New procedures in GST system may be challenged in courts, say experts

Experts say the new procedures in the goods and services tax (GST) system that enable officials to attach properties, including bank accounts, and cancel registration for non-filers of returns were harsh and might be challenged in courts.

“It is quite possible that these may be challenged in courts,” said Abhishek Rastogi, partner at Khaitan & Co, who is arguing many GST-related cases in courts.

He said attachment of bank accounts and cancellation of registration for non-compliance were harsh for the industry grappling with teething issues.

The GST commissioner may resort to provisional attachment under Section 83 of the Central GST Act, according to the standard operating procedure (SoP), recently issued by the Central Board of Indirect Taxes and Customs (CBIC).

Subsequently, the commissioner may also cancel registration in cases where return has not been furnished for a “specified” period, according to the SoP. How long is the specified period is yet to be decided.

Under the section, the commissioner can attach any property, including bank accounts of assessees. For this, he will have to pass an order in the specified form to that effect mentioning the details of property which is attached.

“Bank account attachment and cancellation of registration are generally perceived to be harsh steps. The industry would hope that the tax authorities would resort to such steps only where there is realistic threat of revenue leakage or a mala fide intention,” said Harpreet Singh, partner at KPMG.

Experts said under the pre-GST state-level value-added regime, cancellation of registration rarely happened. Tax officials used to make the registration dormant in case of non-filing of returns for more than a year. As such, cancellation of registration is too harsh under SoP, they said.

M S Mani, partner at Deloitte India, said it was essential to distinguish between genuine cases of non-filing of returns and cases of willful defaults. 

“There is a need to avoid punitive steps like cancellation of registration, attachment of bank account in cases where the non-filing is on account of genuine reasons, which have to be determined on a case to case basis considering the underlying facts,” he said. 

Archit Gupta, chief executive officer of ClearTax, said the government was going all out to make sure taxpayers file their returns and pay due taxes. He said there was a certain fear-mongering being played out due to the mention of the section 83 in the SoP.

“Taxpayers must reconcile and match their GSTR-2A (supply returns) with book of accounts and pay taxes, which are due and become compliant quickly,” Gupta said. The SoP was issued to address the issue of divergent practices being followed by the tax department of the Centre and states in case of non-furnishing of the GST returns.

Under it, clarification was issued to ensure uniformity in respect of the appropriate procedure to be followed in case of non-furnishing of returns. SoP clarified that notice to return defaulter is to be issued in GSTR-3A and no separate notice is required to be issued for best judgment assessment. The circular explained that a system-generated message will be sent to registered persons three days before the due date to nudge them to file returns and notice in GSTR-3A will be issued five days after due date of furnishing returns.