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Easing GST litigation and increasing tax revenue: A delicate balance

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Raghavan Ramabadran and Sahana Rajkumar of Lakshmikumaran & Sridharan Attorneys discuss GST in India, five years since it was first introduced, and consider how the government and industry are striking a balancing act.

Half a decade has passed since the introduction of the goods and services tax (GST) in India. This new regime revolutionised the entire indirect tax structure of the country.

Despite its various ups and downs, both the government and industry now recognise that stability can be achieved only if both sides give and take in equal measure. This is probably one of the main reasons why the government has given incredible weightage to mitigating avoidable litigations and disputes. This is evident from various measures adopted by the government such as introducing different amnesty schemes to resolve legacy indirect tax disputes. Keeping this in mind, this article explores plausible measures to aid in easing the burden of disputes that GST already carries.

There is no doubt that GST is at a very crucial juncture where litigation is still at a rather nascent stage. As time progresses, one can only expect more and more disputes to crop up. Considering the complexities of the legislation and the historical dispensation, this is an unavoidable feature of any tax regime. Interpretation based substantive issues are bound to arise between the government and businesses.

At present, without a GST tribunal in place, many of the substantive questions of law remain unanswered, leaving trade in a precarious situation, with no avail but to approach the Hon’ble high courts. The costs and efforts involved in such litigations and the drain it creates on the judiciary is worth noting.

While the constitution of the GST tribunal is awaited with bated breath, some taxpayers are also leaning towards advance ruling authorities to seek redressal on various substantive issues. However, in some cases, different state advance ruling authorities have rendered contradictory rulings on the very same issue for a single entity. Without a National Advance Ruling Authority in place to take a final call on the correct legal position, different registrations of a single entity are forced to follow opposing positions.

While the GST Council is working towards addressing these complications, an aspect that may be considered for mitigating several avoidable disputes is leeway to taxpayers, particularly for procedural irregularities. The same would go a long way in reducing the burden of litigation.

The government has been facing its fair share of criticism for various aspects in implementing GST; however, it is also to be equally commended for the accomplishments in digitising the tax regime and the various compliance processes. This has expanded the tax base and has created much needed checks and balances to curb tax evasion.

Technology-based tools have been adopted to automate various procedural aspects of GST such as transition, e-way bill compliances, e-invoicing, return filing and matching of credits. A Group of Ministers for Systems Reforms has also recommended real time validation of bank accounts vide integration of the GST system with the National Payments Corporation of India.

With these advancements to the new indirect tax structure, trade has also had to quickly adapt and play catch-up. Unfortunately, the pandemic and lack of technical expertise has impacted various businesses and it has indeed been a steep learning curve for many. This is one of primary reasons for such a large turnaround of disputes where businesses have not been able to fully comply with the procedural requirements of the law.

The majority of the existing litigations faced by trade pertain mainly to procedural aspects such as mismatch in Form GSTR – 2A and 3B, non-generation of e-way bills, non-filling of transition form before the due date, interest and late fee for delayed filing of returns and deficiencies in refund claims due to lack of certain documentation.

In order to ease some of the burden of taxpayers, the government could explore the prospect of affording a settlement scheme at this five-year crossroad for procedural disputes faced by bona fide taxpayers. The modalities of the scheme may be worked out in line with previous amnesty schemes introduced by the government such as Sabka Vishwas Legacy Dispute Resolution Scheme for erstwhile indirect taxes, Vivad Se Vishwas Scheme for income tax and Kar Samadhan Schemes for specific state taxes.

The scheme may be a win-win for both the taxpayer and the taxman. While on one hand, assessees can settle pending litigations which have risen due to non-compliance of procedural aspects, the government will also be able to recover tax dues expeditiously without having to spend considerable time and resources in litigations.

The GST Council can channelise its energies on various crucial aspects such as rationalising the rate structure, introducing the GST Tribunal and revamping the advance ruling mechanism. These measures could perform a balancing act between easing litigations for taxpayers whilst increasing tax revenue for the government. Trade may also make suitable representations to the government seeking such redressal schemes for mitigating avoidable litigations.

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