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India businesses deluged by AI-generated GST notices

AI adopted on more interpretative elements of GST law sparks huge uplift in Show-Cause Notices

Indian Goods & Services Tax registered businesses from the shipping, gaming, insurance and airline sectors have been flagging to the Ministry of Finance a sudden rise in Show-Cause Notices (SCN). There has already been over 33,000 notices issued this year for the 2017-18 period covering payment discrepancies.

They believe this follows the adoption by the Ministry’s tax investigators, the Directorate General of Goods and Services Tax Intelligence (DGGI), of Artificial Intelligence to identify tax fraud. The impending 31 December 2023 deadline for 2017-18 year SCN’s will add to the surge.

DGGI has been public in its deployment of AI alongside data anatics around more interpretive areas of the Central Goods and Services Tax Act. This is enhanced by analysis of GST case law which has developed since the 2017 introduction of the indirect tax. This appears to have led to bulk issuance of automated SCN’s two months ago. Analytics is identifying a range of discrepancies in areas such as:

  • GST input tax credits;
  • Input tax exemptions; and
  • GST output liabilities (GSTR 1 and GSTR 9).

A Show Cause Notice (SCN) is a formal notice issued by the tax authorities under the Goods and Services Tax (GST) in India, to a taxpayer, requiring them to explain or justify a particular action or inaction that is in violation of the GST laws. The purpose of a Show Cause Notice is to give an opportunity to the taxpayer to explain their actions, and to provide evidence or arguments that show that the violation was not intentional or that the taxpayer was not at fault.

India pioneer of AI in tax

Since May 2023 India is using AI to identify fraudulent applications for input tax credits via false GST registrations.

The government is now keen to crackdown on evasion and the failure to GST register now that the tax is well understood. Assessments are no being raised automatically due to analytics since all the transactional data is online. Any manipulation of the data, any gaps in data are automatically detected. The tax liability of these businesses exists on a legal principle. Tax department business is to ensure the tax liable is paid 

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