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The Goods and Services Tax (GST) regime in India, while intended to streamline indirect taxation and promote economic efficiency, has often faced challenges in its implementation and interpretation. The article “GST notice: State and Centre have to agree on reprieve for small traders” highlights a specific instance where small traders and businessmen are facing difficulties due to notices issued by the Commercial Taxes Department for non-payment of GST on UPI transactions. The crux of the issue lies in the fact that any resolution to provide relief to these traders requires a consensus between the State and Central governments, indicating the complexities inherent in India's federal fiscal structure.
The Commercial Taxes Department has reportedly issued notices to over 10,000 businesses based on their UPI transaction data. These notices pertain to the non-payment of GST over the past four years. Deputy Chief Minister D.K. Shivakumar stated that the number of notices could be around 14,000, and he has indicated that the State government intends to appeal to the Central government to withdraw these notices. He also attributed the problem to the previous BJP government. This political dimension underscores the sensitivities involved, as taxation policies often become intertwined with political considerations.
The legal and administrative framework of GST mandates that decisions affecting both State and Central GST components must be made in the GST Council. An official emphasized that both governments need to agree on the future course of action within the GST Council. Trade bodies and associations are also advised to petition the government, highlighting the inability of traders to pay taxes retrospectively. This suggests that there is recognition of the potential financial burden on small businesses if they are required to comply with these demands retroactively.
The basis for issuing these notices stems from data obtained from payment platforms like PhonePe and Paytm. Traders offering goods with UPI transactions exceeding ₹40 lakh per annum and those offering services with transactions exceeding ₹20 lakhs per annum have been targeted. Notably, Google Pay transactions have not yet been assessed, suggesting a phased approach in data collection and enforcement. A senior Commercial Tax official explained that the tax liability can be flagged for the previous four years, leading to notices being issued from 2021-2022 until January 2025, when the department received the relevant data.
One of the primary concerns for the affected traders is the lack of clarity and understanding regarding their tax obligations. In response, officials have interacted with small traders to address their concerns and explain the rationale behind the notices. Joint Commissioner of Commercial Tax Meera S. Pandit attempted to reassure traders, stating that the notice is merely a mode of communication and that traders need not be overly worried. She clarified that if exempted goods were handled, the notices would be withdrawn. The department has stated that it will assess the businesses and hear from the traders before issuing a final tax demand.
The exempted goods include essential items such as vegetables, fruits, flowers, milk, unbranded or unpacked food grains, handicrafts, petrol, diesel, and liquor. The department has clarified that if a trader sells both exempted and non-exempted goods, GST will only apply to the non-exempted goods. This distinction is crucial, as it helps to narrow down the tax liability to specific types of transactions.
Regarding the 18% GST demand mentioned in the notices, officials have clarified that the final tax demand could be lower based on the documents provided by the traders. This suggests that the initial notices are based on preliminary assessments, and the actual tax liability will be determined after a thorough review of the relevant transaction records. Ms. Pandit emphasized that the demand can only be lowered, not increased, once the final demand order is issued.
To provide context, officials have pointed out that similar exercises are being conducted in other states such as Gujarat, Tamil Nadu, and Andhra Pradesh. This indicates that the issue is not unique to the specific state mentioned in the article but is part of a broader national effort to enforce GST compliance. While the initial notices have requested responses within seven to ten days, officials have assured that sufficient time will be provided, with three reminders and phone calls to ensure traders are adequately informed and have the opportunity to respond.
The assessment process will be based on the best judgment of the assessing officers, particularly in cases where traders cannot provide complete documentation. Ms. Pandit has stated that the tax demand is not intended to trouble anyone or reduce profits. This suggests a willingness to adopt a pragmatic approach, balancing the need for tax compliance with the practical realities faced by small businesses. In response to the outcry from traders, the department has also modified the format of the notices. Initial notices provided detailed transaction information and potential tax liabilities, including interest and penalties. The revised notices now primarily inform traders of transactions exceeding ₹40 lakh, which requires registration under the GST regime. This change aims to reduce anxiety and focus on the primary requirement of GST registration.
The issue of GST compliance among small traders is multifaceted. It involves not only the legal and administrative requirements of the GST regime but also the practical challenges faced by small businesses in understanding and adhering to these requirements. The reliance on UPI transaction data highlights the increasing importance of digital transactions in the economy and the need for tax authorities to adapt to these changes. The involvement of both State and Central governments underscores the federal nature of the GST system and the need for coordination and consensus in addressing issues that affect taxpayers across the country. Ultimately, the resolution of this issue will require a balanced approach that combines effective enforcement with a reasonable and pragmatic consideration of the circumstances faced by small traders.
Source: GST notice: State and Centre have to agree on reprieve for small traders