NOVEMBER 04, 2024

By M G Kodandaram, IRS. Assistant Director (Retd) ADVOCATE and CONSULTANT

THE Indian GST introduced as "One Nation, One Tax, One Market," represents a transformative move toward a unified tax system, simplifying the previous complex network of multiple state and central taxes. While the GST system has largely succeeded in simplifying tax administration, issues with GST adjudication have become increasingly apparent . Adjudication, which plays a crucial role in ensuring compliance and resolving disputes, encounters substantial obstacles due to inconsistent interpretations, procedural variations, and regional disparities in applying GST laws and procedures. The non-uniform application of GST laws and the inconsistency in fair adjudication procedures are driving an increase in unproductive litigations. These issues also substantially dent the intended uniformity of GST, resulting in taxpayer grievances and prolonged litigation.

On October 23, 2024, the All-Gujarat Federation of Tax Consultants (AGFTC), representing over 2,000 tax professionals throughout Gujarat, submitted a formal representation to the Hon'ble Chairman of the Central Board of Indirect Taxes and Customs (CBIC) and the Commissioner of State Tax, Gujarat, requesting the issuance of comprehensive guidelines for GST adjudication proceedings under the GST Act, 2017. The representation highlights the urgent need for clear, uniform guidelines in drafting GST adjudication orders. AGFTC stressed that adjudication orders, issued by authorised officers, are to be fair for effective GST administration. When crafted with clarity, transparency, and strict adherence to GST Acts and Rules, these orders promote fairness for taxpayers by reducing ambiguity and minimizing litigation. However, the absence of clear guidelines has often resulted in inconsistencies in drafting, causing undue hardship for taxpayers and straining resources for both officers and the department due to prolonged legal disputes.

As a positive example, AGFTC highlighted the recent initiatives by the Commercial Taxes Department of Tamil Nadu, which issued Circular No. 8/2024 on August 29, 2024 outlining detailed guidelines for GST adjudication. The author is of the opinion that such circulars or instructions should be issued by the Council office to ensure they apply uniformly across India and usher consistency within the Indian GST system. (Read GST Administration - Need of Comprehensive Approach - AUGUST 17, 2022; GST Audit: Evolve a Combined and Transparent Procedure - APRIL 15, 2024; Optimise GST Administration Through Call Book System - MAY 13, 2024 by the author.) By this representation, AGFTC urges both the central and state governments to adopt a similar approach and prioritize the issuance of necessary guidelines that implement standardized adjudication procedures. This would enhance uniformity, streamline tax administration, facilitate ease of compliance, and reduce litigation.

Inconsistent procedures by Adjudication Authorities

Adjudication is a critical process in tax administration, as it provides a means for resolving disputes and ensuring compliance. The basis of fair adjudication is the consistent interpretation of GST law across different jurisdictions. Many adjudicating authorities in various states interpret GST provisions differently, resulting in inconsistent outcomes for similar cases. This lack of uniformity leads to conflicting orders and unpredictable results, creating a climate of uncertainty for taxpayers.

One of the primary objectives of GST was to establish uniformity within India's tax framework. However, procedural discrepancies persist both within individual states and between different state and central authorities, complicating the adjudication process. These inconsistencies arise from the absence of a standardised approach to issuing notices, conducting hearings, and evaluating evidence, which results in varying procedural standards for adjudication across the nation.

The implications of non-uniformity in adjudication extend beyond compliance issues; they also have broader economic consequences. Businesses may find themselves compelled to dedicate additional resources to tax compliance rather than focusing on productive activities. This situation discourages investment and hampers growth, particularly affecting small and medium enterprises (SMEs), which often bear a disproportionate share of the GST compliance burden.

Lack of Comprehensive Guidelines

A well-structured adjudication order is vital for ensuring transparent and fair GST administration. However, there is a significant absence of standardized guidelines for drafting these orders, which compromises their clarity, consistency, and legal integrity. Poorly drafted orders often lack thorough reasoning, fail to adequately address the key issues raised by taxpayers, or misinterpret GST provisions. This can result in unjust imposition of taxes or penalties, placing additional burdens on taxpayers and undermining their confidence in the GST system.

In the absence of clear drafting guidelines, adjudicating authorities may neglect the importance of thoroughly addressing taxpayers' arguments. As a result, taxpayers may struggle to understand the rationale behind decisions, leading to unnecessary litigation. This situation underlines the need for procedural upgradation to ensure that adjudication orders are consistently drafted with clarity and legal precision.

The non-uniform application of GST law significantly affects taxpayer confidence and voluntary compliance. When businesses face inconsistent treatment under the law, it not only imposes financial strain but also raises compliance costs. The apprehension of differing interpretations by authorities in various regions can dissuade compliance, as taxpayers may lack clarity regarding their obligations. Furthermore, ongoing legal disputes stemming from unjust adjudication orders promote a sense of distrust in the system and discourage voluntary compliance, which is essential for the success of GST.

Need of Uniform Adjudication Guidelines

To tackle the issues arising from inconsistent adjudication, it is crucial to establish clear, national-level guidelines for GST adjudication. Such a central directive outlining drafting standards would ensure that orders are well-organized, articulate clear reasoning and adhere to a consistent format. It should encompass essential areas such as drafting standards for adjudication orders, procedural uniformity in hearings and evidence assessment. National standards would provide adjudicating officers with a clear framework for decision-making, thereby minimizing the risk of subjective interpretations. By doing so, taxpayers would gain a better understanding of the rationale behind decisions, which could significantly lower litigation rates by proactively addressing their concerns and alleviate the backlog of litigation.

The GST framework is extensive and requires a comprehensive understanding of its various provisions, rules, and recent amendments. Unfortunately, many adjudicating officers, especially in state administrations, do not have sufficient training or familiarity with the intricacies of GST law. This gap in knowledge leads to inconsistent application of regulations, incorrect classification of goods and services, and misinterpretation of exemptions, deductions, and applicable rates. When adjudicating officers lack updated GST knowledge, it can result in the misapplication of the law, unfair rulings, and unjust penalties, ultimately eroding the credibility of the system.

Disparities in training across states exacerbate these challenges, as tax officials in some regions may have access to better resources and training opportunities than their counterparts elsewhere. The government should prioritize ongoing education on GST updates and legal amendments to ensure that adjudicating officers are adequately prepared. This can be achieved through a central GST portal that offers access to case studies, training materials, and real-time legal updates. Implementing standardized training programs, conducting regular workshops, and providing timely updates on changes in GST law are vital steps to close this knowledge gap and foster a more consistent application of the law.

The way forward

Ensuring fair and consistent adjudication in GST administration is vital for building taxpayer trust, encouraging compliance, and driving India's economic growth. To achieve this, the mandatory adoption of faceless adjudication is essential, as it can save both time and costs. (Read - Faceless GST Adjudication: Simplifying the Path to Fairness - SEPTEMBER 04, 2024; Digital Backend System for Tax Litigation Management JULY 19, 2022, by the author) This innovative approach will modernize tax administration by utilizing technology to eliminate physical interactions, thereby enhancing transparency, efficiency, and consistency in resolving tax disputes. These digital measures are to be made mandatory in appellate forums and in tribunals also.

In the GST adjudication system, appellate authorities play a critical role in setting legal precedents. However, the GST Appellate Tribunal, which was meant to be a higher authority for GST disputes, is not yet operational, leading to further challenges. Taxpayers currently rely on high courts for appeals, but these courts often handle a variety of cases and may not provide the specialized attention that tax cases require. Additionally, the lack of appellate precedents makes it difficult for lower authorities and taxpayers to predict outcomes, adding to the uncertainty surrounding GST adjudication. The establishment of a functioning GST Appellate Tribunal would help provide precedential guidance, streamline the appeals process, and reduce the backlog in courts.

A systematic and harmonized approach to GST adjudication can significantly reduce taxpayer grievances, improve voluntary compliance, and strengthen the overall reliability of the tax system. As India progresses on its journey towards economic development, addressing these adjudication challenges will be crucial for unlocking GST's potential to optimize tax administration and foster national advancement.

[The views expressed are strictly personal.]