GST notices to traders: A fiasco that could have been avoided with feet on ground

The Goods and Services Tax (GST) notice fiasco in Karnataka, which ended with the intervention of Chief Minister Siddaramaiah, could have been avoided with proper planning and feet on ground by Commercial Tax officers, senior department officials feel.

Before issuing notices to traders, a spot visit to assess the nature of business should have been undertaken by the officials, multiple officials in the department said.

Nature of business

“When traders were issued notices, officials did not know the nature of businesses in a large number of cases. They had not visited the business premises to conduct a survey. It was a thoughtless and faceless exercise, which embarrassed the government,” a senior official explained. “There was a lack of clarity and specificity with respect to the nature of supply — whether it was goods or services.”

Businesses with a turnover in trade of goods above ₹40 lakh and of services above ₹20 lakh have to be registered under the GST. As many as 18,000 notices have been issued across the State based on the information received by the Service Analysis Wing (SAW) after it sought details from the UPI platforms. Officials said that while details were received from three platforms, transactions in many others had not been received, which meant the exercise was not comprehensive.

Goods not under GST

As a result, another official pointed out, notices ended up being issued to vendors selling milk, vegetables, flowers, meat, and fruits, all of which are exempted goods under the GST.

“The notices scared the traders with a big tax demand and were issued on mere assumptions, without ascertaining the nature of receipts. Attempts were not made to ascertain whether receipts actually pertain to business transactions, or whether they were unrelated to business, or related to exempted goods.” The notices, if questioned in the High Court, could be struck down, sources said.

Higher targets?

Multiple officials with whom The Hindu spoke also referred to a very “high and unreasonable” target set by the State government for the GST collections, which prompted the department to look towards newer sources of revenue or widen the tax base. By tapping the UPI net, the government was expecting at least ₹1,000 crore to ₹1,500 crore revenue, sources said.

While the department collected about ₹1.02 lakh crore during 2024-2025, the government has set a target of ₹1.20 lakh crore for 2025-2026.

“Normally, the revision of the target is based on the GDP growth. Targets in the past were increased, which were double the rate of growth of the State’s GDP. This time, the target has been raised by 17%, which we believe is very difficult to attain,” another senior official said.

Concurring with his view, an officer said, “The last fiscal had ₹1.02 lakh crore, which included about ₹6,000 crore from the IGST input tax credit reversal, which had not been claimed at all. This will drop down to about ₹1,000 crore this year. If this is considered, the revenue target has been increased by over 20%.”