
The Goods and Services Tax (GST), which went into effect in India in 2017, has been the subject of ongoing discussion and legal disputes. Conflicts over cross-charge mechanisms and Input Service Distributor (ISD) methods have been a major source of conflict among the myriad problems that have come up. The type of expenses that can be regarded as common and eligible for ITC distribution is one of the main concerns in cross-charge litigation.
The classification of certain expenses as directly attributable to certain units or as common and shared by all units frequently gives rise to disagreements. When tax authorities express concerns about the ITC distribution by an ISD, claiming erroneous distribution or non-compliance with the established rules, litigation also results. These disagreements frequently centre on the amount of ITC distributed, the technique employed for allocating it, and the supporting documentation.
Category Confusion Over Intermediary Services
Services are categorized and subject to various tax rates under the GST framework based on their nature. Depending on the precise nature of the service offered, intermediary services may come under a variety of categories, including commission agent services, agency services, or brokerage services. Determining whether a service qualifies as an intermediary service or is counted beneath another category is the key issue that frequently comes up in GST lawsuits involving intermediary services.
Because it affects the applicable tax rate and compliance requirements, categorization is important. When a taxpayer challenges the tax authorities’ designation of service as an intermediary service, disagreements can sometimes result. The taxpayer can argue that the offered service belongs in a category with a lower tax rate, such as an agency service. Legal action and disagreements between the taxpayer and the tax authorities may result from this discrepancy in classification.
Due to the inherent complexity of the tax regime, GST litigation has become a typical occurrence. Some of the new trends that are likely to result in litigation include classification and rate disputes, Input tax credit denials, place of supply determinations, anti-profiteering investigations, and problems with transitional credit.
Businesses should guarantee full compliance, keep accurate records, and seek expert guidance to understand the nuances of GST in order to avoid lawsuits. Businesses should keep informed and proactive in handling their GST obligations as the GST system continues to develop and more litigation trends are anticipated.
There are numerous legal issues that have not been resolved as a result of the absence of a GST tribunal, which will speed up GST litigation in the future as assessees turn to High courts to lessen the hardship brought on by incorrect orders made by the first appellate authority.
Some taxpayers are turning to advance judgments in the absence of an appellate tribunal to seek relief on a variety of concerns. On the same subject, however, various judgments are issued by advanced ruling authorities, and as there is no national advance ruling authority, many taxpayers are compelled to adhere to conflicting perspectives.
The government might look into the possibility of implementing amnesty schemes such as the Sabka Vishwas Legacy dispute resolution scheme (SVLDRS) implemented under former indirect taxation legislation in order to alleviate such burdens. Both the tax authorities and the taxpayers would benefit from these schemes.
While on the one hand, assessees can resolve any ongoing legal disputes that have developed as a result of procedural violations, and the government will be able to quickly collect any unpaid taxes. The GST Council can focus its efforts on a number of issues, such as establishing the GST Tribunal, improving the advanced ruling procedure, and reinstating amnesty schemes. This will facilitate the tax litigations suffered by the assessee and be directed to surge the tax revenue of the tax authorities.
