The Directorate General of Goods and Services Tax Intelligence (DGGI) has issued more than 300 show-cause notices to promoters, directors, and senior management of various companies for allegedly wrongfully availing Input Tax Credit (ITC). The DGGI is also seeking to impose penalties as high as 100% of the tax amount in cases where fraudulent ITC claims have been identified.
These notices, sent out in the first week of August for the financial years 2017-18 and 2018-19, are already being challenged in high courts, with many recipients seeking a stay on the proceedings. The tax officials clarified that the notices were only issued in cases where there was clear evidence of the involvement of management in fraudulent ITC claims.
According to officials, the show-cause notices were sent under Section 122(1A) of the Central GST Act, which was introduced in 2020. This section allows for penalties equal to the amount of tax evaded or ITC wrongfully availed if an individual or company is found to have directly participated in or facilitated tax evasion or the issuance of fraudulent invoices without actual supply of goods or services.
One such case involved a penalty of Rs 102 crore imposed on the managing director of a company, matching the evasion amount. The DGGI claims that the penalties are aimed at curbing tax fraud and sending a strong message to willful evaders.
However, the industry has expressed concerns about the imposition of penalties on individuals in senior management, arguing that such actions should be reserved for exceptional cases where the intent to benefit from the fraud is clearly established. Many believe that it is unjust to hold senior executives personally liable for ITC-related disputes, especially when the issues involve interpretations of tax law.
Tax experts have also weighed in, cautioning that while the imposition of penalties serves as a deterrent for tax evasion, it should be used judiciously. They stress that tax authorities bear the responsibility of establishing the direct involvement of senior officials before imposing such penalties, to avoid potential misuse of this provision as a harassment tool.
As the legal challenges proceed, this move by the DGGI underscores the intensifying scrutiny on companies regarding GST compliance and the availing of input tax credit.
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