The Commercial Taxes Department of Karnataka has issued GST notices to approximately 7000 unregistered small vendors, including those dealing in exempt goods such as milk, vegetables and unbranded food items. While no tax demand has been raised, the vendors have been urged to obtain GST registration or provide documentary proof of exemption.
A senior department official clarified that the move aims to enforce compliance, as the authorities are unable to independently verify the exempt status of the goods or services being sold. The vendors have been flagged primarily based on UPI transaction data, with digital inflows exceeding Rs 40 lakh in goods and Rs 20 lakh in services serving as a threshold for notice issuance.
The notices have been issued under Section 63 of the GST Act, which empowers GST officers to assess and issue tax liability orders for unregistered but liable persons within a five-year window.
While the department insists the action is procedural, the crackdown has sparked anxiety among small vendors, many of whom believe they fall within the exempt category. A meat seller in Electronics City, Bengaluru, for instance, reported receiving a notice of Rs 91 lakh, despite never having registered for GST and claiming full exemption.
In response, some vendors have started discontinuing UPI payments, fearing further scrutiny and potential tax liabilities-even if it means losing business. Tax professionals caution that this shift could undermine digital payment adoption, which has been pivotal in improving financial transparency.
Chief Minister Siddaramaiah has intervened, assuring the vendors that notices will be withdrawn if they can prove they deal only in exempt goods. Furthermore, arrears may be waived for those who agree to register and comply going forward.
Tax experts warn that while the CM's assurances provide temporary relief, the dual structure of GST-centrally legislated and state-implemented, means that vendors must either register or provide solid evidence of exemption to avoid future complications.
"UPI provides an audit trail for both payer and payee. Opting out of it may avoid scrutiny, but also opens the door to unaccounted transactions and tax evasion," a tax consultant said.
With the tension escalating, stakeholders await clarity from the Centre and coordinated guidelines to ensure compliance without burdening genuine small-scale exempt vendors.
CAclubindia
