‘Taxtortion’ Epidemic in New India
Last Tuesday, the shares of Polycab, which had a market-capitalisation of Rs80,000 crore and sales of over Rs16,000 crore, slumped 9% on the news of income-tax (I-T) searches at its offices for alleged tax evasion. The stock stabilised for a day and then collapsed 21% on Thursday when the I-T department issued an unusually detailed press release saying that it had discovered undeclared cash sales of Rs1,000 crore; the release did not name Polycab. The release also mentioned uncounted cash payments of about Rs1,000 crore in fake expenses and undeclared transactions of Rs500 crore.
 
Polycab denies any wrongdoing but its market-capitalisation had fallen by 25% in just a few days because it was considered a rock-solid stock and was in the portfolio of many institutional portfolios and mutual funds.
 
In the past six weeks, after the recent state polls, unbridled enthusiasm had gripped the stock market on the expectation of a huge win for the Bharatiya Janata Party (BJP) in the upcoming general elections, an outcome that companies and investors are looking forward to.
 
At the same time, a slew of very large, well-regarded, blue-chip companies have received notices from I-T and goods and services tax (GST) departments for tax violations. While Polycab’s case seems more serious than others, here is an extraordinary list of large companies that have been slapped with notices for different kinds of 'violations' and 'short-payments'.
 
Government-controlled Life Insurance Corporation (LIC) got a Rs806 crore notice from the Maharashtra government on 1st January for alleged short payment of GST in financial year (FY)17-18. The move appears to have inspired GST offices in other states and Tamil Nadu, Uttarakhand and Gujarat came up with demand notices totalling Rs667 crore on LIC; Telengana chipped in with a Rs116 crore demand and Telengana had already sent a Rs183 crore notice in December.
 
LIC is not alone. From 1st January, tax demands have rained on dozens of blue-chip companies. Hindustan Lever has a GST demand of Rs447.5 crore from five states. Software biggie LTIMindtree got a Rs206 crore notice. Others targeted were: Asian Pains, Eicher Motors, ICICI Prudential and Nestlé.
 
Earlier, the gaming industry got a tax demand of around Rs1.5 lakh crore; the insurance industry is already contesting a demand of over Rs5,500 crore and the real estate sector, one of over Rs2,000 crore.
 
In November 2023, the directorate general of GST intelligence (DGGI) issued demand notices to Zomato and Swiggy, asking them to clear pending tax dues of Rs400 crore and Rs350 crore, respectively. According to a media report, around 33,000 GST notices have gone out for returns filed in 2017-18 and 2018-19 financial years, while Rs1.45 lakh crore GST demand notices have gone out to about 1,500 businesses in December alone.
 
Not to be left behind, the I-T department slapped demand orders of Rs3,528 crore for each of the assessment years (AYs) between 2012-13 to 2019-20 and another Rs1,371 crore for AY11-12 on LIC alone. What is going on?
 
Obviously, tax officials believe that all these tightly regulated companies, including government ones, have all short-changed the government. But why the rush? Because the GST deadline to recover any money for the FY17-18 period was 31 December 2023.
 
A media report says GST authorities also believe that, in general, tax recovery based on earlier demand notices has been weak. It quotes GST officials saying that only about Rs18,541 crore was recovered from notices aggregating Rs1.51 lakh crore, while the internal 'target' was Rs50,000 crore. So, they compounded the perversity by sending out more notices. 
 
If you think that revenue officials are going berserk, acting on their own, while the government chants the mantra of ease of doing business, you would be wrong. These moves appear to have the full official backing.
 
Last week, the government upped the ante by giving GST officers more time to issue demand notices for discrepancies in annual returns for FY18-19 and FY19-20. On Thursday, the government extended the deadline for the FY18-19 fiscal year to 30 April 2024 and for FY19-20 to 31 August 2024.
 
This means more and more companies will be wasting time and costly resources to untangle long-running disputes.
 
It is hard to believe that these blue-chip companies, with the best tax and legal expertise and multiple layers of compliance mandated by regulators, would indulge in tax evasion of this magnitude. They are all aware of the reputational damage and financial dent that would follow along with directors’ liability (given the draconian GST laws).
 
So, what is the reason for this gulf between the department and blue-chip companies? One tax expert says, “The GST law is so loosely and hurriedly drafted that every officer can take a new view and put penalties beyond the capacity of assesees.”
 
The most vicious aspect of ‘taxtortion’ is that the disputes won’t be settled anytime soon. Unlike income-tax, GST laws have no process for out-of-court settlement through a settlement commission. These notices will be contested before the adjudicating authority. If the companies lose, they will appeal to the higher courts.
 
Given the magnitude of demand  and question of law involved, each case would probably go up to the Supreme Court. All this will take years and involve enormous high-quality time and effort. The courts are still hearing matters pertaining to service tax and excise (predecessors of GST), so newer issues will take at least three to five years to be resolved. The main beneficiaries would be tax experts and law firms.
 
Ease of doing business can get compromised in many ways. ‘Taxtortion’ is among the worst. Finally, if this goes out of hand, investors may panic, assuming the worst. If more stocks meet the fate of Polycab, it will have serious multiple implications.
 
(This article first appeared in Business Standard newspaper)
 
 
Comments
amodi
3 weeks ago
Only a strict ban on such TAXTORTION sensational and distorting news and making news of concluded matters obligatory shall free us from remaining in a f ool's paradise.
subhaiey3
2 months ago
GST on insurance industry by the state govts could be misinterpretentation which requires clarification, using that instance to justify gaming industries non compliance and probably GST fraud at polycab, this article is clear hit job, paid by tax evaders
gbrhyd
2 months ago
It’s right time to discard Income Tax and introduce BTT so that everyone will pay tax. Similarly GST officials shouldn’t give any notice to (or interfere in ) companies as the system is completely transparent. Still ‘Ease of doing business’ is far away in our country due to corrupt officers and politicians.
dunbaka
2 months ago
Hopeless Income tax Dept with uneducated officers.
iaminprabhu
Replied to dunbaka comment 2 months ago
Worst are BIGWIGS who are daylight dacoits, avoiding Taxes & using nefarious shell companies with round Robin CASH transactions!????????
gbrhyd
Replied to dunbaka comment 2 months ago
Well said
iaminprabhu
2 months ago
Using LOOPHOLES yo avoid Taxes using the Best Brains as Tax Consultants, CAs & Legal Heads is also very much prevalent in many Corporates & MNCs!

Let's not forget thus side of coin as avoiding TAXES & DUE PAYABLES as per law is also a big industry (knieing our slow legal process)
amodi
Replied to iaminprabhu comment 3 weeks ago
But what is wrong in it. Whether use of intelligence nefarious. And then why loopholes are kept and whether it does not speak tons of the efficacy of the goverment machinery.
jennamitu79
2 months ago
sb
Array
Free Helpline
Legal Credit
Feedback