India’s tax authority has issued guidelines to standardise GST audits and reduce litigation, tax experts said.

The Central Board of Indirect Taxes and Customs (CBIC) has instructed GST officers to refer cases with conflicting interpretations of tax laws to the board for clarity before issuing notices.

The move comes amid growing complaints from businesses about inconsistent interpretations during audits, leading to prolonged disputes and compliance costs.

“This is a positive step towards creating a more predictable tax environment,” said Rajat Mohan, executive director at Moore Singhi. “It will help to reduce uncertainty and litigation.”

Mahesh Jaising, partner at Deloitte India, said: “This proactive step, applicable to ongoing audits as well, ensures policy alignment, focuses on ease of doing business and reduces unnecessary litigation by maintaining uniformity.”

In an instruction to field offices, the Central Board of Indirect Taxes and Customs (CBIC) said during the process of audit, a CGST Audit Principal Commissioner may come across a scenario where a taxpayer has followed a prevalent trade practice based on particular interpretation of Goods and Services Tax (GST) law and more than one such interpretation of the law could result in litigation.

“The scenario may arise in a CGST Zone where an issue investigated by one of the (Pr.) Commissioners is based on an interpretation of CGST Act/ Rules, notifications, circulars
etc, and it is in the direction of proposing non-payment
or short payment of tax, however, the background is that the taxpayer(s) is/are following, or have followed, a prevalent trade practice based on particular interpretation
on that issue in the sector/industry.

“This scenario results in more than one interpretation and likelihood of litigation, change in practice etc.”

“In such cases, it is desirable that the zonal (Pr.) Chief Commissioner make a self-contained reference to the relevant policy wing of the board i.e. the GST Policy or TRU (Tax research Unit),” the CBIC said.

The commissioner would make the reference before conclusion of the audit and before issuing any show cause notice to promote uniformity and avoid litigation,” the CBIC added.