GST - Precautions to be taken while responding to department

Introduction:

It has been nearly 34 months since the implementation of GST in the country. It is undeniable fact that GST law has proven to be the most dynamic law in the country with umpteen number of Notifications, Circulars, Removal of difficulty order, etc. Some did serve the purpose and had aided in ease of business, while some, though never intended to, but ended up creating chaos in the trade and businesses. Many instances can be given to easily arrive at the conclusion that the GST law has been loosely drafted, which in turn gave room for many interpretational issues, resulting in friction between the department and the assessee.

While the assessee would choose the interpretation beneficial to him, the department would state otherwise. Already many writ petitions have been filed highlighting the deficiencies in the law and this is JUST THE BEGINNING!

The department has already started floating notices to demand GST. Some of the common areas of issues are listed as under:

1. Reversal of ITC difference not reflected in GSTR 2A (many times the GSTR-2A data is not updated or incorrect details);
2. GST on the difference between Turnovers declared in GSTR 1 and GSTR 3B (many times ignoring the subsequent rectifications made);
3. Reversal of ITC invoking Rule 36(4) – Reversal of ITC to the extent not reflected in GSTR 2A (here again – compared data would be incorrect most of the times);
4. Interest on Gross liability Vs Interest on Net liability (before the proposal of retrospective amendment);
5. ITC availed in FY 2018-19 GST returns filed after September 2019 citing Section 16(4);
6. Blockage of ITC for vendors not filing returns u/r. 86A
7. Cancellation of the registration for not filing returns > 6 months
8. Best judgment assessments for non-filers of returns 

And many other

With the advancement of technology, all the above notices have been generated by the system promptly and the same are being issued to the tax payers in the form of bulk notices, seeking explanation. The time-limits are also not lenient and in many cases the time limit is ranging from 3 to 7 days. Thus, it becomes very important for the tax payers to submit their reply within time and with all the possible defences. Many time the taxpayer tend to act upon the department notice immediately without checking the validity of the same due to limited time and pressure from department. This would become dangerous mistake that the taxpayers ever commit by taking Section 160(2) into consideration.  

In this article, an attempt has been made to give precautions that one must take while replying to the all sorts of communications from the department.

On receipt of Notice:

Before responding to any notice or any other communication, the taxpayer must ensure the following:

1. Whether the notice is issued the jurisdictional proper officer?
2. Whether the officer who has issued the notice is empowered to do so?
3. Whether the service of notice is valid?
4. Whether the notice is issued as per the rules laid thereunder?
5. Whether notice issued is valid considering the statutory provisions and settled jurisprudence?

In case the notice issued or communication made fails the litmus test as stated above, then on such ground alone, entire proceedings can be invalidated. If the above referred things are not taken care while doing the first communication with the department as a reply to the notice or communication then the tax payer cannot question the same in subsequent proceedings and such notice becomes valid.

To emphasize the importance of the aforementioned checks, it is pertinent to draw your kind attention to Section 160(2) of the Central Goods and Service Tax Act, 2017, wherein it is clearly stated that, in case any person had responded to any notice issued or communication made under this Act without any questioning the same in the earlier stages, then validity of such notice or communication cannot be questioned in the subsequent stages. An extract of section 160 (2) of the Act is as follows:

“The service of any notice, order or communication shall not be called in question, if the notice, order or communication, as the case may be, has already been acted upon by the person to whom it is issued or where such service has not been called in question at or in the earlier proceedings commenced, continued or finalised pursuant to such notice, order or communication.”

From the above, it is clear that in case where a person acts upon any notice issued or communication made under this Act, then such person is legally bound by the provisions of the Act and has to suffer for the actions arising out of such proceedings even though such notice issued or communication is not legal and proper.

Further it is also important to bring all essential facts on record and explaining the any differences/deviations in understanding the facts or amounts taken by department. The introduction of new facts at later stage of the proceedings like Tribunal or HC/SC would not be allowed and leads to bad result albeit avoidable if facts are properly presented before lower authorities.

• Whether the notice is issued the jurisdictional proper officer?

• Only the Jurisdictional officer can issue notice under the Act. As per the Notification No. 2/2017-CT dated 19-06-2017 (applicable for Central Tax officers), Executive Commissionerate is empowered to direct any taxpayer to show cause to any notice or communication made under the Act. In case of executive Commissionerate cross empowerment of jurisdiction officers are not allowed i.e., officer of one jurisdiction cannot issue a notice to the person belonging to another jurisdiction. Further, the Central Government and State Government have divided the taxpayers among themselves. Therefore, either the State tax officer or Central tax officer would initiate the proceedings and both the officers would not raise the action for the same subject matter.
• Further, the GST Council in its 9th meeting held on 16.01.2017 had discussed and it is clarified that the officers of both Central tax and State tax are authorized to initiate intelligence-based enforcement action on the entire taxpayer's base irrespective of the administrative assignment of the taxpayer to any authority. However, what is intelligence-based enforcement is not clarified leaving the option open for both Central & State offices to initiate the proceedings irrespective of allocated jurisdiction. The authority which initiates such action is empowered to complete the entire process of investigation, issuance of SCN, adjudication, recovery, filing of appeal etc., arising out of such action. It may so happen that while investigation is ongoing, the taxpayers may be getting notices from another office. In all such cases, it can be requested to investigating authorities to club all the proceedings and complete.

• Whether the officer who has issued the notice is empowered to do so?

• CBIC vide Circular No.1/1/2017 dated 26.06.2017 and Circular No.3/3/2017 dated 05.07.2017 has prescribed the powers of Central tax officers under different sections and rules. Further, Circular No. 31/05/2018 dated 09.02.2018 has prescribed monetary limits for issuance of notices and adjudication of cases. Departmental officers cannot afford to contravene instructions of their own Board and, therefore, normally, officers not covered by the ceiling fixed in the circular will not proceed to issue notice.

However, many states have not prescribed any monetary limits for issuance of notice by State tax officers.

• Audit Commissionerate’s are also empowered to issue notice, make any communications or to conduct an audit in accordance with the Act for the taxpayers covered under their respective Commissionerate. All the limitations apply to executive Commissionerate applies to Audit Commissionerate also.
• In addition to above, the regional offices of Directorate General of Goods and Service Tax Intelligence (DGGSTI) can also initiate investigation in their respective regions

• Whether the service of notice is valid?

• Section 169 of the Act deals with the serving of notice. As per the said section any decision, order, summons, notice or other communication under this Act or the rules shall be communicated in either of the following:

1. by giving or tendering it directly or by a messenger including a courier
2. by registered post or speed post or courier with acknowledgement due
3. by sending a communication to his e-mail address
4. by making it available on the common portal

Unless the notice is served in any one or combination thereof, such notice served shall deemed to be an invalid notice.

• Also, the notice has to mention the relied upon documents and the service of notice will be deemed to have been made only on receipt of such relied upon documents.
• If such communication is received through registered post or speed post or courier, it is advised to retain and maintain such postal cover and receipt of acknowledge due since Section 169(3) of the Act assumes that the registered post or speed post or courier so issued shall reach the intended person within normal time of transit unless otherwise proved. In case of any delay in such delivery, the acknowledgement due shall be a defense. This is important in safeguarding ourselves from time limits mentioned in the notice.
• If the communication is received through e-mail, the taxpayer should ensure whether such mail is received from official mail id or not. Even though email communication is valid one, one has to ensure whether any postal communication is also received or not.

• Whether the notice is issued as per the rules laid thereunder?

• CBIC vide Para 2 of the Circular No. 128/47/2019-GST dated 23-12-2019 has made quoting of DIN mandatory for all the communications with the taxpayers, including e-mail communication. As per Para 5 of above circular, any communication made without DIN shall be invalid. However, the DIN is not mandatory for the state tax officers. Therefore, the notices issued by state tax officers without DIN is still valid.
• In certain exceptional cases, the notices/letters can be issued without quoting DIN

Whenever any communications received from the Central Tax officers, one must check the DIN and its veracity at https://www.cbicddm.gov.in/MIS/Home/DINSearch.

• Whether notice issued is valid considering the statutory provisions and settled jurisprudence?

The department has started issuing notices for various contraventions, however, the many notices does not contain what is the contravention and the specific Section and Rule which the taxpayer has contravened. In such circumstances, the following settled principles can save the tax payer from unnecessary litigation

• The Supreme Court in the case Oudh Sugar Mills Limited v. UOI, 1978 (2) ELT 172 (SC) has held that if the Notice was issued totally ignoring the factual position, but was based on mere assumption, unwarranted inferences, and presumptions such notices are not sustainable under the law.
• The Supreme Court in case of CCE v. Brindavan Beverages (2007) 213 ELT 487(SC) held that notice is a foundation on which department has to build up its case. If allegations are not specific and on the contrary vague, lack details and/or unintelligible, it is sufficient to hold that the Noticee is not given proper opportunity to meet the allegations indicated. On this ground alone the notice can be held to be baseless and is liable to be dropped.
• The Supreme Court in case of Oryx Fisheries Pvt. Ltd. v. Union of India — 2011 (266) E.L.T. 422 (S.C.) held that the demand shall be raised informing charges against the assessee, so that defense can be taken to prove his innocence/understating. Further, authorities while raising the demand must take care to manifestly keep an open mind as they are to act fairly in adjudging guilt or otherwise. If the notice issued is with pre-judged & pre-meditated, then the demand in that fashion is bad in law and requires to be dropped.
• Section 75 of CGST Act, 2017  imposes responsibility on officers to issue notice in writing along with all the grounds and reasons for issue of such notice. A failure to do the same shall make the notice invalid.
• No proceedings shall be initiated without considering the submissions made by the taxpayer. Consider a situation where an audit has been conducted and a spot memo has been issued to which taxpayer has replied. However, department proceed to issue notice without considering the submissions made by the responded. Such proceedings become invalid.

• In addition to above, the following precautions/litigation best practices can be followed to safeguard ourselves from department
• Have good and polite relation with the officer

• Be straight / Transparent and co-operate with the department during the proceedings. Ensure to stick to the facts and no lies.
• Submit all the required information in a timely manner. Ensure that the reply is filed in the required format and as per the rules prescribed. In case of any doubts as to the validity of the notice – Mention the fact and comply with the notice.
• Avoid unnecessary visits to the department. Use emails to official id’s of the department or RPAD (Registered Post Acknowledgement Due) / Speed Post for intimation & filing
• Use help desk- take screen shots, follow up, as a facility to file reply online is also made available in a few cases.
• If stakes are big, seek the help of professional in reply & representation

Conclusion: With passing of times, the ideology that prevention is better than cure is only made stronger. In any given scenario, it is always better to take the above discussed precautions while doing any correspondence with the department. Also, in the current times where the department is being very much pro-active, it demands that the assessee is equipped with greater awareness than ever. In the hour of crisis, wisdom should take the lead over knowledge, and keeping all the points as discussed above in mind, the journey through the departmental procedure becomes an easy ride. The authors are of sound belief that the above directions will certainly help the taxpayers in safeguarding themselves from the department in future. 

Acknowledgements to Sunil V for helping the authors in drafting the article

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