Tax Liability cannot be imposed merely because the financial statement did not provide State-wise turnover

editor — Thu, 04 Apr 2024 10:14:35 +0000

The imposition of tax liability solely based on the absence of state-wise turnover information in financial statements has been contested in the legal realm. This matter was addressed by the Hon’ble Madras High Court in a recent case involving Tvl. Future General India Insurance Co. Ltd. versus Assistant Commissioner (State Tax) [WP No. 3534 OF 2024, dated February 16, 2024].

Facts:

Tvl. Future General India Insurance Co. Ltd. (“the Petitioner”) operated as a private general insurance firm, specializing in insurance services. On August 16, 2021, the Petitioner was served with an audit notice by the Assistant Commissioner (State Tax) (FAC) (“the Respondent”). In response, the Petitioner diligently furnished the necessary documents and addressed the discrepancies highlighted in the audit reports. Subsequently, after issuing both an intimation and a show cause notice (“the SCN”), the Competent Authority issued the assessment order on December 30, 2023 (“the Impugned Order”).

Within the Impugned Order, the issue of defect No. 10 arose, relating to variations in turnover between the Profit & Loss account and balance sheet, as opposed to the figures in GSTR-9. The Petitioner explained that these disparities stemmed from the inclusion of Pan-India operations in the financial statements, whereas GSTR-9 solely focused on turnover within Tamil Nadu. The Petitioner even provided a certificate from a Chartered Accountant, specifically outlining the turnover within Tamil Nadu, amounting to Rs. 80,89,05,068/-. However, despite this clarification and despite the Petitioner having already paid taxes on the stated turnover, the Respondent imposed State Goods and Services Tax (SGST) and Central Goods and Services Tax (CGST) at 18% each (36% combined) on the aforementioned turnover.

Dissatisfied with the assessment order, the Petitioner sought recourse by filing a writ petition before the Hon’ble High Court of Madras.

Top of Form

Issue:

The central question revolves around whether tax liability can be established solely due to the absence of state-wise turnover information in financial statements.

Held:

In its ruling on Writ Petition No. 3534 OF 2024, the Hon’ble Madras High Court made the following determinations:

The Court acknowledged the variation in turnover for entities operating across multiple states, emphasizing the importance of distinguishing total turnover from state-wise turnover.
It criticized the Competent Authority's decision to impose GST at a higher rate of 36% instead of the appropriate 18%, despite the Petitioner having already paid tax on the turnover in question.
The Impugned Order was deemed invalid and the case was remanded to the Respondent for reconsideration.
Furthermore, the Court directed the Respondent to afford the Petitioner a fair opportunity, including a personal hearing, and instructed issuance of a fresh assessment order within a maximum period of two months, in compliance with legal provisions.

FM Sitharaman urges GST officials to provide clarity on classification-related issues

editor — Tue, 05 Mar 2024 11:04:28 +0000

Finance Minister Nirmala Sitharaman has called upon goods and services tax (GST) officials to address classification-related concerns promptly. Speaking at the National Conference of Enforcement Chiefs of the State and Central GST Formations, Sitharaman emphasized the importance of engaging with stakeholders to understand their issues, improve compliance, streamline processes, and enhance transparency and efficiency within the tax system.

GST rates are determined based on the classification of goods and services using harmonized system of nomenclature (HSN) codes, often leading to disputes and litigation. These issues are typically resolved through various judicial and quasi-judicial forums, including GST commissioners and courts. The Central Board of Indirect Taxes and Customs (CBIC) issues circulars and FAQs to clarify classification issues based on GST Council recommendations.

Sitharaman also stressed the use of technology to plug loopholes and provide better taxpayer services, advocating for the sharing of best practices and seamless coordination across states. The conference featured presentations on various topics, including a crackdown on fake registrations and bogus billing, resulting in the detection of significant tax evasion.

In related news, the Income-tax Department has urged taxpayers to file updated returns for the assessment year 2021-22 by March 31, using the annual information statement (AIS) to address mismatches between filed returns and third-party data. Non-filers are also encouraged to submit updated returns to ensure compliance.

Source: https://www.moneycontrol.com/news/business/economy/fm-calls-for-clarity-on-classification-related-issues-under-gst-at-the-earliest-12400741.html

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Tax Liability cannot be imposed merely because the financial statement did not provide State-wise turnover

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FM Sitharaman urges GST officials to provide clarity on classification-related issues

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