GST investigation guidelines

The Central Board for Indirect Taxes and Customs (CBIC) recently issued a set of 18 guidelines to department personnel on conducting investigations and enforcement.

The Principal Commissioner is authorised to conduct investigations and enable enforcement; his approval is mandatory. In four instances, the guidelines specify that written approval from the Principal Chief Commissioner is necessary. These include interpretation of the law when the tax is levied for the first time, summons being issued to big industrial houses or major multinational corporations, sensitive matters or matters with national implications, and matters that are already before the GST Council. Apart from a written permission, the guidelines elaborate that the concerned CGST field formation should also collect details regarding the prevalent trade practices and the nature of transactions carried out by stakeholders. The implications and impact of such a matter should be studied so as to have adequate justification for initiating an investigation and taking action. It would be interesting to see how this guideline is implemented on the ground, as definitions of big industrial houses, major MNCs, sensitive matters, and matters with national implications have not been provided.

Given the “one nation, one tax” advertisement, every levy could have national implications. Would investigations into gaming companies be considered to have national implications warranting written approval from the Principal Commissioner? The directive to study the prevalent trade practices and their implications is welcome and could reduce the intent of revenue maximisation that is prevalent today. 

Some of the guidelines could also confuse the investigators. One instruction states that if a taxpayer has utilised Input Tax Credit (ITC) towards payment of GST on its outward supplies, it is not acceptable to seek, via summons/letter, responses to questions such as “Please clarify whether ITC availed and utilised was proper?” The guidelines do not provide any alternative to this question, leading to the question not being asked at all — a scenario taxpayers would certainly not mind.

Over the last few years, some taxpayers have faced multiple investigations on the same matter from different investigating agencies. CBIC has attempted to resolve this in their guidelines by stating that "The Principal Commissioner must engage in dialogue with the other investigating office(s) to consider the feasibility of only one of the offices pursuing all these subject matters with respect to the taxpayer and the other offices consolidating their material with that office. If this outcome is not feasible, the reasons therefor should be confirmed on file by the principal commissioner. After these guidelines, multiple investigations have not been removed from the statute book; the process has just become a bit more complicated.”

There are some other instructions that are well-intentioned, but complex wording dilutes the intention. For instance, “before summoning any information or documents from a regular taxpayer, the relevancy and propriety of what is being sought must be recorded on an e-file, ensuring that it is holistic and the result of preparation, and also so as not to have repeated issuance of summons or seeking piecemeal information." At the same time, there are some instructions that are crystal-clear. “An investigation initiated must reach the earliest conclusion, which is not more than one year. It is not necessary to keep investigations pending until a limitation in the law approaches. Show cause notice should not be delayed after the conclusion of the investigation. The closure report consequent to the appropriate payment of government dues by the person concerned should also not be delayed and should have a brief self-explanatory narration of the issue and the period involved. Expeditious actions without delay at these stages are part of preventive vigilance, ensuring that no room remains for malpractice. The summons in the conduct of the investigation must not convey requests outside the scope defined for a summons. In the case of GST, the scope of summons is in the wording of Section 70 of the CGST Act, 2017. Addressing letter/summons with context or content akin to a fishing inquiry is not acceptable.” 

For almost seven years, there has been a disconnect between the GST laws that are in the statute and how they have been implemented by some trigger-happy assessing officers. While the latest set of guidelines issued by CBIC has cleared some of the misconceptions about summons and enforcement, the key challenge would be to implement them as instructed in the guidelines. Taxpayers will use these guidelines as a toolkit and object to any investigations/summonses that do not adhere to these diktats. CBIC would do well to also bring out similar broad parameters to conclude assessments as well. 

(The writer is a Bengaluru-based tax expert)