GST Notices Sent to 7,000 Vendors in Karnataka

Introduction

In a major enforcement move, the Commercial Taxes Department of Karnataka has issued GST notices to around 7,000 unregistered vendors, including those selling exempt items like milk, vegetables, and unbranded food products. While no tax has been demanded yet, these vendors have been asked to either register under GST or submit proof of exemption.

This step highlights a growing reliance on digital payment data, especially UPI transactions, to identify businesses operating beyond the registration threshold.

Why Were Notices Issued?

Although the goods sold may be exempt from GST, the department clarified that they cannot verify exemption status without registration. As a result:

Vendors are asked to register or submit exemption proof.

No penalties have been imposed yet, but compliance is expected.

UPI Data as a Compliance Tool

Using technology to enforce tax compliance, authorities flagged traders based on UPI transaction volumes:

Over ₹40 lakh in goods, or

Over ₹20 lakh in services.

This marks a significant step in monitoring financial inflows digitally, even among traditionally offline or cash-based businesses.

Section 63 Invoked

The notices were issued under Section 63 of the CGST Act, which allows officers to assess the liability of a person who has failed to register under GST. This legal provision can trigger action even when no returns have ever been filed.

Small Vendors React: Shift Away from UPI

Following the notices, fear of tax scrutiny led many small traders to stop accepting UPI payments and revert to cash-only transactions, risking both business loss and reduced transparency.

For example, a meat seller in Bengaluru's Electronics City received a ₹91 lakh notice, despite claiming to sell only exempt goods.

CM’s Intervention Offers Relief

Karnataka CM Siddaramaiah addressed vendor concerns by:

Assuring that notices will be withdrawn for those who prove exemption.

Promising a waiver of tax arrears for those who voluntarily register and start complying.

This move aims to encourage transparency without penalizing honest traders.

Experts Speak: UPI vs. Cash

Kumar Prasad BE, Chartered Accountant:

Tax is a chain. If one link breaks, the whole system suffers. Avoiding UPI breaks this chain and affects national revenue.

Ashok Shetty, Chartered Accountant:

Though the CM’s promise is positive, GST is a central law. Traders still need to register or clearly prove exemption.

Both experts emphasized that shifting back to cash will only create long-term complications. UPI brings transparency, traceability, and economic stability, which benefits both the trader and the economy.