DGGI sends 300 notices to cos’ top brass over input tax credit

The Directorate General of Goods and Services Tax Intelligence (DGGI) has sent out over 300 show-cause notices to promoters, directors and top management of companies. It has also sought to impose penalties, as high as 100%, for wrongfully availing input tax credit.

These notices, sent to top management in the first week of August for the financial years 2017-18 and 2018-19, are already being challenged by recipients who have moved various high courts seeking a stay.

Tax officials say notices were sent in cases where the role of management in wrongfully availing ITC was clearly established.

“Notices have been sent out only in cases where the investigation pointed at the role of promoters or senior management,” an official told ET, adding that the notices were sent under Section 122(1A) of Central GST ACT and everyone can reply or respond to it.

The section 122(1A) of the CGST Act, introduced in 2020, says those who facilitate tax evasion or engage in malpractices by directly participating in, assisting, or encouraging the issuance of invoices without actual supply of goods or services faces a penalty equal to the amount of tax evaded or Input Tax Credit (“ITC”) available or passed on.

Industry disagrees with tax authorities’ stance. They contend that individuals can be subject to personal penalties only under specified exceptional circumstances and rarest of rare cases where the attempt to gain from tax fraud is well established. In one instance, tax authorities have imposed a penalty of Rs 102 crore, equal to the evasion amount by the company, on the managing director of the company.

“For an input tax credit case, where the issues concern interpretation issues, how can 100% penalty be imposed on MD at personal level,” a top executive of a steel company, who did not wish to be named, said.

Experts say that while imposition of penalties equal to the amount of tax evaded or ITC availed of or passed on serves as a strong deterrent for wilful evaders, it must be exercised with caution as greater onus lay with tax authorities to establish that the person is liable for imposition of the penalty.

“It should not become a tool to harass Senior Officials of Companies or Firms (such as Managing Directors, CEOs, CFOs, Partners etc.) unless there is a clear indication that a specified fraudulent transaction has been undertaken at their instance and they have directly retained the benefit of such a transaction,” Abhishek A Rastogi, founder of Rastogi Chambers said.