Understand tax litigation in context of GST and manage to reduce the chance of litigation & to help your business’s reputation and financial position.
Management and compliance with tax have become critical with the surge in the Indian Economy. Unfortunately, this comes with drawbacks. With economic growth, tax disputes, and litigation are becoming more common. Understanding the process enables you to implement proper steps to manage such situations effectively.
The introduction of GST was solely meant to declutter the previous indirect system. This single tax structure was imposed on manufacturing, retail, and consumption of goods and services. Those failing to pay or abiding by its laws were subject to penalties and charges —sometimes, legal proceedings. This article aims to give an in-depth guide to dealing with GST litigation in India.
Demystifying Tax Litigation In India
Litigation, as defined, is the procedure to solve a legal dispute through a court order. When it comes to tax litigation in India, it involves two parties, the taxpayer and the tax authorities. The biggest reason for this litigation is the non-compliance with tax laws or anything related to tax charges, penalties, or other issues.
In the Goods and Service Tax (GST) context, litigation usually arises due to the taxes levied under this regime. As mentioned earlier, GST is the tax charged on the consumption on supply of goods and services. Causes for the dispute to arise under the GST laws include the following:
- Characterization of goods and services,
- Estimating tax liability,
- GST exemptions and concessions.
- Issues relating to the directing of GST laws.
Breaking Down The Reasons Behind GST Litigation In India.
Interpreting the Law Differently
The GST Act is a composite tax law. Sometimes, the guidelines are open to different opinions. This leads to misunderstandings between the taxpayers and the authorities who regulate its application on various transactions.
Interpreting the law of GST applicability on specific supply of goods and services and whether they are subject to exemption or high rate of GST differently can lead to GST litigations.
Inaccuracy of Opinions
Most GST payers rely on tax professionals or advisors to file their returns; any inaccuracies lead to non-compliance. In addition, litigation may arise if taxpayers are penalized for the improper opinion of their tax advisors on classifying certain goods and services.
Discrepancies in Returns
Discrepancies in tax documents may result in litigation with the authorities. These contradictions can be due to misunderstanding tax laws or incorrect data entry. When this happens, the authorities may initiate legal proceedings if not resolved within a timeframe.
Supreme Court Ruling
According to a ruling by the Supreme Court of India, GST rates will be applied to work contracts and are subject to an input tax credit. But, apart from this, several judgments have been passed, which could have sat better as several taxpayers were burdened by its implication. Hence, due to misunderstandings, legal disputes have been rising, leading to litigation.
Confusion arises when taxpayers receive circulars from the Central Board of Indirect Taxes and Customs (CBIC) that need clarification in interpreting various GST laws. This may include the provision of concessions and rebates. Such unclarity leads to disagreement and ultimately turns into litigations.
Modification to the GST Law
Several modifications have been made to the GST laws since its inception. Some alterations have retrospective effects. By retrospective, previous transactions may be subject to new regulations. Such alterations or modifications are sometimes misunderstood because of unawareness, and taxpayers may have filed the wrong returns.
Breaking down the reasons behind GST litigation in India may be challenging because it is pretty diverse. However, taxpayers can avoid litigation by keeping themselves updated with the recent developments and changes in the GST tax regime. Moreover, understanding the reason may prevent future disputes with the authorities.
Behind The Scenes Of GST Litigation In India
There are key players involved in every GST litigation in India. Understanding the key players and their responsibilities can provide valuable insights.
Taxpayers’ principal duty is to pay the government the timely and correct tax. Besides this, they have to comply with tax laws and guidelines. They must file returns before the due date approaches to avoid penalties.
If there are taxpayers, then they have to be tax regulators. These regulators enforce GST laws and are responsible for collecting taxes payable. Apart from this, conducting valuations, issuing verdicts, and accumulating any penalty amounts arising from non-compliance with GST laws.
The Arbitration Board is a legal body responsible for hearing and deciding disputes over tax assessment. The Arbitration Board may finally determine the dispute and impose penalties and interest, if any.
The appeal board is an appellate body with jurisdiction to hear and decide any judgment against the declaratory authority. The board may finally decide on the dispute and impose necessary actions.
Understanding The Various Stages Of GST Litigation In India
The above section discussed the parties involved in GST tax litigation. In this section, we will look into the different stages that follow. This will assist you in comprehending the process more effectively.
Audit and Calculation
The initial GST process involves audit and calculation. Here the authorities evaluate information about the taxpayer when filing tax documents. In some cases, onsite evaluation may be conducted to check documents relating to an invoice and other business activities and to determine whether it is done as per the GST laws. A legal notice will be issued to the taxpayer if errors are found. This is referred to as a Show Cause notice.
Objection happens when a taxpayer does not agree with the audit or calculations. They can file a complaint with the tax department in such a situation within a given timeframe of the audit. The taxpayer must submit a written application with a detailed explanation for any disagreement.
The matter shall be referred to the deciding authority for a final settlement if the objection is not sustained. The decision-making authority shall examine the taxpayer’s disagreement and the tax authorities’ response and decide on the dispute.
Plea or Appeal
If the taxpayer does not like the decision of the assessment authority, he may appeal to the appellate authority. The appellate authority examines the case and issues a final decision, which can be appealed to the Court of Appeals and later to the High Court or Supreme Court.
Tips For Effective GST Litigation Management In India
Managing GST litigation is a complex and often overwhelming process. From dealing with legal paperwork to navigating court proceedings, staying on top, all can be difficult. However, with the right strategies, you can streamline your litigation and get the best possible outcome for your case. Manage GST litigation more effectively with the tips below.
- Stay up-to-date — Keep updated with the latest GST laws and regulations to avoid non-compliance and disputes with tax authorities.
- Keep detailed records — Keeping accurate records, including invoices, returns, and other relevant documents, is critical to supporting your position in the event of a dispute.
- Get professional advice — Contact a professional tax advisor or attorney who can advise you of your rights and obligations under GST laws and guide you through the legal process.
- Act Quickly — If you receive a tax assessment, acting quickly and filing an appeal within thirty days is essential.
- Make a convincing case — When preparing an objection or appeal, explaining your position and supporting your arguments with relevant evidence and documentation is significant.
- Be active — Take proactive steps to conform with GST laws, including organizing regular audits and calculations to curtail the risk of disputes and penalties.
- Consider dispute substitute — Consider alternative argument resolution methods, such as negotiation or arbitration, as an alternative to formal litigation.
Efficient Tax Management Simplifies GST Litigation
Handling tax disputes in India, especially with GST, can be complex and challenging. However, with proper knowledge of the latest GST laws, keeping detailed records, seeking expert advice, and following the process steps, companies can effectively manage GST litigations and reduce the risks associated with non-compliance.
In addition, litigation takes much time and has high costs. By considering other dispute resolution approaches, companies can reduce the likelihood of disputes and reduce the same. Businesses can take control of their tax matters and achieve an advantageous outcome in a disagreement by better understanding the challenges involved in GST litigations.
Effective GST management reduces the chance of litigation and helps manage the business’s reputation and financial position. Therefore, it is very imperative to comprehend the legal framework, process, and available solutions for GST litigation in India.