• Notification Date: 07-12-2023
• Notification No: N/A

Torrent of GST Notices Stems from AI, Data Analytics on Law Interpretation

Stakeholders in meetings with the Finance Ministry have raised concern on the raft of notices to multiple sectors based on interpretation of the law which the government says is a result of artificial intelligence and data analytics in tax. 

First, it was Rs 1.1 lakh crore of GST notices to 71 online gaming entities, then Rs 1.5 lakh crore of notices to shipping companies and now the airline sector is under scanner. 

“Stakeholders have expressed concern about the recent tax notices. They sought certainty regarding taxation. They said the DGGI (Directorate General of Goods and Services Tax Intelligence) is on a drive of sending notices on interpretational issues,” a person aware of the development reported. 

The government says that the notices are a result of the improved data that comes with the use of analytics and artificial intelligence in taxation. 

“Now the analytics is getting more granular. The GST notices are because of that. We are at the nuts and bolts. It is a sophisticated stage of tax administration, and it will become more like this. Now the case law has started falling into place, legal interpretation is standardised. Now we know what the gaps are, where a business ought to have paid tax and where it was not eligible to take credit,” a senior government official reported. 

Data analytics has reduced the number of areas businesses can hide in. Most businesses play between the gaps between information and databases. As databases communicate with each other, the information gaps tend to disappear. 

“This is happening automatically due to analytics because all the transactional data is online. Any manipulation of the data, any gaps in data are automatically detected. The tax liability of these businesses exists on a legal principle. Tax department business is to ensure the tax liable is paid,” he said. 

Stabilisation of GST Law Interpretation  

However, it will take another three to five years for stabilisation of interpretation of GST laws to clarify what is taxable and what is not. 

“Once the GST tribunal comes into place and law gets laid down, the interpretations will get more universal. It will take some years for stabilisation to happen and clarify that this is taxable. The interpretation issues will be sorted in another three to five years for GST laws,” the official said. 

For the first three years of GST, businesses settled down and got used to the new system. At the end of three years, the government started a crackdown on fake registrations and fake invoices. Now GST has passed that stage. 

GST Notices  

Investigation on some airlines is underway. For airlines, according to the GST department, there has been deemed supply of services and upon related-party investigation it has been found that India-specific services were not billed here, he said. 

Under GST, the Indian entity and its head office are treated as separate bodies for legal reasons, which means transactions between the two come under the purview of the tax regime. Even if there is a supply without consideration between a company's head office and branch office, it is deemed as a supply for tax purposes. 

“In GST the point of supply is the point of taxation. If the point of supply is abroad, payment is on reverse charge mechanism. If the airline is headquartered abroad and has delivered services in India, taxability is here,” he said. 

Similarly, in the GST notices sent to the shipping sector, the services were rendered within India while the companies have shown it as services exported, the official said.