• Notification Date: 02-10-2023
• Notification No: N/A

Expert Decodes Issues as AI-generated Mass GST Notices add to Traders' Woes

The Goods and Services Tax (GST) department has sent bulk automated show cause notices to many traders, demanding clear dues on alleged discrepancies in tax payments for the financial year 2017-18 as the September 30 deadline to send such notices nears. Tax experts are concerned about the development and the effectiveness and fairness of the process. CNBC-TV18.com spoke to Ved Jain, the founder of Ved Jain & Associates, a Delhi-based tax advisory firm, to discuss the situation and its potential impact. 

What has exactly happened? 

The GST department has issued these notices en-masse, alleging discrepancies in GST payments. These allegations encompass a range of issues, including: 

Mismatch in GST Output Liability (GSTR 1 vs. GSTR 9): This allegation pertains to inconsistencies between the data reported in GSTR 1 (monthly or quarterly returns of outward supplies) and GSTR 9 (annual return). 

Mismatch in GST Input Tax Credit (GSTR 3B vs. GSTR 2A): Here, the GST department claims disparities in input tax credit calculations between GSTR 3B (monthly summary of outward and inward supplies) and GSTR 2A (auto-populated data on inward supplies). 

Ineligible Input Tax Credit (ITC) claims: Airlines, hotels, and construction contracts have come under scrutiny for claiming ITC where it may not be permitted. 

Reversal of ITC on exempt supplies: Traders are facing challenges related to ITC reversals for supplies that fall under the category of exempt goods or services. 

The controversy 

What sets these notices apart is the apparent lack of human intervention. According to Ved Jain, the notices have been issued without the application of critical human judgment. They have been sent out without reviewing any supporting documents or confirming whether taxpayers have already addressed these issues. 

Furthermore, the system's errors have gone uncorrected, raising concerns about the accuracy and fairness of the process. 

"GST was introduced in 2017, marking its sixth year this September. Many individuals have filed their returns, but the department is issuing notices through AI, alleging discrepancies. These actions are taken by AI without human judgment, and such mismatches can occur for various reasons. If you deal with items like construction, the Input Tax Credit (ITC) may not be allowed, but it's crucial to investigate the specific circumstances of each GST dealer. If the purchases are related to furniture or trading, ITC is applicable, but not for construction. It's essential to use data analysis," Jain told CNBC-TV18.com in an exclusive interaction. 

This emerging issue arises when dealing with multiple locations and registrations. 

Jain further said, "For instance, if we purchase tickets for staff business trips, ITC may be eligible, but some individuals might not have claimed it. Ideally, authorities should have meticulously gathered data from airlines, including GST dealer numbers. Notices should be issued based on a thoughtful examination of the facts rather than mere suspicions." 

The deadline dilemma 

As of now, these automated show cause notices seem to have been limited to businesses under the jurisdiction of the State GST Department of Delhi. However, there is a growing apprehension that other states and the Central GST Department may soon follow suit. 

Response window and challenge ahead 

Taxpayers who have received these notices have been granted a 30-day window to respond. If they fail to provide a satisfactory clarification for the alleged discrepancies, the GST authorities intend to crystallise the demand by December 31, 2023. 

Ved Jain highlights the challenges this presents. 

"With a massive number of notices issued, handling the responses within the stipulated time frame becomes a monumental task. The automatic nature of these notices could also mean that responses may be processed mechanically, raising concerns about due diligence," Jain told CNBC-TV18.com.