Outlining GST litigation in India: assessment, adjudication and recovery

As the goods and services tax (GST) regime in India nears the completion of the sixth year of its enforcement, we stand witness to its fully fledged implementation, by taxpayers and the government. GST has slowly and steadily entered the veins of industry, consultants and other stakeholders.

Owing to the nuances of the provisions, it is not uncommon that taxpayers come across issues in their day-to-day activities which require immediate resolution.

This article attempts to enumerate the issues which may be faced by taxpayers and provide a bird’s-eye view on the assessment, adjudication and recovery framework prescribed under the Central Goods and Services Tax Act, 2017 (the CGST Act).

The GST system in India, like many of its foreign counterparts, capitalises on the determination and payment of tax liability on a self-assessment basis. Self-assessment entails:

• The identification of supplies procured and rendered by a taxpayer;

• A consequent declaration in statements; and

• The discharge of tax liabilities through periodic returns.

The law also envisages the matching of details furnished by the recipient of a supply with the details furnished by the supplier, and a reconciliation of statements and returns filed. On such reconciliation, if any self-assessed tax remains unpaid or any excess input tax credit has been availed, a taxpayer may pay and/or reverse the same along with appropriate interest and/or a penalty, as the case may be.

The details furnished by taxpayers are subject to verification by the GST department (the Department), through the scrutiny of returns, audits or investigations. Recently, a number of taxpayers have been in receipt of notices from the Department alleging, among others, the following discrepancies:

S.No	Nature of supply	Allegation of the Department
1.	Inward	Irregular availment of input tax credit in GSTR-3B, a self-declared summary GST return, in excess of inward supplies reflected in GSTR-2A, a system-generated statement of inward supplies for a recipient.
2.		Irregular availment of input tax credit blocked under Section 17(5) of the CGST Act.
3.		Non-reversal of input tax credit where payment has been made to the supplier after the lapse of a 180-day period.
4.		Non-reversal of input tax credit on inputs and input services used for making exempt supplies.
5.		Denial of credit availed by the recipient on account of non-payment of GST by the supplier.
6.		Availment of credit as integrated GST instead of central GST and state GST, and vice versa.
7.		Irregular/excess availment of credit based on input service distributor invoices.
8.	Outward	Mismatch in outward supplies declared under GSTR-1, a monthly/quarterly statement of outward supplies to be furnished by all normal and casual registered taxpayers making outward supplies of goods and services or both, and consequent short and/or non-payment of tax through GSTR-3B.
9.		Under-valuation/over-valuation/misclassification of supplies made to independent and/or distinct persons.
10.		Non-payment of GST on supplies procured, where tax is liable to be paid on a reverse-charge basis.
11.		Mismatch in the appropriation of advances received towards outward supplies.
12.		Mismatch in the value of a supply owing to debit notes and/or credit notes issued with or without GST.
13.		Classification of non-GST transactions as taxable/exempt supplies under GST and vice versa.
14.		Failure to adhere to the provisions pertaining to time of supply for raising a tax invoice.
15.		Movement of goods under cover of a delivery challan (an official document, form, or piece of paper used for the transportation of goods) in lieu of a tax invoice and vice versa.
16.		Mismatch in the turnover declared in GSTR-1 and the turnover as per an e-way bill.
17.		Mismatch in details declared in GSTR-1/2A/3B with details furnished in GSTR 9/9C, an annual return and a reconciliation statement, respectively.
18.		Non-collection of tax at source on supplies made through an e-commerce operator.
19.	Others	Belated payment of tax owing to a delay in filing a return and/or statements.
20.		Irregular/excess claim of a refund.
21.		Interception of goods during transit and a consequent penalty and/or confiscation.
22.		Irregular transition of credit from the erstwhile regime to the GST regime.
23.		Demand of interest and/or a penalty on a voluntary payment of self-assessed tax.
24.		Mismatch in turnover furnished under the Income Tax Act, 1961 and GST.

Largely, after following due process of law, the demands intimated through the above notices are ruled on by adjudicating authorities based on the documents furnished and submissions advanced. Thereafter, the authorities may drop or confirm the proposed demand(s), along with interest and/or a penalty, through a speaking order.

Similar to the previous regime, to mitigate litigation on the payment of interest and/or a penalty, the law provides in-built concessions; for example:

• The liability to pay interest on any credit wrongly availed shall arise only if the same has been availed and utilised;

• There is no requirement to pay a penalty if tax liability and interest has been discharged prior to the issuance of a show cause notice; and

• A reduced penalty is payable if tax and interest is paid within 30 days from the issuance of notice.

Depending on the nature of the issues involved, reasoned decisions are required to be taken in a timely manner to benefit from the concessions prescribed by law.

Once the notice is adjudicated and if an order is issued confirming the demand, an assessee may admit and/or contest the liability to pay tax, interest and/or a penalty. Taxpayers aggrieved by orders passed under the CGST Act may bring an appeal within three months from the date of receipt of the order. A pre-deposit of 10% of the confirmed tax demand is a prerequisite for filing appeals. On payment of the pre-deposit, proceedings pertaining to the recovery of the balance by the Department are deemed to be stayed.

An appeal against an order passed by the appellate authority shall lie before the appellate tribunal. An appeal against an order passed by the appellate tribunal shall lie before the High Court(s) or the Supreme Court, as the case may be.

In addition to prescribing elaborate mechanisms for assessment, adjudication and appeal, the CGST Act also provides for the direct recovery of amounts due from taxpayers at different points in time. In this regard, Section 78 of the CGST Act provides for the initiation of recovery proceedings in pursuance of any order passed under the act if the assessee fails to pay the demand within three months from the date of service of such order. The timeline is co-terminus with the three-month time limit prescribed for filing an appeal.

Under a proviso to Section 78, in the ‘interest of revenue’, a proper officer may require such payment to be made even prior to the expiry of the aforesaid three-month period. Similarly, in the interest of revenue, Section 83 of the CGST Act provides for provisional attachment of property. However, what qualifies as ‘interest of revenue’ or what makes such interest ‘expedient’ has not been defined or qualified under the act or the rules. A circular or guideline from the Department throwing light on the scope of these terms is the need of the hour.

Several modes of recovery as prescribed by the GST law are available to the Department, such as a bank attachment, the sale of movable and immovable property, encashing bonds, the detention and sale of goods, adjusting/withholding a refund sanctioned, and debiting a balance available in electronic cash and/or a credit ledger.

The recovery mechanisms may be invoked by the Department not only in cases where demands have been confirmed through orders, but also where tax liability has been merely self-assessed through a return filed or interest or a late fee is pending payment for a delay in filing returns, etc.

Thus, in essence, the Department is armed with several ways and means to recover tax dues which, in their wisdom, are ‘expedient in the interest of revenue’.

As the law stands, without specific guidelines on what constitutes ‘interest of revenue’, the possibility of the initiation of recovery proceedings to fulfil various demands, including self-assessed tax, cannot be ruled out. To mitigate such litigation, it is important for taxpayers to install checks and balances at all stages in the form of periodic internal and external compliance reviews, right from maintenance of books and documents, self-assessment, audit/assessment, and adjudication.

The same will not only aid from a tax compliance perspective but shall also facilitate an improvement in the overall financial position of the taxpayer. Prevention is better than cure, as, for the Department, the recovery of tax is as important as the levy!

The views expressed in this article are entirely personal.