Goods & Service Tax (GST) – emerging factors in “RISK MANAGEMENT” vis-à-vis accountability of Directors.

[Ketaan Mehta]

Preface:

The quote “With great power comes great responsibility” perfectly captures the essence of accountability in corporate governance, especially when it comes to senior officials like directors. Directors of a company hold significant decision-making power, guiding the company’s policies and operations. However, with this power comes along with the responsibility to act in the company’s best interests and in compliance with the law, including tax laws.

In the current legal framework, both civil and tax laws impose accountability on individuals in positions of authority, even after they may have stepped down from their positions. This means that even if a director resigns or relinquishes their role within the company, they can still be held responsible for decisions made during their tenure. This extends to legal liabilities, including tax obligations, which cannot be simply “sheltered” behind the corporate structure of the company.

The notion of piercing the corporate veil underscores this principle, where the company's separate legal identity is disregarded to hold individuals accountable for wrongful acts or omissions. The law recognizes that directors and senior officials cannot hide behind the company’s legal status when they have made decisions that harm the public interest, violate tax laws, or cause other legal infringements. The corporate veil, while providing limited liability protection for shareholders and directors, does not shield them from criminal or civil liabilities arising from their direct involvement in unlawful actions.

This idea aligns with the broader legal principle that corporate entities are not immune to accountability, especially when individuals in power misuse their authority. Whether it's for tax evasion, mismanagement, fraud, or other corporate malpractices, the individuals at the helm cannot escape the consequences of their decisions simply by virtue of their position or by leaving their office.

The Directors and senior officials must act responsibly, knowing that their actions will be scrutinized and that they remain accountable for their decisions, both during and after their tenure under various legislations i.e. i.e. Company law, Income Tax and Goods and Service Tax Act (GST). Let us discuss these legislations in brief. 

GST emerging “Risk factor” in  “Risk Management”

Before we discuss about Director’s liability, let us discuss about how GST is emerging as major player in “Risk Management”. Risk that GST carries can be broadly categorized in 7 category  and summarised as below:

1.     Compliance Risk:

• Corporates / Businesses must ensure, they comply with the GST regulations, including timely filing of returns, maintaining accurate records, and adhering to tax structures. Failure to do so could result in penalties, fines, or legal issues.
• Changes to GST rules, exemptions, and rates require businesses to stay updated on legislative shifts, which is crucial to avoid errors.
• Compliance will loose its standing, if the business does not maintain data accuracy and proper classification and analyses of Data before initiating Compliance under the Act.

2.    Cash Flow Risk:
GST impacts a company's cash flow, as it requires businesses to pay taxes upfront before receiving credit for the tax paid on inputs (GST input tax credit). This can create cash flow imbalances, particularly for smaller businesses that rely on consistent cash flow.

3.    Operational Risk:

• The complexity of GST structures, such as different rates for different goods and services, can lead to errors in invoicing, documentation, and filing.
• Errors in tax classification or mismanagement of tax credits can lead to operational inefficiencies and financial losses.
• For business to exercise effective control over operational risk, it is suggested to ensure that:
  • decide correct applicable GST rate on goods and services being supplied as per HSN codes as applicable against such goods and services.
  •  Analyse all category of transactions and avail only eligible exemptions. 
  •  As regards casual and special transactions, analyse the transactions to decide if the same is subject to GST or not. Before taking any decision about taxability of any transactions under GST  Act, it is advisable to check if they falls under schedule -1 of GST Act ( ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION), schedule -2 ( ACTIVITIES OR TRANSACTIONS TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES), schedule-3 ( ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES) .

4.    Audit and Inspection Risk:

• As GST involves digital records and filings, businesses may face increased scrutiny from tax department & various investigating agency like DGGI (Director General of GST Intelligence) authorities and . Any discrepancies in returns or incorrect claims could trigger audits and inspections.
• Businesses need to be prepared for audits and should maintain comprehensive records to support GST filings.

5.    Regulatory Risk:

• The evolving nature of GST laws and amendments can create uncertainty for businesses. Regulatory changes may require businesses to quickly adapt their systems and processes to remain compliant.
• Failure to adjust to these changes could lead to penalties, interest, and reputational damage

6.    Risk due to non-compliance of third party (Vendors and its entire supply chain)

• Availing Input Tax Credit under GST is challenging task. Availing ITC is subject to several terms and conditions viz:
  • Goods / Services must be used or intended to be used in furtherance of business. The term “ In furtherance of business” in not defined under GST Act. This leads to litigation with department on eligibility of ITC.
  • Invoice / Debit note issued by supplier must have been declared by him in his GST return (GSTR1) for outward supplies. This will cause delay in availing ITC in a case where receiver has accounted purchases, but supplier has delayed in filing return for month or has skips the invoices in his return for outward supplies.
  •  ITC availment is subject to compliance of compliance made by supplier of Goods & Services. The non-compliance of the supplier is one of the biggest issues faced by the recipient since the implementation of GST. The noncompliance includes non-filing of returns / nonpayment of GST / non declaration of invoices in outward returns / availing ITC by supplier based on bogus billing / suspension / cancellation of supplier’s GST registration.
• ITC Mismatch major cause of issue of Scrutiny Notices by GST authority:

Issues related to unavailability of Input Tax Credit (ITC) are some of the major concerns for several taxpayers in India. The basic meaning of mismatched ITC can be understood as:

• Difference between the credit amounts disclosed in forms GSTR 3B and GSTR 2A
• Discrepancies between forms GSTR 1 and GSTR 3B
• Mismatch in the amount of claimed provisional credit and claimable actual credit (usually arises during transition stages)
•  Any of these mismatches which are noticed in returns will lead to issuance of scrutiny notices by officers to taxpayers.
• Deniel of ITC if it is restricted in GSTR-2B (specific reports generated by GST portal identifying details of goods / services sold to recipient based on outward returns GSTR1 filed by suppliers). 

•    Restriction in Time limit to claim ITC on invoices or debit notes of a financial year. 

Having discussed rising threat / adverse impact GST non-compliance, like other tax laws the non-compliance either  as a result of internal or external reasons will directly impact bottom line which may be equal to tax  / applicable penalty / applicable interest / cost of litigation  and brand value of company . 

Liability of Director on account of non-compliance under different statute:

For better understanding, We shall overview liability of Director on account of non-compliance under  different statute: 
  
I.    LIABILITY OF DIRECTORS UNDER COMPANIES ACT, 2013
The Companies Act, 2013 places significant emphasis on accountability for corporate governance by designating certain individuals within the company as "officers-in-default" who can be penalized for non-compliance, along with the company itself. This is in line with the principle that individuals responsible for running a company should be held accountable for any defaults, contraventions, or non-compliance with the law.

Key Aspects of Officer-in-Default:

1.    Definition of Officer-in-Default (Section 2(60)): The term "officer-in-default" is clearly defined in Section 2(60) of the Companies Act, 2013. This includes key managerial personnel (KMP) such as:

• Whole-time Directors
• CEO (Chief Executive Officer)
• CFO (Chief Financial Officer)
• Whole-time Company Secretary (CS)
• Managing Director (MD)

These individuals are directly involved in the day-to-day activities of the company and are therefore held responsible for any failure or violation of corporate laws or regulations. The rationale is that these officers have the authority and knowledge to prevent or rectify such issues.

2.    Liability of Other Directors: Other directors who are not part of the executive management can be held liable only for contraventions that occur with their consent or connivance. In other words, non-executive directors or independent directors would not be automatically held responsible unless it can be proven that they knowingly allowed the violation to happen or actively consented to it.

3.    Liability of Retiring Directors (Section 168): According to Section 168 of the Act, retiring directors can still be held liable for offenses committed during their tenure, even after they have resigned. This provision ensures that directors cannot escape liability simply by stepping down from their position. It holds them accountable for their actions during their time in office, which is critical for preventing individuals from avoiding responsibility by resigning when an issue arises.

4.    Uniform Application to Public and Private Companies: The provisions of the Companies Act, 2013 do not distinguish between directors of private companies and public companies. This means that all directors whether in private or public companies are subject to the same legal responsibilities and liabilities. The Act does not offer a special exemption or lower standard of accountability for directors in private companies, ensuring uniform enforcement of corporate governance standards.

In short, the provisions of the Companies Act, 2013 underscore the importance of accountability for directors, particularly those involved in day-to-day management. By defining "officers-in-default" and holding retiring directors accountable for actions taken during their tenure, the Act ensures that individuals in positions of authority are not only empowered to make decisions but are also held responsible for maintaining compliance with corporate and regulatory laws. The uniform application of these provisions across both private and public companies reflects the aim to uphold high standards of corporate governance across the board.

II.    LIABILITY OF DIRECTORS UNDER INCOME TAX ACT, 1961

Section 179 of the Income Tax Act, 1961 indeed carries an important and overriding provision that can impact company directors, particularly those involved with private limited companies. It addresses the issue of tax dues recovery when a private company fails to clear its tax liabilities, including penalties, interest, and fees.

Key Points of Section 179:

1.    Liability of Directors of Private Companies: Section 179 specifies that if a private company’s tax dues, including penalties, interest, and fees, for any previous year cannot be recovered, then every person who was a director of the company during that relevant year is jointly and severally liable for the payment of such tax dues. This means that the directors could be personally held responsible for the company’s outstanding tax liabilities even if the company itself is unable to pay.

2.    Defenses Available to Directors: However, directors can avoid liability under Section 179 if they can prove that the non-recovery of the tax dues was not due to their gross neglect, misfeasance, or breach of duty in relation to the company’s affairs. This provision gives directors a defense, but it places the burden of proof on them. They must demonstrate that they acted diligently and responsibly in managing the affairs of the company, and the non-recovery was not attributable to any failure on their part.

3.    Applicability to Private Companies and Converted Companies: Section 179 is specifically applicable to private companies, but it also extends to private companies that are later converted into public companies. This means that even after a company changes its status from private to public, the directors who served during the period the company was private can still be held liable for any outstanding tax dues from that time.

4.    Non-Applicability to Public Companies: One of the critical aspects of Section 179 is that it does not apply to directors of public companies (or companies deemed to be public). Public companies are not subjected to the same stringent provisions regarding the personal liability of directors for the company’s unpaid tax dues. This distinction highlights a key difference in the liability framework between directors of private and public companies.

Key Difference Between Private and Public Company Directors:

• Private Company Directors: Under Section 179 of the Income Tax Act, directors of private limited companies can be held personally liable for the company's unpaid tax dues if the company defaults on tax payment. This liability is joint and several and extends even after their tenure as directors, unless they can prove due diligence and that their actions did not contribute to the failure to recover the dues.
• Public Company Directors: In contrast, directors of public companies are not subject to the same provisions under Section 179 of the Income Tax Act. Public companies do not have the same personal liability for unpaid tax dues as private companies do under this section. Therefore, directors of public companies are not personally responsible for the company’s outstanding tax liabilities.

To summarize above, Section 179 of the Income Tax Act, 1961 introduces a more stringent regime for directors of private companies, holding them personally liable for tax dues that cannot be recovered by the tax authorities. However, public company directors do not face similar provisions, making the liability regime less strict for them. This distinction is an important consideration for directors when managing the affairs of private versus public companies, as it places a significant onus on private company directors to ensure compliance with tax obligations to avoid personal liability.

III.    LIABILITY OF DIRECTORS UNDER GST Act:

The provisions under Section 89 of the Central Goods and Services Tax Act, 2017 (CGST Act) indeed impose personal liability on directors of private companies, mirroring similar provisions under Section 179 of the Income Tax Act, 1961. Both sections are aimed at ensuring that individuals in key positions of authority within a company are held accountable for the company’s tax liabilities, particularly when those liabilities cannot be recovered from the company itself.

Key Provisions under section 89 of the CGST Act:

1.    Personal Liability of Directors:

• section 89 of the CGST Act, 2017 specifies that every director of a private limited company can be jointly and severally liable for the payment of any tax, interest, and penalty under the GST regime if those amounts cannot be recovered from the company for any supply of goods or services during the period when the individual was a director.
• This provision applies to private limited companies, similar to Section 179 of the Income Tax Act, imposing the liability on directors even after their tenure as directors, unless they can prove that their failure to prevent the non-recovery of taxes was not due to gross neglect, misfeasance, or breach of duty in relation to the company’s affairs.

2.    Recovery of Taxes, Interest, and Penalty:

• Unlike earlier tax laws such as Central Excise, Service Tax, or VAT, which did not specifically provide for the personal liability of directors in case of tax recovery, section 89 of the CGST Act extends this liability not just for the tax dues but also for interest and penalties.
• This provision strengthens the responsibility of directors in the context of the Goods and Services Tax (GST), making them more accountable for the company's tax compliance and financial responsibilities.

3.    On a conjoint reading of Section 89 sub-section (1) & (2) liability can be fastened on a Director of a Private Limited Company, however, it automatically releases the responsibility of a Director of the Limited Company under the GST Act.

Both sub-section (1) & (2) fasten the Liability on the Director of a Private Limited Company, but no where defined it in the said Act.

4.    Overrides Provisions of the Companies Act, 2013:

• section 89 of the CGST Act overrides Section 18 of the Companies Act, 2013, which relates to the conversion of a private company into a public company. This means that if a private limited company is converted into a public limited company, the director of the private company can still be held liable for the GST dues incurred during the period when the company was private.
• This provision ensures that the liability of directors continues even after a company changes its legal status from private to public.

5.    Borrowing from Income Tax Provisions:

•  It’s interesting to note that these provisions under the CGST Act appear to have been borrowed from the provisions of the Income Tax Act, particularly Section 179. Both provisions emphasize the personal liability of directors of private companies for unpaid tax obligations and provide the opportunity for directors to defend themselves by proving due diligence in their role.

6.    No Such Provisions in Earlier Regimes:
Before the implementation of GST, tax regimes like Central Excise, Service Tax, and VAT did not contain any similar provisions holding directors personally liable for the company's unpaid tax dues. The absence of such provisions in earlier tax laws reflects the more stringent nature of the GST regime in terms of director accountability.

Having seen provisions of GST Act with respect to liability / accountability, let us discuss various scenario which results in GST non-compliance:

a)    Underreporting of GST Liability:

• Knowingly or Unknowingly: Underreporting GST can be intentional or due to errors in classification. This can lead to severe consequences. Misclassifying transactions under a lower tax rate or claiming exemptions ineligible for the company can lead to back taxes and penalties.
• Financial Impact: Not only does underreporting risk additional tax liabilities, but it also brings with it interest charges, penalties, and potential damage to the company's reputation, which could affect its bottom line.

b)    Non-Compliance (Internal and External Factors):

• Non-compliance is another crucial risk that businesses face. This can be due to internal issues like poor accounting practices, lack of training, or inefficient management controls / SOPs. On the other hand, external factors like changes in the legal framework, regulations, or third-party errors can also contribute.
• Impact on Business: Companies often find themselves defending these cases through legal proceedings, which can be costly. Legal consultations, representation, and the time spent on disputes are additional financial burdens.

c)    Adjudication and Litigations:

• When the company faces a show-cause notice or other regulatory action, it’s forced to engage in litigation, which not only results in the direct cost of defending the case but also leads to brand reputation damage.

The business may need to hire internal or external professionals for defense, which can escalate costs significantly. A prolonged dispute may also require filing writ petitions before the High Court (HC) or Supreme Court (SC), which further strains the company’s resources.

The section 89 of the CGST Act, fill the gap left by previous tax regimes, like Central Excise, Service Tax, and VAT, which did not have such stringent director liability provisions. Additionally, the doctrine of lifting the corporate veil supports these provisions by ensuring that directors cannot hide behind the company’s legal identity when it comes to tax obligations. As a result, directors must exercise careful oversight and ensure their companies remain compliant with tax laws to avoid personal liability under these provisions. 

When a Director is responsible under the GST Act ?

• Misfeasance
• Breach of Duty 
• Gross Negligence

In both sub-section (1) and (2) of section 89 three words specifically mentioned where liability can be fastened on Director of Company.

Misfeasance —

The improper doing an act which a person might lawfully do; a wrongful and injurious exercise of law authority, or the doing of the lawful authority, or the doing of the lawful act in an unlawful manner.

It may involve to some extent the idea of not doing, as where an agent, while engaged in the performance of his undertaking, does not do something which it was his duty to do under the circumstances, as, for instance, when he does not exercise that care which a due regard to the rights of others may require.

According to Section 235 of Companies Act, 1956 misfeasance is in the nature of a breach of trust, i.e. something by which the company’s property has been wasted, the acts which are covered by the section are acts which are wrongful according to established rules of law or equity done by the person charged in his capacity as promoter, director etc. where a breach of duty has been committed which in fact has resulted in a misapplication of the company’s property such a transaction would be within the mischief of the section. A simple act of negligence would not fall within the section. The misfeasance contemplated in Section 235 is one which result in loss.

[ V. Ganesan vs. Brahmayya & Co., MLJ : QD (1961-1965) Vol. I C 1994 : (1964) 1 MLJ 405
:    (1964) 1 Comp LJ 262 [Companies Act (1 of 1956), S. 235] 

Breach of Duty 

Violation of legal obligations according to Random House Dictionary    it means

to break or act contrary to law, promise, New Webster's Dictionary defines it as violation faith or trust, widely it may be understood as - Failure to do one's duty, to execute any office, employment, trust in proper time or proper manner.

Gross Negligence —

This word covers many walks of life including action or inaction by a person in performing its duties. Negligence is "the absence of proper care, caution and diligence; or such care, caution and diligence, as under the circumstances reasonable and ordinary prudence would require to be exercised". It includes the omission to do something which a reasonable man is expected to do or a prudent man is expected to do.[State of Maharashtra vs. Kanchanmala Vijaysing Shirke (1995) 5 SCC 659]

'Negligence' would mean careless conduct in commission or omission of an act connoting duty, breach and damage suffered by a person to whom the plaintiff owes a duty of care, is crucial to understand the nature and scope of tort of negligence.

[Rajkot Municipal Corporation vs. Manjulben Jayantilal Nakum, AIR (2002) SC 2865]

The Hon. Apex Court in the case reported as Municipal of Greater Bombay vs. Laxman Iyer, (2008) 8 SCC 731 para 6 discussed this word, in following words :

“Though there is no statutory definition, in common parlance 'negligence' is categorised as either composite or contributory. It is first necessary to find out what is a negligent act. Negligence is omission of duty caused either by an omission to do something which a reasonable man guided upon those considerations who ordinarily by reason of conduct of human affairs would do or obligated to, or by doing something which a prudent or reasonable man would not do. Negligence does not always mean absolute carelessness, but want of such a degree of care as is required in particular circumstances. Negligence is failure to observe, for the protection of the interests of another person, the degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury. The idea of negligence and duty are strictly correlative.”

Negligence means either subjectively a careless state of mind, or objectively careless conduct. Negligence is not an absolute term, but is a relative one; it is rather a comparative term.

'Negligence' means either subjectively a careless state of mind, or objectively careless conduct. It is not an absolute term but is a relative one; it is a comparative term. In determining whether negligence exists in a particular case, all the attending and surrounding facts and circumstances must be taken into account.

'Negligence' is the breach of duty caused by omission to do something which a reasonable man in ordinary conduct of human affairs would do or doing something which a prudent and reasonable man would not do. [Jacob Mathew vs. State of Punjab, AIR 2005 SC 3180]

'Negligence' is conduct which falls below the standard established for the protection of others against unreasonable risk. [Naresh Giri vs. State of M.P. (2008) 1 SCC 791, 796, para 11]

Having tested the Section 89 supra  one can conclude  that it is very loosely drafted and needs reconsideration.

RASANNA KARUNAKAR SHETTY VS. STATE OF MAHARASHTRA [2024-VIL-358-BOM]

The focal point of the captioned case is concerning the recovery proceedings against former director of a private company.

Facts of the case:-
1.    The petitioner joined as director in Mar’17; however in Nov’17, his DIN, as filed with the Registrar of Companies (RoC), was disqualified under the provisions of Section 164(2)(a) of Companies Act. Since he was a director in the said company only for a short time, he did not participate in the company’s affairs.
2.    Pursuant to petitioner’s DIN being disqualified and his recommendation, another director was appointed in his place in June’18. In the process of appointment of new director, the petitioner’s resignation could not be recorded immediately and therefore the effective date of his resignation was May’19.
3.    A show cause notice was issued against the company for the period April 2018 to March 2019 and subsequently an order was passed in Dec’20 confirming the total demand against the company.
4.    Since the recovery against the company and its prevailing directors could not be taken forward, the bank account and personal property of the petitioner had been attached on the ground that he was the director for a short period during the impugned period. Upon such backdrop upon the petitioner, the captioned writ petition was filed.
Petitioner’s Arguments in the said case:

• No show cause was issued to the petitioner and directly the bank account and personal property was attached.
• The impugned order is in the teeth of Section 79 read with Section 89 of the Maharashtra Goods & Services Tax Act, 2017 (“MGST Act”).
• Also, the petitioner had ceased to be director during the relevant period so the question of attaching the petitioner’s immovable property and current account does not arise.
• Additionally, merely because recovery is not possible against the company, the same would not empower the respondents to proceed against a former director, who was never involved in the day-to-day business operations and affairs of the company, nor had participated in the management of the company at the relevant time.

Respondent Arguments in the said case:
The respondents contended that since the petitioner was the director for short time, and thus the impugned attachment orders were justified.
Underlying Provisions of CGST Act, 2017:

• Section 79 of the CGST Act provides for modes by which the proper officer may recover the tax payable to the Government.
• Section 89 of the CGST Act deals with provisions pertaining to liability of directors of private company (as discussed above).

Judgement:
HC in view of the cumulative effect of Section 79 of CGST Act observed that, since the principal liability does not fall upon the petitioner who is not a registered person; the provisions of the said Section shall not fall upon the petitioner. Further, the governing provisions of Section 89 clearly states that, before taking any action of recovery against the directors of the company, a subjective satisfaction is required to be achieved by the concerned officer in regard to whether a person concerned against whom recovery is sought to be made was a director of a Private Limited Company for the concerned period. It is only after such satisfaction to the effect that such person was the director of the company, the liability could be fastened against such director.
Accordingly, HC held the impugned order as illegal and unsustainable since the same were in breach of the rights guaranteed to the petitioner under Article 14, read with Article 300A, of the Constitution.

The company is at law a different person altogether from the subscribers to the Memorandum and, although it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company ts not in law the agent of the subscribers or the trustee for them. Nor are subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the Act.”

-Lord McNaughtenSoloman v. Soloman and Co.,(1897) A.C 22 (H.L)

The legal principle established in Salomon v. Salomon & Co. (supra) is widely regarded as the cornerstone for the jurisprudence of corporate personality globally. Nevertheless, the history of corporate and commercial litigation has seen instances where Courts have moved beyond the corporate structure to scrutinize the operations and intentions of a company’s members or directors. In doing so, the Courts have developed the concept of "lifting" or "piercing" the corporate veil. This article seeks to shed light on the interpretational challenges in taxation cases in relation to this doctrine, with a particular focus on ‘the evolving interpretations of Indian Courts over time.

With Corporate Veil on one hand, the growing risks that businesses face regarding legal compliance, especially in the context of GST (Goods and Services Tax) liabilities. The corporate veil, while offering protection, doesn't shield companies from these compliance risks, which can lead to significant financial and reputational consequences. The article seeks to shed light on increasing risk of Legal Compliance & Risk on account of GST in particular:

GST Litigations pending in last five years (consolidated at all India level as presented in Rajya Sabha)

From the day GST introduced in India (01-07-2017) there are three prominent news we hear almost every day (i) malfunctioning of GST Portal and (ii) bogus billing racket and wrong claim of ITC and its refund (iii) Issuance of Notices / Show Cause Notices and adjudication of same with predetermined motive and clearly with bias attitude. Adding further, CGST Act provides for recovery of Tax / interest / Penalty from Directors. 

In recent times the adjudicating and anti-evasion authority has for one reason or other invoked proviso of tax evasion so severe and so frequently. One can envisage the rising risk of GST non-compliance in table enumerated below.

As per the data presented before Rajya Sabha, total GST evasion detected is Rs. 81706.55 in year 2019-20, in 2020-21 at Rs 98767.93 Cr, in 2021-22 at Rs. 146475.29 Cr. In 2022-23 at Rs. 263225.81 Cr and in 2023-24 at Rs. 302167.51 Cr. In current financial year till first 10 months (April – January) If we go by percentile, in 2023-24 alone total GST evasion detected is 33% of total consolidated GST Evasion of five years put together.  Further, most common method of evasion is non-payment of tax which is almost 46% followed by fake input tax credit which is 20% and rest 19% is non reversal / blocked ITC. The gap between tax evasion detected and recovery and appeal pending may be matter pending for adjudication. 

Absolutely! The growing complexity of GST regulations has led to an increasing number of disputes and investigations by tax authorities. Non-compliance, whether intentional or due to oversight, can result in significant financial and operational disruptions. Therefore, businesses must take proactive steps to ensure their GST compliance is robust and that they can effectively manage any potential litigation. Below is a breakdown of critical steps businesses should take to mitigate GST compliance risks, avoid penalties, and protect their bottom line:

By adopting a proactive approach to monitoring and managing GST compliance, businesses can significantly mitigate risks, avoid penalties, and ensure smooth operations. Establishing a robust compliance framework, staying updated on regulatory changes, conducting regular audits, and fostering a cooperative relationship with tax authorities are critical strategies in protecting your bottom line and reducing the likelihood of costly disputes or litigation. Ideal approach in terms of risk management for a corporate is discussed herein under:

1. GST Compliance Monitoring
To minimize compliance risks, businesses need a system to continuously monitor and ensure adherence to GST laws. Here’s how you can approach it:
a. Automation of GST Filing

• Use GST software to automate the generation and filing of GST returns (e.g., GSTR-1, GSTR-3B, GSTR-9, etc.). This reduces human error and ensures timely filings.
•  Automation tools should also help you reconcile your sales, purchases, and input credits accurately to avoid discrepancies in filings.

b. Regular Audits and Reconciliation

• Vendor Reconciliation: Continuously reconcile purchase data with vendor invoices vis-à-vis GST portal data to ensure that input tax credits (ITC) are being claimed correctly.
• Internal Audits: Set up periodic internal audits to review GST returns and financial statements. This will help detect any discrepancies before they lead to larger issues.

c. Training and Awareness

• Ensure your accounting team or GST compliance team is up-to-date on changes in GST laws, rules, and notifications. GST regulations can frequently change, and staying informed helps reduce the risk of non-compliance.

d. GST Compliance Checklists

• Develop and implement GST checklists that include key compliance requirements, such as maintaining proper documentation, invoice matching, and timely tax payments. This checklist will help streamline compliance efforts across departments.

e. Engagement with Tax Authorities

• Establish a communication line with GST authorities for early clarification of issues or doubts regarding compliance.
• Proactively resolve any disputes or clarifications to reduce the risk of penalties or litigation.

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2. GST Litigation and Risk Management
Managing GST litigation and disputes is vital to avoid costly legal proceedings and minimize penalties. Here's how you can manage it:
a. Establish a Clear Dispute Management Framework

• Designate a team responsible for managing GST-related disputes.
• Define a clear process for how disputes being handled internally, including investigation, documentation, and escalation procedures if needed.

b. Review GST Audit Reports

• Regularly review the GST audit reports, if applicable, to identify any potential issues. This can help you assess risk areas that could lead to future litigation.

c. Litigation Preparedness

• Documentation: Maintain detailed records of all transactions, including invoices, payment records, delivery records and correspondence with suppliers or customers. Proper documentation is vital if the matter escalates to litigation.
• Legal Counsel: Consult with tax professionals or legal advisors on complex or ambiguous GST issues before they turn into litigation. Timely expert advice can help prevent legal action.

d. Alternative Dispute Resolution (ADR)

• Mediation or Arbitration or Samadhan Yojana: In case of disputes, you can explore alternative dispute resolution mechanisms like mediation or arbitration before pursuing lengthy litigation or opt for samadhan yojana if at all  that can help reach a settlement faster and avoid the high costs of court procedures.

e. Monitor and Manage Penalties and Interest

• Be proactive in dealing with penalties or interest that may arise from delayed payments or incorrect filings. Timely payment of dues can prevent the escalation of the issue into litigation.

f. Appeals and Reassessments

• If you receive an adverse decision from tax authorities, ensure that you understand the grounds for the decision and the process for filing an appeal. Keep track of deadlines for appeals and reassessment to avoid forfeiting your right to challenge the decision.

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3. Technology for Risk Management
a. Data Analytics and Monitoring Tools

• Use data analytics to track patterns in GST-related activities, such as ITC claims and mismatches in sales and purchase data. Early detection of trends can help mitigate risk.

b. ERP Systems Integration

• Integrating GST compliance processes with an ERP (Enterprise Resource Planning) system can ensure that transactions are recorded correctly, and tax liabilities are computed automatically based on current GST laws.

c. Regular GST Health Checks

• Conduct periodic GST health checks using GST-specific software or third-party services to assess your compliance status. This can be a preventive measure to identify issues before they escalate into litigation.

Efficient monitoring of GST compliance and effective management of GST litigation are key components of an organization's risk management strategy. By automating processes, ensuring regular audits, staying updated on regulations, and proactively addressing disputes, businesses can minimize their GST-related risks. Implementing technology, engaging legal counsel early, and creating internal processes for handling disputes can help resolve matters more efficiently and avoid escalation into litigation.

Doctrine of Corporate Veil

Having seen above, rising GST litigation emerging major ria factor and accountability of Director, let us analyse what is judiciary direction on Directors’ accountability . But Before that let us understand term “Doctrine of Corporate Veil” .The Courts have defined the doctrine of piercing of corporate veil to probe into transactions and decide the actual entities responsible behind the facade of the company. Hon’ble Karnataka High Court in the case of Richter Holding vs. The Assistant Director of Income Tax' discussed this doctrine to take the view that it may be necessary for the fact-finding authority to lift the corporate veil to investigate the real nature of the transaction and ascertain the virtual facts.

Though, shelter is available to Director under “Corporate Veil” in landmark case Salomon v. Salomon & Co. established where is it is established that a company has a separate legal identity from its members. i.e. a company can conduct legal actions in its own name, protecting shareholders and directors from personal liability. This principle was firmly established in the landmark case of Salomon v. Salomon & Co. in 1897, which has since become a cornerstone of corporate law globally, including in India. However, the concept of lifting the corporate veil reveals the true individuals behind the corporate entity, holding them accountable in cases of fraud, misconduct, or injustice.

The Principle of Separate Legal Entity

The Salomon v. Salomon & Co. case established that a company has a separate legal identity from its members. This principle enables a business to conduct legal actions in its own name, shielding directors and shareholders from personal liability. While this principle is fundamental, courts have occasionally lifted the corporate veil to address misuse of the corporate form.

The House of Lords, however, ruled that the company was a separate legal entity distinct from Mr. Salomon and the other shareholders. This ruling underscored the concept that a company has its own legal personality, separate from its owners.

Exceptions to the Principle

Exceptions to the principle of separate legal identity are recognized when justice, practicality, or public interest demands. Courts may overlook a company's legal personality if it is used to defeat public convenience, protect fraud, or defend crime. There are ample jurisdictional pronounce available under US Law and English Law and Indian Law as well

Indian company law, heavily influenced by English law, also upholds the principle of separate legal identity while allowing exceptions. 

In Landmark case of The Tata Engineering Locomotive Co. Ltd. v. State of Bihar (1965 AIR 40) Hon’ble Supreme Court of India has observed  that:

“ The petitions under Art. 32 were incompetent although in each of them one or two of the share-holders of the petitioning companies or corporations had also joined. Article 19 guarantees rights to citizens as such and associations cannot lay claim to the fundamental rights guaranteed by that Article solely based on their being an aggregation of citizens. Once a company or a corporation is formed, the business which is carried on by the said company or corporation is the business of the company or corporation and is not the business of the citizens who got the company or corporation formed or incorporated and the rights of the incorporated body must be judged on that footing and cannot be judged on the assumption that they are the right attributable to the business of individual citizens. The petitioners cannot be heard to say that their shareholders should be allowed to file the present petitions on the ground that in substance, the corporations and companies are nothing more than association of shareholders and members thereof. If their contention is accepted, it would really mean that what the corporations or companies cannot achieve directly, they can achieve indirectly by relying upon the doctrine of lifting the veil. If the corporations and companies are not citizens, it means that the Constitution intended that they should not get the benefit of Art. 19. 

The Hon’ble Supreme Court has concluded that: 

As soon as citizens form a company, the right guaranteed to them by Art. 19(1)(c) has been exercised and no restraint has been placed on that right and no infringement of that right is made. Once a company or a corporation is formed, the business which is carried on by the said company or corporation is the business of the company or corporation and is not the business of the,citizens who get the company or corporation formed or incorporated, and the rights of the incorporated body must be judged on that footing and cannot be judged on the assumption that they are the rights attributable to the business of individual citizens. Therefore, we are satisfied that the argument based on the distinction between the two rights guaranteed by Art. 19(1)(c) and (g) and the effect of their combination cannot take the petitioners' case very far when they seek to invoke the doctrine that the veil of the corporation should be lifted.” 

M.C. Mehta And Anr vs Union Of India & Ors on 20 December, 1986 ( 1987 AIR 1086):

Issue : The petitioners M C Mehta in this writ petition under Art. 32, sought a direction for closure of the various units of Shriram Foods & Fertilizers Industries on the ground that they were hazardous to the community. During the pendency of the petition, there was escape of oleum gas from one of the units of Shriram. The Delhi Legal Aid and Advice Board and the Delhi Bar Associations filed applications for award of compensation to the persons who had suffered harm on account of escape of oleum gas.

The Hon’ble Supreme Court has observed :

“Law has to grow in order to satisfy the needs of the fast changing society and keep abreast with the economic developments taking place in the country … Although this Court should be prepared to receive light from whatever source it comes, but it must build up its own jurisprudence, evolve new principles and lay down new norms which would adequately deal with the new problems which arise in a highly industrialised economy. If it is found that it is necessary to construct a new principle of law to deal with -an unusual situation which has arisen and which is likely to arise in future on account of hazardous or inherently dangerous industries which are concomitant to an industrial economy. 

The Hon’ble Supreme Court lifting the corporate Veil, said that An enterprise which is engaged in a hazardous or inherently dangerous industry which poses a potential threat to the health and safety of the persons working in the factory and residing in the surrounding areas owes an absolute non-delegable duty to the community to ensure that if any harm results to anyone, the enterprise must be held to be under an obligation to provide that the hazardous or inherently dangerous activity must be conducted with the highest standards of safety and if any harm results on account of such activity the enterprise must be absolutely liable to compensate for such harm irrespective of the fact that the enterprise had taken all reasonable care and that the harm occurred without any negligence on its part” 

Union Carbide Corporation etc. etc. vs. Union of India etc. etc. (1992 AIR 248):

Introduction.
The case of UNION CARBIDE CORPORATION VS UNION OF INDIA ETC was famously known as the Bhopal Gas Leak Tragedy. In this case, the principle of a tort, the strict and absolute liability, was upheld. In this case, a very harmful gas called methyl isocyanate was realized, harming a mass population and causing deaths and grievous injuries to the people and the environment. After the case, two main acts, the Environment Protection Act of 1986 and the Public Insurance Liability Act of 1991, were established. Also, the Indian Constitution’s `Article 21 was given a broader scope to entail more meaning to this Article concerning the case.
Issues of the case
The order given by the High Court of Madhya Pradesh was challenged on the following grounds.
-    Whether the amount that was settled justified or not?
-    Whether the abandonment of the criminal proceedings against Union Carbide justified or not? ( Authors’ Note: the Criminal Procedure Code (CrPC) can be applied to situations where "piercing the corporate veil" is necessary, meaning that a court can use the CrPC to hold individual directors or shareholders personally liable for criminal offenses committed by a company if there is sufficient evidence showing that the corporate structure was used to perpetrate fraud or evade legal responsibility; essentially, the court can "lift the corporate veil" to reach the individuals behind the company in criminal proceedings. Courts will only pierce the corporate veil in exceptional cases where there is clear evidence of fraudulent activity, misuse of the company structure to avoid liability, or other serious misconduct by the individuals involved. The Burden of proof is  on the party seeking to pierce the corporate veil must prove that the company was a mere facade or instrument used to commit a crime, not just a normal business entity)
The UCC contended that:

• The jurisdiction of the court was questioned. The interlocutory injunction that provided the victims with interim compensation was appealed in the proceedings.
• It was contended that the proceedings are not criminal in cases where an interlocutory injunction was given. Hence, the court had no jurisdiction to withdraw the proceedings and quash them when it had no such authority.
• Also, what will be the liability of the shareholders in a company that is limited by shares?
• The appellant also argued that if the corporate veil doctrine was holding the UCC accountable, it is illegal under the law.
• The appellant used MC Mehta v. UOI and Rylands v. Fletcher in the arguments. In the case of the doctrine of strict liability was confined. The doctrine of absolute liability should not have repercussions.

The Government has argued that: 

• It was contended that the enterprise, whether UCC or UCIL, was responsible for paying damages as per the regulations of absolute liability.
• It was also argued against the appellant that the corporate veil had to be lifted as the UCIL did not have enough means and services to compensate all the gas leak victims and the UCC held the majority of shares with them.

Hon’ble Supreme Court ordered:
 Union Carbide to pay a settlement of US $470 million before March 31, 1989 and said They(UCC) cannot avoid their responsibilities by claiming that they were not careless when handling the hazardous substance or that they took all reasonable precautions while running it, even though establishing hazardous industries is necessary for the advancement of society and the economy. The Hon’ble Supreme Court had refused to lift Criminal Proceeding against the UCC on ground that:

• UCC was accused of failing to prevent the escape of MIC gas.
• UCC was accused of storing MIC gas in large quantity near populated areas.
• UCC was accused of using defective safety system. instruments & warning system.

LIC of India v. Escorts Ltd.: 

Justice O. Chinnapa Reddy emphasized that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the corporate veil is permissible, since that must necessarily depend on the relevant statutory or other provisions the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, and the effect on the parties who may be affected etc. · State of UP v. Renusagar Power Company: The Supreme Court lifted the veil and determined that Hindalco, the holding company, and Renusagar, a subsidiary, must be considered as a single entity. Consequently, Hindalco was held responsible for paying the electric duty. This case set a precedent for considering the true nature of the relationships within corporate groups.

Corporate Veil in Cases of Fraud and Misconduct

In cases of fraud and misconduct, the courts have consistently held directors and key officials accountable, distinguishing the company’s legal identity from the wrongdoers. For instance, in Badridas Daga v. CIT, the Supreme Court ruled that embezzlement losses are deductible if they arise in the course of business and are incidental. This distinction is crucial in ensuring that the company’s identity is not lost, even when the corporate veil is lifted.

Taxation and the Corporate Veil

The doctrine of lifting the corporate veil remains an essential tool in corporate law, ensuring that those who misuse the corporate structure for personal gain are held accountable. The principle of separate legal identity, while fundamental, is not absolute. Courts around the world, including in India, have developed a nuanced approach to applying this doctrine, balancing the need to respect the corporate entity with the necessity of preventing fraud and injustice. As legal precedents continue to evolve, the doctrine will adapt to address new challenges, ensuring that the corporate veil does not become a shield for wrongdoing. The cases discussed above highlight the courts' discretionary power to lift the corporate veil based on the specific circumstances and facts of each case. This ensures that the doctrine remains flexible and responsive to the ever-changing landscape of corporate law and business practices.

In  Naresh Chander Gupta vs. The District Magistrate And Others, 2003 (Vol. 22)

358    

The Supreme Court, following its decision in Tata Engineering and Locomotive Company Ltd. vs. State of Bihar AIR 1965 SC 40 observed :-

The law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited vs. State of Bihar (1964) 6 SCR 895 : (AIR 1965 SC 40). The following passage from the decision is apposite (para 27 of AIR) 

Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation.

Further, the Supreme Court also observed that the concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The Supreme Court also observed quoting 'Gower's Modern Company Law' - "where the protection of public interest is of paramount importance or where the company has been formed to evade obligation imposed by the law, the Court will disregard the corporate veil."

It is high time to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding.

The  Hon'ble  Allahabad  High  Court  following  the  referred  decisions  along  with  other

decision in case of Meekin Transmission Ltd. Kanpur vs. State of U.P. and Others

[2008    NTN (vol. 36) 107]    specifically laid down :

(1)    Company is a distinct and separate juristic personality having its own rights of right of property etc;

(2)    The shareholders have no interest in any particular asset of the company or the property of the company except of participating in profits, if any, when the company decides to divide them or to claim his share when the company is wound down in accordance with the articles of the company;

(3)    A company is distinct from its Board of Directors who cannot enforce a right in their individual capacity, which belongs to the Company (TELCO vs. State of Bihar, AIR 1965 SC 40).

(4)    The liability of the company simultaneously is also not the liability of shareholders. The shareholders cannot be make liable under a decree against a company has held in Nihal Chand vs. Kharak Singh Sunder Singh, (1936) 2 Company Cases 418 and Harihar Prasad vs. Bansi Missir, (1932) 6 Company Cases 32.

Doctrine of Piercing of Veil (Lifting the Corporate Veil): Exception to the Law of Separate Entity:

The aforesaid doctrine of separate juristic personality of the Company, however, with the passage of time has been subjected to certain exceptions, sometimes on account of specific provisions of the statute, and, sometimes by judicial pronouncements.

The most important exception in this regard is that of “piercing the veil” or “lifting the corporate veil” to find out who is the real person, beneficiary or in controlling position of the Company.

One of the most important circumstances in which the veil has been lifted is the cases of fraud or improper conduct of the promoters. Where dummy companies were incorporated by a promoter and his family members to conceal profits and avoid tax liability, the separate entity of the Company has been ignored by looking through the veil and identifying those individuals who have deviced such method for their own benefits.

Hon. Apex Court in Juggilal Kamlapat vs. Commissioner of Income Tax, AIR 1969 SC 932 it was found that three brothers who were partners in the assessee firm were carrying on the managing agency in a dominant capacity in the guise of a limited company. The court held that the corporate entity has to be disregarded if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud.

Legal Compliance Risk”
Having discussed above “Risk of GST Non-Compliance” emerging as one of the major components of RISK MANAGEMENT, let us discussed in brief other Legal Compliance Risk
Legal compliance risks, particularly related to underreporting and non-compliance, have become an increasing threat to businesses, whether they are SMEs, large corporations, or startups. Not only do these issues lead to additional tax, interest, and penalty costs, but they also create a significant strain on the company’s brand image, legal resources, and overall financial health. Companies need to proactively adopt measures to ensure compliance, maintain accurate records, and have processes in place to mitigate these risks. The main aspects of Legal Compliance Risk:

1. Failure to Comply with Laws and Regulations
Businesses are subject to numerous local, national, and international laws and regulations. Non-compliance can lead to:

• Fines and Penalties: Regulatory bodies impose financial penalties when businesses violate laws, such as tax regulations, environmental laws, labour laws, or consumer protection laws.
• Business Disruptions: Non-compliance might lead to sanctions, business interruptions, or even the suspension of operations.
• Reputational Damage: Legal infractions, even if corrected, can severely harm a company's brand and its relationship with customers, suppliers, and stakeholders.

2. Tax Compliance Risks

• Underreporting of Tax Liabilities: Businesses must report their income, transactions, and tax obligations accurately. Underreporting, whether intentional or accidental, can lead to back taxes, penalties, and interest charges.
• GST Compliance: In many countries, GST or sales tax laws require strict reporting of sales, purchases, and tax payments. Failure to adhere to these rules can cause hefty fines and damage the business’s financial standing.
• Transfer Pricing: Multinational corporations must ensure that pricing for transactions between subsidiaries is in line with the local and international tax standards to avoid risks of tax evasion claims.

3. Employment and Labor Law Compliance

• Businesses need to comply with employment laws, which may include contracts, wage and hour regulations, discrimination laws, health and safety requirements, and employee benefits.
• Non-compliance with labor laws can lead to lawsuits, fines, and damage to the company's reputation among employees, investors, and the public.

4. Corporate Governance and Anti-Corruption Laws

• Corporate Governance: Businesses must adhere to best practices in corporate governance, including transparent financial reporting, ethical decision-making, and maintaining appropriate checks and balances.
• Anti-Corruption Laws: Companies must follow anti-bribery and anti-corruption laws to avoid illegal activities that can lead to severe penalties and sanctions.

5. Environmental Regulations
Many businesses, particularly in manufacturing or other resource-heavy industries, face environmental compliance risks. Laws related to pollution control, waste disposal, emissions, and resource management are critical. Non-compliance can lead to lawsuits, fines, and even forced closure in extreme cases.

6. Intellectual Property (IP) Compliance

• IP Violations: Businesses must ensure they do not infringe on other companies’ intellectual property rights, such as patents, trademarks, or copyrights. Similarly, protecting the company’s own IP is crucial to avoid unauthorized usage or theft.
• Patent Compliance: Especially relevant in technology-driven industries, companies must comply with patent laws, and any infringement or failure to secure proper patents can expose them to legal risks.

7. Data Protection and Privacy Laws

• Businesses dealing with personal or sensitive data must comply with data protection laws like GDPR (General Data Protection Regulation in the EU) or CCPA (California Consumer Privacy Act). Non-compliance could lead to significant fines, lawsuits, and the loss of customer trust.

8. Industry-Specific Regulations

• Certain industries, like healthcare, banking, and insurance, face specific compliance requirements. Failing to meet industry-specific standards or regulations can result in severe consequences, including legal actions, financial penalties, and the suspension of business licenses.

________________________________________
Impact of Legal Compliance Risks:
1.    Financial Implications:
o    Fines and penalties for non-compliance are a direct financial impact.
o    Additional costs due to litigation, defending the company in legal battles, and engaging legal counsel.
o    Increased insurance premiums or loss of insurance coverage due to regulatory breaches.
2.    Reputation and Brand Image:
o    Legal issues, particularly high-profile cases, can severely damage a company’s reputation.
o    Customers, clients, and suppliers may hesitate to engage with a company that has legal troubles, leading to loss of business.
3.    Operational Disruption:
o    Business shutdowns or forced adjustments to operations can occur when a company fails to meet certain legal obligations.
o    Employee dissatisfaction and labor unrest can result from non-compliance with labor laws or unfair treatment.
4.    Investor Confidence:
o    Legal risks may lead to loss of investor confidence, affecting stock prices or future funding opportunities.
________________________________________
Managing Legal Compliance Risks:
1.    Internal Controls and Processes:
o    Establish and maintain robust internal compliance programs, including regular audits, risk assessments, and clear procedures for adhering to relevant laws.
o    Training and Awareness: Regularly educate employees, especially in finance, HR, and legal departments, about evolving regulations and best practices.
2.    Legal Counsel:
o    Ensure that the company has access to reliable legal counsel for routine checks and whenever facing new legal challenges.
o    Engaging both internal and external legal professionals can help navigate complex regulatory environments.
3.    Regulatory Monitoring:
o    Stay updated on any changes in laws, regulations, and industry standards through constant monitoring, legal advisories, and partnerships with compliance consultants.
4.    Compliance Technology:
o    Use technology platforms to help monitor, track, and report compliance activities, ensuring better risk management and fewer chances for error.
5.    Insurance:
o    Consider purchasing insurance to protect against specific legal risks, such as professional liability insurance or errors and omissions insurance, to help mitigate potential financial losses.
________________________________________
Conclusion:
The growing complexity of GST regulations has led to an increasing number of disputes and investigations by tax authorities. Non-compliance, whether intentional or due to oversight, can result in significant financial and operational disruptions.
Looking at rising numbers of  amount involved in GST Non-compliance (Rs. 81706.55 in year 2019-20 to Rs. 302167.51 Cr. In FY 2023-24) . Therefore, businesses must take proactive steps to ensure their GST compliance is robust and that they can effectively manage any potential litigation in the light that non compliance relating to third party is also coming as adverse impact to business. To safeguard brand value and save bottom line businesses should take all steps to mitigate GST compliance including monitoring GST compliance and litigation on regular basis by :
•    Regular Monitoring by designated Board Member.
•    Special assignments to “Audit Committee.”
•    Appraise to Board about amount of risk anticipated.

Every litigation, Every non-compliance has indirect or direct cost to the business
compliance risk.

"Stay Compliant, Stay Ahead!"

Opinion expressed above is authors personal opinion..  In case of any clarification required, author can be reached on email [email protected]. 

About Author: 
Author is IICA Certified Independent Director and  practicing tax advisor having experience of more than 30 years in the field of Indirect tax