Companies are facing challenges in dealing with increasing GST notices from different state departments. The decentralization of revenue generation has prompted states to send notices to businesses, seeking documents and representations for tax scrutiny. The states are cross-checking GSTN data with income tax records and conducting reconciliations. This has led to a burden on companies, especially service providers, as they need to register, file returns, and make separate tax payments in each state. The centralization of accounts and the lack of separate trial balances for each state complicates the process of providing the required information. The time given to respond to these notices is often insufficient, considering the volume of data sought. Many companies are struggling to locate and reconcile data from previous years.
Companies are struggling to deal with increasing GST notices from different state departments as taxation is a centralised function in most companies and they, especially in services companies, find it difficult to segregate businesses per state.
The number of such notices from states, seeking documents and representations as part of tax scrutiny, has increased significantly since the conclusion of GST compensations for states in July 2022.
Since now the states have to generate their revenue independently, their revenue departments are in overdrive, sending notices to companies at even the smallest pretext, and their numbers may only increase in the future, experts said. States have started examining the GSTN data, cross-checking it with income tax records, and conducting reconciliations, which has led to issuance of a number of notices to businesses.
Under the GST law, companies must register in each state, file monthly returns, and make separate tax payments to each state, leading to notices from individual states, unlike the previous tax regime where only those selling goods in a state needed registration. Now, even service providers must register in every state.
The situation is creating significant challenges for companies, especially service providers like banks, mortgage lenders, technology companies, back offices and insurance companies.
Usually, the accounts and tax departments are based in one central location, such as Mumbai. When tax notices are received from different states, the pressure falls on the central tax department to handle them, causing a burden on the team
Another problem arises because most companies centralise their accounts, and they don’t maintain separate trial balances for each state. Companies categorise their books of accounts based on segments, like motor insurance, health insurance, etc., not according to geography.
However, for GST purposes, the location does matter. GST authorities demand to know the amount of business done in each state and the corresponding tax paid, which can be challenging for companies to segregate and provide. This situation poses a genuine problem for companies and adds complexity to the GST compliance process.
The time given by various states to respond, in many cases, is too short considering the volume of information sought and the need to provide reconciled data.
ET has reviewed a bunch of GST notices sent to service companies by states to produce a large number of documents to satisfy the questions of state revenue officers.
Most notices talk about five-year data, which is very voluminous. Many corporations are having difficulties locating and reconciling 5-year-old numbers.