BQ Exclusive | GST Probe Body Alleges ABB India Evaded Taxes

The indirect tax investigating agency found ABB India Ltd. allegedly evaded goods and services tax by wrongly classifying equipment, according to a person aware of the development.

The Directorate of Goods and Services Tax Intelligence's probe revealed that the company allegedly misclassified turbochargers—used to boost engine efficiency—supplied to the Indian Railways, the person said on the condition of anonymity as the information isn't public. That helped the maker of equipment for power and heavy industries lower GST on it to 5 percent from the applicable 28 percent, the person said.

The directorate found that ABB India allegedly evaded Rs 7.53 crore in tax from July 1, 2017 to Dec. 31, 2018. The company paid Rs 1.94 crore at 5 percent GST; and it will have to pay the remaining Rs 5.58 crore in tax, plus an equal amount in penalty under Section 74(1) of the CGST Act, the person said.

ABB India allegedly wrongly classified the item under Chapter 86 of the GST tariff instead of Chapter 84, which would have attracted 28 percent levy from July 1, 2017 to Nov. 14, 2017, and 18 percent thereafter as the rate was cut, according to probe documents reviewed by BloombergQuint.

Besides railways, ABB India also allegedly charged a lower GST of 5 percent when it sold the turbochargers to A.P. Earth Movers, a channel partner of ABB to supply products to Rashtriya Ispat Nigam Ltd. and NTPC Ltd.

The findings said the company deliberately misclassified goods “with a mala fide intention” to evade the payment of tax by suppressing the correct classification of the product. ABB India also allegedly suppressed facts about taxable supply of goods from July 2017 to December 2018 to evade payment of IGST for inter-state transactions, it said.

“The issue referred by you pertains to one of the company's indirect tax matters, which is being contested by the company based on the legal advice,” ABB India told BloombergQuint in an emailed statement. “ABB is a law-abiding company and would respond to demands of authorities appropriately fully protecting the company's interest. The matters of these nature are routine and nothing unusual for corporates in India and hence we have nothing more to say on this.”

The company, in a response to the tax authorities, said it classified the turbocharger based on the fact that it's only used in locomotives and Chapter 86 includes “parts of locomotives” which are taxed at 5 percent. An ABB India executive, according to the documents, said the company followed correct classification in the pre-GST regime but changed it under GST based on end-use and an “oral legal opinion”.

The probe report, however, called that a violation of:

• Section 31 of CGST Act for failing to issue proper tax invoice by quoting wrong classification of goods.
• Section 37 of CGST Act for furnishing incorrect details supplies made to Indian Railways and to A.P. Earth Movers.
• Section 49 of CGST Act for failing to pay correct tax liability.
• Section 59 of CGST Act for failing to assess correct tax liability.

The company had done so because government-owned entity RITES Ltd., in a letter, had classified the turbocharger under the different classification which attracted a lower GST rate, according to investigation documents. The taxman, in its findings, concluded that RITES is not an authority that can decide on classification matters of GST.

Historically, products are generally classified under a specific tariff based on their end-use, said Krishan Arora, indirect tax partner at Grant Thornton India LLP. Ideally, Chapter 84 of the GST tariff which specifically covers the sub-heading ‘turbochargers' should be taxed at 18 percent when meant for “industrial machinery”, Arora said. But this creates ambiguity that turbochargers which are specifically manufactured and used only in locomotive engines should be classified under Chapter 86 covering “parts of locomotives”, Arora told BloombergQuint.

Udit Gupta, partner at Udit Kishan & Associates, however, said this a clear case of misclassification of goods to pay GST at a lower rate. The company is paying lower GST when it's selling the product to some clients and charging a higher GST when it supplies the same product to other customers, he said.