Not knowing geography lands cos in tax trouble

Is Ranchi in Bihar or Jharkhand? Is Darjeeling in West Bengal or Assam? Is Kannur in Kerala or Tamil Nadu? Familiar questions for a fourth standard geography student, but wrong answers to them have landed several companies, including some MNCs, in tax trouble.Many companies in the last few months have ended up filing goods and services tax (GST) in the wrong state mainly because their employees — in some cases even the business management software — did not know geography, tax experts said.Worse, most of this money is stuck due to bureaucratic procedures involved in claiming refunds, impacting cash flows of companies.For most companies the amounts involved are ₹10-15 crore per state. In some cases, companies have seen ₹40-50 crore get stuck due to such mistakes.Take the case of a multinational company that manufactures consumer goods, having an office in Mumbai. The company had to pay ₹10 crore as GST in Jharkhand. The executive who was required to pay the tax returns, however, thought it was part of ‘Seven Sisters’ and paid the tax in some northeastern states, mainly Meghalaya and Manipur. In some cases, it was only when the right state — where GST was originally supposed to have been paid — issued tax notices that the mistake was discovered.“Corporates sometimes file GST returns in an incorrect state, which ideally should result in an inter-state adjustment as it’s merely a procedural matter,” said MS Mani, partner at Deloitte India. However, under the GST framework, states do not talk to each other. So, forget passing on the money to the state where it should actually go, it’s a pain getting reimbursement of such tax returns or adjusting them against pending dues. “Some states insist on the tax being deposited in one state and being refunded by another state as a separate process, which leads to avoidable working capital blockages,” Mani said.So, if GST is wrongly paid in one state instead of the other, first the company has to pay additional tax in the right state. Then apply for a refund in the state where GST was wrongly paid. In many cases, the state that’s supposed to refund is seeking additional explanations, proofs and documents.In some cases, the tax officials are demanding that the companies submit a comprehensive list of documents such as tax returns, national sales figures and sometimes passport copies of senior executives in case of multinationals.Experts said it’s all uncalled for.“Payment can be transferred wrongly on two counts, namely integrated GST versus central GST and state GST for two different state codes,” said Abhishek A Rastogi, partner at law firm Khaitan & Co. “Both these errors are tax neutral and procedural in nature and hence must be refunded back when appropriate application is made.” ET spoke to several senior tax advisors and some company executives who said there has been a spurt of mistakes in 2021 compared to last year or a year before. 83876254

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