Update For companies that have received GST notices from the GST department
Goods and Services Tax department is actively issuing show cause notices to numerous GST registered entities. The aim is to address alleged discrepancies in tax payments for the financial year 2017-18, with the deadline to issue such notices being September 30, 2023. Several sectors, from insurance to automotive, have been recipients of these demands. Even smaller taxpayers haven't been spared and are now grappling with tax demand notices for various reasons. Some of these include mismatches between GST output and liability, incorrect input tax credit claims, and even issues revolving around corporate guarantees and secondment of employees. It's paramount to note that failure to address and reply to these notices in the stipulated timelines could have serious implications, including Tax demand with interest and penalties that might impact a business's smooth operation and financial health. Some of these prevalent situations leading to tax demands and potential strategies for addressing such notices include:
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Discrepancies in GST Output and Liability: Ensure that the data filed in GST returns in in line with your accounting records. Genuine discrepancies might arise from factors like unbilled revenue, transfer pricing adjustments, taxable transactions where foreign exchange hasn't been received, variances due to foreign exchange rate fluctuations, or inter-state billing under the same PAN but with different GST registrations.
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Mismatch in GST Input Tax Credit (ITC): It's essential to reconcile the ITC claimed in your GSTR 3B with the details in GSTR 2A. While genuine purchases may not reflect in GSTR-2A, leading to an ITC reversal demand, you can seek guidance from CGST Circular 183/22/2022. For disparities exceeding Rs. 5 lakh within a fiscal year, secure a certificate from Chartered Accountant, affirming the authenticity of supplies and tax payment. For smaller differences (below Rs. 5 lakh), obtaining a certificate from your supplier suffices.
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Ineligible ITC Claims and Reversal on Exempt Supplies: Reversing ITC necessitates a precise calculation, breaking down the ITC into categories related to taxable supplies, exempt supplies, and a shared ITC that calls for pro-rata reversal. The GST department, at times, issues notices encompassing entire ITC claims without making distinctions among common ITC, exempt supply ITC, and ITC explicitly linked to taxable supply. This can lead to erroneous demands for pro-rata reversals. It's vital to recognize and clarify these discrepancies and remain vigilant about blocked credits like Food and Beverages, Outdoor Catering, Rent-a-cab, life and health insurance services.
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Export Transactions: Export transactions, particularly those tied with marketing or tri-party agreements, may be misconstrued as intermediary services. Such classification could pose severe tax repercussions. Thus, ensure your transactions are well-structured and documented to prevent undesirable tax outcomes.
Navigating these common scenarios and addressing the associated notices requires a deep understanding of the GST framework. A well-constructed response should not only clarify the company's stance but also provide robust evidence, highlight any ambiguities, and align with prevailing judicial rulings.