Mohan Lavi

Don’t issue service tax summons without reason

Mohan R Lavi | Updated on August 13, 2020

The taxman should focus on the problems of today, rather than chasing suspected violations of an erstwhile tax regime without clear evidence

The first version of the CGST Act, which was released on July 1, 2017, had a set of transitional provisions for taxpayers to move to the GST from the erstwhile regime. The provisions included migration of taxpayers, availing input tax credit that was not utilised, provisions related to job work and miscellaneous provisions that stated that the erstwhile law would still be used to complete pending assessments, refunds and appeals.

Though well-intentioned, the fact that these provisions have not gone exactly as per plan can be gauged from the fact that the form for claiming transitional credits was supposed to have been done and dusted in December 2017. Yet, even in January 2020, courts in India are ruling that taxpayer should be given time to file the transition forms as they were denied the opportunity to file the form easily. In hindsight, it appears that there was one glaring omission in the transition provisions — a proviso giving a sunset date to make roving enquiries under the erstwhile laws.

In what is turning out to be a mini-pandemic on its own, indirect taxpayers across the nation are receiving “summons” or “enquiries” even now from the Service Tax/VAT Departments. These missives usually ask the taxpayers to reconcile their turnover with the financial statements and the tax returns. Some ask them to produce details of their bank accounts and reconcile with the form that is gaining a lot of importance recently — 26AS.

Some ask the taxpayer very elementary questions: one issued to a paramedic (exempt by Notification) stated that it “appeared” to the Department that he had rendered taxable services but had still not obtained a registration, filed his returns and paid his taxes. Another issued to a consultant demanded a payment of ₹20 with interest and penalty, failing which “action as per law would be taken against him”. Yet another asked a nursing home to pay service tax on sponsorship amounts received for a conference (this liability is to be discharged by the sponsor on reverse charge).

At first glance, it would appear that these notices are fishing expeditions aimed to garner as much revenue as possible. But there is no doubt that the revenue that can be collected would not be very substantial. A detailed look at the reasons for these missives would make one lead to the conclusion that this is more a data-gathering mission. The GSTIN has been tuned to deal with vast amounts of data — more are being added through these notices.

Irrespective of the intent, the CBIC should instruct the field officers to stop issuing notices unless they have clear evidence that there has been a gross violation of the erstwhile tax laws. The GSTN has enough and more data on GST taxpayers. All tax laws empower the officers to issue notices and call for information if they have reason to believe that some income has escaped the tax net. Many experts are of the opinion that the tax department has misunderstood ‘reason’ to be ‘reason to doubt’.

Another reason why the CBIC should give instructions to the field officers to stop issuing notices beyond say, September 30, 2020, is that these field officers have enough and more to do under the GST. Dealing with a law that keeps changing, a technology platform that one stills logs on to with some trepidation and a certain set of taxpayers who believe that the GST means “Generally Save Tax” by creating fake input invoices on their own, should keep them on their toes all the time. If this is not done, the Department would be perennially a couple of years behind in calling for information or issuing summons under the GST — a delay that it can ill-afford now.

The writer is a chartered accountant

Published on August 13, 2020

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