Introduction to GST Litigation
Litigation is the process of one party bringing another to the court, by suing them, ie., taking a legal action. The indirect tax regime of GST laws has been in effect for more than 7 years, still the concept of litigation in GST is a bit unexplored. A matter of GST litigation arises when there is a dispute regarding the interpretation, applicability or enforcement of the GST laws. For example, if someone fails to furnish a GST Return, even after a notice has been given, a lawsuit against him in this respect will induce GST litigation. In this blog, we’re here to explore the concept of GST litigation and provide strategies to avoid reaching that stage in a GST dispute.
Navigating the Landscape of GST Litigation
Whenever there is an issue in the administration of smooth application of the tax laws, a litigation in GST arises. It can range from non-filing of returns, to miscalculations in tax payables, to inconsistencies in audit. Let’s check out some of these factors leading to GST Litigation in India.
| Reasons of GST Litigation | Details |
| Complexities of GST Law | This new indirect tax regime is quite complex in itself. Hence, leading to certain ambiguity of understanding the different concepts. |
| Classification of Goods and Services | To determine the appropriate tax amount, you need to categorise different goods and services in appropriate brackets. An error in doing so can easily lead to GST litigation. |
| Disruption in Input Tax Credit (ITC) claims | ITC allows you to claim credit on the purchase against its output tax liability. If there are discrepancies in the claim, or if the claim gets rejected by the authorities it opens a new door to GST litigation. |
| Determination of Place of Supply | Place of Supply is important to know which type of GST is applicable to you. If you make an error in this determination, it can lead to litigation, if not rectified within a proper time frame. |
| Mismatch in GST Returns | Some taxpayers need to file multiple GST returns throughout the year, so any mishaps in filing these returns can also lead to disputes that end up in litigation. |
| Retrospective Effect of Legal Changes | If any modifications to the GST law are made with a retrospective effect, the taxpayers who have already complied with the previously applicable law may face technical issues. |
| Improper Pronouncement of Orders | If the tax authorities pass an order, but do not provide appropriate reasons for it, the aggrieved party, ie., business owner may move the matter to the court. |
| Interpretation of the Act | If there is any confusion as to how any provision of any Act or rule under the GST law has to be applied and construed, then the party confused can move to the court for GST Litigation and gain a better interpretation of the provision. |
| Mismatch in GST compliance | Differences in the details of GST compliance requirements by the business and tax authorities can also lead to litigation, if not resolved in a timely manner. |
| Carrying Forward of Transition Credits | The new GST law brought the concept of carrying forward certain credits from transactions. Confusions as to its eligibility can often open pathways to a GST lawsuit or litigation. |
| Issues with GST refund claims | If the tax authorities deny or delay your GST refund claims without appropriate reasons, you can settle the matter through GST litigation. |
| Non Payment or Less Payment of Outward Tax | If any business tries to avoid paying the exact tax amount that they are liable to pay, the authorities can file a lawsuit against them. |
| Unclarity in Circulars | If there is an ambiguity regarding any important aspect of GST in the recent GST notifications and circulars passed by the authorities, the business owners can lead to GST litigation. |
| Differential Opinion | Difference in opinion and understanding of different professionals of the GST law can lead to a contradictory view, resulting in litigation. |
Different Types of Notices in GST Litigation
When a dispute arises due to any of the above mentioned reasons, the first step will be to inform the business owner about such an issue. So, the tax authorities will send a notice. There are different types of notices in GST litigation based on the reason for its issuance. So, let’s check them out:
| Type of GST Notice | Applicability |
| Show Cause Notice (SCN) | Issued in case of : – Non registration of GST when applicable; – Intentional or unintentional non payment of taxes; – Wrongfully claiming GST refunds; etc. |
| Scrutiny | A scrutiny in GST is raised by the tax authorities when:
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| Demand Notice | A demand notice is issued to demand:
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| Default Notice | Default notices are issued specifically for delays. So, you can count instances like: – delay in filing GST returns under GSTR – 1;– delay in filing GST return under GSTR- 3; etc |
The Process of GST Litigation in India
You receiving any of the above mentioned notices can lead you to the process of GST litigation. We have explained the different stages of GST litigation to help you understand how things can go.
Audit by the Authorities
The tax authority does an audit of the information, tax calculations and tax payments of all taxpayers. As a result of this audit, you can receive scrutiny if any discrepancies are found in filing of returns, claims, or missing documents, etc. Once the authorities identify these issues, they communicate it to you through the notice.
For example,
ABC Pvt. Ltd. filed its GST annual return for the financial year 2022-23 on the last date, ie., 31st December 2023. After doing so, the tax authorities went through all the information provided by the company and also verified the taxes to be paid by it. However, they felt that the taxes actually paid by the company were less than the amount they were supposed to pay. So, the GST authorities sent a notice informing the company of this additional tax liability.
Your chance to Object
As a taxpayer, once you receive the scrutiny, you can take a stand and file an objection against the department’s finding or calculations within the timeframe as prescribed. You can support the objections with detailed information and evidence.
For example,
After receiving the notice for tax liability from the authorities, the company ABC pvt. Ltd. can object to such additional tax liability. However, to prove a strong case of objection, the company will have to provide evidence such as its financial reports, statements and explain how it derived the tax liability. One important tip is that the company will have to reply with an objection within the prescribed time frame given in the notice for GST litigation.
Settlement between taxpayer and tax authority
In some cases, the tax authorities will accept the objections raised by the taxpayer, and the cause for litigation will be eliminated. However, in cases where the objection is not accepted by the authorities, they can, on their own accord, allow a scope for settlement between the taxpayer and authority. Here, the taxpayer can agree to pay a settlement amount as provided by the authority. This amount can also consist of penalties and interest amount. Accepting this settlement eradicates the long process of taking the matter to the doors of the Court through GST Litigation.
For example,
If ABC Pvt. Ltd. gets an option for settlement, in which their liability will end as soon as they clear certain dues of the tax authorities, this will easily help them get rid of the impending GST litigation.
Appeal
If a taxpayer feels like they don’t have to settle and their objections are apt, even after they are rejected by the tax authority the first time, the aggrieved taxpayer can appeal to the appellate authority. This body established under the GST law, shall then, take a look at all the facts of the case, the notice raised, and objections provided to issue a final decision regarding the tax liabilities. However, an appeal against settlement in GST litigation has to be filed within 30 to 60 days (as prescribed) of receiving a reply to the objection.
Moving to the Court
Once the appellate authority passes their final order, and the taxpayer finds themself still disagreeing with the decision, they can move to the courts with the appropriate jurisdiction. If the case moves to this stage, it will initiate the legal proceedings in GST litigation and you will have to hire a lawyer with specialisation in GST litigation.
Importance of Effective Strategies in GST Litigation
As you can see from the stages of GST litigation in India, there are a ton of chances that a taxpayer gets to protect themselves against the costly legal battles. Having effective strategies for GST litigation in place helps you stay compliant with the GST law and avoid costly legal disputes. Let’s see why exactly its important to have effective strategies in GST litigation:
Increased scope of Success
Every battle can be won with strategic planning. When you have a plan of action, a strategy, you can look out for the relevant laws, precedents that support your case and other evidence. Resultantly, making your case strong and increasing your chance of winning the GST litigation battle.
Reduction in cost and time
With effective strategies in place that can be implemented at every stage, you can streamline the GST litigation process and focus on eliminating extra costs and unnecessary delays.
Improvement in compliance and risk management
To form the adequate strategies, you will have to take a look at your company’s GST compliance practices. This is helpful not only for the GST litigation, but for improving your organisation’s overall GST compliance.
Financial Protection
Effective strategies will also help in reducing and eliminating the risk of getting financial penalties and interest dues from the tax authorities. When your organisation’s GST compliance is in order, the question of interest and penalties will not arise at all.
Business Reputation
When litigation goes on for years, it will mess with your company’s reputation. When you have effective strategies in place, it will help in resolving all your disputes with ease and in a timely manner, ensuring that your reputation isn’t damaged.
Foolproof Strategies for GST Litigation Mastery
Now that we’ve seen how an adequate GST litigation strategy can help you in protecting your business, it’s time to delve into considering the different strategies that you may include in your plan of action.
| Strategy for GST Litigation | Effect |
| Staying Informed | To stay at the top of your game in business, you need to be informed of all the latest regulations and laws applicable to you. So, keep a close eye on the amendments, notices, and circulars issued by the GST department. Moreover, analyse its impact on your business. |
| Maintaining Accurate Records | Your financial records will help in calculating the total tax liabilities. So, if your records are accurate, the chances of making a mistake in calculation of tax payable are diminished. Moreover, if you have access to your historical data, you can use it as evidence to support your case, if the matter persists. |
| GST Compliance Checks | On a regular basis, do a check to ensure that your business is in compliance with all the GST rules applicable to it. Missing out on even one tiny aspect can cause big problems tomorrow. So, stay vigilant with your GST compliance. |
| Identify the Issue | In case you have already received a show cause, default or demand notice from the GST department, study it comprehensively. Try to analyse the contents and identify the exact issue. This will make it a lot easier to build your case. |
| Gather Evidence | Once you identify the issue, its time to focus on compiling every piece of document that will help you present your case and prove your points. Be it your annual financial records, or cash flow statement, make a pile of all useful evidence and keep it ready. |
| Seek Expert Advice | Many tax practitioners provide counselling and consultancy on the GST compliance. So, before finalising your strategies for compliance and litigation, it is ideal to get expert advice. |
| Emphasis Timely Responses | Once you receive a notice from the GST department, understand that every step will be time bound. So, you’ll have to be very cautious of maintaining those time limits. |
| Consider Settlement | At times, settling is easier than fighting a very expensive and time consuming legal battle. So, consider settlement options very carefully, seek advice if you feel confused. |
| Communication with Authorities | It is very important to maintain effective communication with the authorities. You have to stay professional and respectful with the GST authorities. |
| Consider using a Software | Billing and GST Software solutions like CaptainBiz can provide you error free tax calculations, which reduce and eliminate most of the reasons leading up to the GST litigation. When you are staying compliant with the GST laws, no authorities will be able to impose any GST litigation on you. |
Conclusion: Mastering GST Litigation for Long-term Success
To conclude, GST compliance and litigation go hand in hand. If you are staying vigilant and maintaining your GST compliance, the chances of your issues reaching the doorstep of the Court for a long GST battle diminish. Besides, even if you have to face an issue, it can easily be resolved when you have an effective plan of action with strategies in GST litigation.
FAQs
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How do you handle litigation in GST?
You can handle litigation in GST by staying vigilant, maintaining your financial records, and keeping your business compliant with the GST laws. You can even consider seeking counsel from a tax practitioner to help you out with effective strategies.
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What is the major cause of Litigation in GST?
Issues in filing inappropriate returns, showing false invoices or no invoices, fake claims, etc. are major causes of litigation in GST.
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Can we file a case against the GST department?
All taxpayers can complain against the GST department, if they are aggrieved with any issues raised, or decisions taken by the tax authority. You can also make this complaint online on the GST portal, giving you a shot to redress your problems effectively in a timely manner.
