NEW DELHI: The Directorate General of Goods and Services Tax Intelligence (DGGI) has issued thousands of notices to various companies, as well as their directors and promoters, regarding the wrongful availment of input tax credit (ITC), according to sources. This tax dispute primarily concerns the failure of the vendors to remit taxes to the government, in addition to other issues related to credit availment and utilisation.

According to experts, a key question arising from this situation is whether tax liability can be imposed on the service recipients, especially when they are not at fault. The ongoing investigations highlight the complexities surrounding tax compliance and the responsibilities of all parties involved in the supply chain.

According to the show cause notice reviewed by the TNIE, the interesting element of these notices which have been issued, especially for the financial year 2017-18, by the first week of August, is whether the liabilities imposed by way of personal penalties is correct. In some cases, penalties as high as 100% of the disputed tax amount have been imposed on the directors and the promoters of the company.

The imposition of such high penalties have created a lot of chaos in the industry, as the finance minister has clearly articulated that there should not be any harassment of the taxpayers.

The technical point which comes to the forefront is whether these individuals can be subject to such high personal penalties. Experts claim that such allegations to impose personal penalties on the individuals will have to cross the test of constitutional validity and such harsh penalties may not be sustained once these matters reach either the appeal forums or the jurisdictional High courts.

“The directors, promoters, or the individuals can be subject to personal penalties only under specified exceptional circumstances and rarest of rare cases when benefit is retained for individual gains. When benefit has not been retained by these individuals, any penalty invoked on individuals will be subject to the test of constitutional validity before the jurisdictional High Court” explained Abhishek A Rastogi, founder of Rastogi Chambers, who has filed petitions against these huge penalties levied on individuals. 

“The burden to prove the malafide intent will be on the revenue in such cases, especially when no part is retained in the individual capacity”, added Rastogi.