When GST notices haunt businesses

We are in the era of GST show-cause notices and demands — some good, some bad and some downright ugly. Online gaming companies have been receiving GST (Goods and Services Tax) demands of humongous amounts once the rate of tax was fixed at 28 per cent on the full value of the transaction. Insurance companies have been receiving demands for GST on their reinsurance business. Other small businesses across the country have been receiving eerie notices demanding GST on changes in deferred tax balances and values of fixed assets.

The Central Board of Excise and Customs (CBIC) needs to act quickly and bring out a detailed manual guiding tax officers on what not to do during GST assessments and training them on how to use the manual.

There was much hope during the build-up to the 52nd meeting of the GST Council that a final decision would be taken on the controversy surrounding the levy of GST on online gaming. It was recently clarified that the rate of GST would be 28 per cent on the full amount of the transaction with effect from October 1. Gaming companies across the country have been recipients of show-cause notices demanding a huge amount of tax on gaming companies — some of these demands dated back to 2017. Taxpayers concluded that this was nothing but retrospective taxation. It has now been clarified that the tax was always applicable on the full value of the bet — the show-cause notices issued have only reminded gaming companies to pay taxes on past dues. In the meantime, online gaming companies are thinking of innovative measures to ensure that customers do not quit gaming just because of the GST cost. Some of these companies are offering the value of the GST component as bonus vouchers that adds to the kitty of the gamer. Considering the divergent views on this topic, everyone is keenly awaiting the decision of the Supreme Court which would give finality to the rate and value on which gaming companies need to discharge their GST liabilities. 

GST tax officers across the country started demanding tax on guarantees given by companies and their directors to other companies. The GST Council clarified this issue by confirming that when no consideration is paid by the company to the director in any form, directly or indirectly, for providing a personal guarantee to banks/financial institutes on their behalf, the open market value of the said transaction/supply may be treated as zero, and hence, no tax is to be payable in respect of such supply of services. However, the supply of corporate guarantees between related parties would attract a GST of one per cent of the amount of such guarantee offered, or the actual consideration, whichever is higher. It is interesting that the GST Council has used
the phrase “supply of a corporate guarantee” as against the normal business parlance of “providing a corporate guarantee”.

Almost every taxpayer is waiting for the GST Appellate Tribunal to be set up and start functioning at the earliest so that they can flood them with appeals. The GST Council has taken one more incremental step towards this by prescribing the technical criteria to be met for appointment as a judicial member of the tribunal and the age limits for the president of the tribunal and its members. 

The council has recommended providing an amnesty scheme through a special procedure for taxable persons, who could not file an appeal under Section 107 of the said Act, against the demand order under Section 73 or 74 of the CGST Act, 2017, passed on or before March 31, 2023, or whose appeal against the said order was rejected solely on the grounds that the said appeal was not filed within the time period specified in sub-section (1) of Section 107. In all such cases, the filing of appeal by the taxpayers will be allowed against such orders up to January 31, 2024, subject to the condition of payment of an amount of pre-deposit of 12.5 per cent of the tax under dispute, out of which at least 20 per cent (i.e. 2.5 per cent of
the tax under dispute) should be debited from Electronic Cash Ledger. 

Taxpayers would welcome this relaxation since they can now file appeals even if they are bound to lose it at the departmental level since the establishment of the GST Appellate Tribunals appears to only be a matter of time. As is their wont, the GST Council has tinkered with a few rates of GST on items such as millets etc, taking into account the representations received. Another welcome announcement has been clarifying the rate of GST on job work of converting barley into malt as 5 per cent. With effect from January 1, 2022, the liability to pay GST on bus transportation services supplied through Electronic Commerce Operators (ECOs) has been placed on the ECO under Section 9(5) of the CGST Act, 2017 — this amendment, too, has been made on representations made by industry associations. 

(The writer is a Bengaluru-based tax expert)