AI-Driven Wave of GST Notices Unleashes Concerns on Legal Interpretation

Last updated: 07 December 2023

Government's AI-Driven Tax Notices Raise Concerns Among Stakeholders

In a series of developments that have sparked concerns among various sectors, stakeholders in meetings with the Finance Ministry have raised alarms about the recent influx of tax notices based on the government's interpretation of laws, powered by artificial intelligence (AI) and data analytics.

1. Cascade of Notices Across Sectors

The Finance Ministry has issued significant tax notices amounting to Rs 1.1 lakh crore to 71 online gaming entities, followed by Rs 1.5 lakh crore to shipping companies, and now the aviation sector finds itself under scrutiny. Stakeholders are seeking clarity on these notices, expressing apprehensions about the Directorate General of Goods and Services Tax Intelligence (DGGI) taking a proactive stance on interpretational issues.

2. AI in Taxation 

The government attributes these notices to the enhanced capabilities of AI and data analytics in taxation. According to a senior government official, the increased granularity of analytics is revealing gaps where businesses may have failed to pay taxes or wrongly claimed credits. The official asserts that the use of AI has led to a more sophisticated stage of tax administration, making it increasingly difficult for businesses to hide between information gaps and databases.


3. Data Analytics and Tax Administration

Data analytics is narrowing down areas where businesses traditionally evaded taxes by exploiting gaps between information and databases. As transactional data moves online, any manipulation or gaps in data are automatically detected. The tax department's focus is on ensuring that businesses pay the taxes they owe based on legal principles.

4. Stabilization of GST Law Interpretation

While the government sees the current trend as part of the natural progression of tax administration, it acknowledges that it will take another three to five years for the stabilization of GST law interpretation. The establishment of the GST tribunal is expected to play a crucial role in providing universal interpretations and clarity on taxable entities.

5. GST Notices on Airlines and Shipping Companies

The GST notices on airlines focus on deemed supply of services, especially in cases where India-specific services were not billed within the country. The investigation is based on related-party transactions, with GST treating Indian entities and their head offices as separate bodies for taxation purposes.

In the shipping sector, the notices allege that services were rendered within India, while companies presented them as services exported. This highlights the challenges in aligning business operations with GST regulations and the complexities arising from the taxation of cross-border transactions.

As the government leverages AI to tighten its grip on tax compliance, businesses are now navigating a landscape where the use of technology is reshaping traditional interpretations of tax laws. The coming years are expected to bring further clarity as the GST tribunal plays a pivotal role in standardizing legal interpretations and addressing the concerns of stakeholders.

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