Bharat Heavy Electricals Limited (BHEL), one of India's leading engineering and manufacturing companies, has been served with a GST demand notice of ₹195.85 crore for the financial year 2020-21. The notice was issued under Section 73 of the CGST Act, 2017 by the Joint Commissioner, Office of the Commissioner of Central Tax, Central Excise & Service Tax, Medchal Commissionerate, Hyderabad.

The demand arises due to a mismatch of GST credit claimed by BHEL when compared with the figures available on the GST portal’s comparison statement. The total demand includes:

• Tax Demand: ₹10,76,13,004

• Interest: ₹7,74,81,363

• Penalty: ₹1,07,61,300

• Total: ₹19,58,55,667

Why Did the GST Demand Arise?

The demand has been levied because of a discrepancy in Input Tax Credit (ITC) availed by BHEL when cross-verified with the records on the GST portal. Mismatch in ITC claims is a common compliance issue faced by businesses, leading to tax demands, interest, and penalties imposed by tax authorities.

The order under Section 73 of the CGST Act suggests that there was no fraud, willful misstatement, or suppression of facts by BHEL, as Section 73 deals with non-fraudulent cases of tax shortfall. However, the company is now required to either pay the demand or appeal against it.

BHEL's Response: Company Plans to Appeal

BHEL has stated that it disagrees with the tax demand and is in the process of filing an appeal before the Commissioner (Appeals). The company has assured that this development will not materially impact its financials, operations, or business activities.

The appeal process is expected to provide BHEL with an opportunity to justify its ITC claims and present its case regarding the credit mismatch. If successful, the demand could be reduced or nullified.

Potential Impact on BHEL's Financials and Stock Performance

• Minimal Impact on Financials: BHEL has clarified that this demand does not materially affect its financial performance, as it is a procedural issue related to compliance.

• Stock Market Reaction: While tax demands can sometimes create short-term negative sentiment in the stock market, BHEL’s clarification that operations remain unaffected may limit any adverse impact on its stock price.

• Investor Outlook: Investors may closely watch the appeal process and how the company manages its tax compliance in the future.

Understanding Section 73 of the CGST Act, 2017

Section 73 of the Central Goods and Services Tax (CGST) Act, 2017 deals with tax demands when there is no fraud, suppression of facts, or willful misstatement by the taxpayer. Under this section, tax authorities assess the tax liability and issue a notice to the taxpayer for payment of the demand.

If the taxpayer agrees and pays the amount within 30 days, penalties can be reduced. However, if the taxpayer disagrees, they can file an appeal against the order, as BHEL has chosen to do in this case.

GST Compliance Issues Faced by Large Corporations

Many large corporations, including PSUs like BHEL, face challenges in GST compliance due to the following reasons:

• Mismatch in ITC claims due to delays or discrepancies in vendor filings.

• Complex reconciliation process between GST returns and portal records.

• Stringent compliance norms and frequent assessments by tax authorities.

This case highlights the importance of robust tax compliance mechanisms and accurate reconciliation of ITC claims to avoid such disputes.

What’s Next for BHEL?

• The company will file an appeal with the Commissioner (Appeals).

• It will present its case to justify the ITC claim and seek relief from the tax demand.

• If the appeal is successful, the demand could be reduced or set aside.

• If the appeal is rejected, BHEL may approach higher appellate authorities for relief.

Final Thoughts

BHEL’s GST demand notice of ₹195.85 crore is a compliance-related issue rather than a financial or operational setback. While the company is contesting the demand through an appeal, this incident underscores the need for stronger GST compliance measures to prevent credit mismatches.

Investors and stakeholders will be keenly watching how the appeal unfolds and its impact on BHEL’s financial standing. However, with BHEL’s strong financial position and strategic approach, this development is unlikely to have any long-term adverse effects on the company.

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