GST Non-Compliance: Officers Can Attach Assets, Cancel Registration

Businesses risk attachment of their assets or cancellation of registration if they fail to file the required GST returns. A recent circular by the Ministry of Finance directs GST commissioners to provisionally attach assets or cancel registration of a registered business under GST laws if it fails to file prescribed returns.

The circular has been released in the form of a standard operating procedure for GST officials. It aims to bring uniformity in implementation of the GST in light of the divergent practices followed by tax officials. Experts told Bloomberg Quint that this circular is meant to plug the increasing shortfall in GST collections and ensure timely compliance by businesses.

What Does The Circular Say?

The GST regime requires a registered business entity to file certain periodic returns for inward and outward supplies of goods and details of input tax credits. Failure to file such returns result in non-compliance, which can subject a business to penal consequences under the Central GST Act.

The circular issued by the GST department prescribes the following standard operating procedure for GST Officials if a registered business fails to file GST returns:

• GST officials must send a system generated message to the registered person three days before the deadline for filing of GST returns. In case no return is filed, officials must send a further electronic message reflecting that no return has been filed.
• Notice should be issued after five days of the initial deadline directing a registered person to furnish prescribed returns within fifteen days.
• Tax officer can then proceed with a ‘best judgement assessment' if the registered person defaults in filing its returns and issue a notice in form GST ASMT-13.
• If the tax payer still fails to file returns, GST officials may initiate proceedings.

As a part of recovery proceedings, the circular allows prescribed class of GST officials to:

• Provisionally attach the registered person's assets.
• Cancel registration in certain other cases.

To be clear, the CGST Act already provides power for attachment of a registered person's assets or cancellation of its registration. The current circular is issued for furtherance of the powers under the Act. “The circular essentially reiterates the statutory provisions,” Mukesh Butani, managing partner at BMR Legal told BloombergQuint.

Notice to the taxpayer for failing to file return, consequent best-judgment assessment for consistent failure of the taxpayer to file return, deemed withdrawal of best-judgment assessment upon furnishing of returns, etc. are salutary provisions of the GST laws, he added.

The issuance of this circular coincides with the government's aim to plug in the loopholes and maximize GST collections. The circular also aims to curb the rising number of frauds, Anish Tripathi, an independent GST consultant said.

Use, Overuse, Abuse ?

The question of wide powers to tax authorities under the GST law has been contentious since its introduction, For instance, powers which allow commissioners to arrest without registering a FIR or police complaint were challenged in the Supreme Court. At this stage, experts don't suspect that this circular would lead to abuse of power by GST officers.

The SOP is likely to ensure that provisional attachment will be undertaken only in deserving cases in order to protect the revenue, Jigar Doshi, executive director at SKP Business Consulting opined.

Butani added that there are enough judicial guidelines against arbitrary exercise of such powers and one would expect that the tax-administration will be diligent in ensuring that these powers are not abused.