The case of Shankargouda Hadimani, a small vegetable seller in Haveri, Karnataka, has struck a chord across the country—exposing a growing tension between India’s push for digital payments and the realities of GST enforcement on small, unregistered vendors.
What Happened
-
Shankargouda, who has been selling fresh vegetables for the past four years, received a GST notice for ₹29 lakh.
-
Officials claim his digital transactions totaled ₹1.63 crore over four years—triggering scrutiny under GST laws, which mandate registration and tax payment beyond a certain turnover.
-
However, he insists all his sales are of untaxed fresh produce, bought directly from farmers, and that he keeps proper records and files income tax returns.
Why This Is Controversial
-
No GST on Fresh Vegetables:As per the GST Council and tax guidelines, fresh and unprocessed vegetables are exempt from GST. So, if Shankargouda is truly only selling fresh produce, he owes no GST, regardless of transaction volume.
-
Digital Payment Visibility = Tax Assumption:The use of UPI and digital wallets made his business more transparent—but also more susceptible to automated scrutiny. Authorities appear to have flagged him based solely on gross inflow of funds via digital platforms, without context.
-
Cash vs UPI Dilemma:In the wake of such notices, many small traders are shifting back to cash, defeating the government’s goal of promoting a cashless economy. This contradicts the Centre’s long-standing push for financial inclusion and transparency via digital platforms.
-
State vs Central GST Messaging:The Karnataka GST department recently warned that all turnover, whether in cash or UPI, counts toward GST liability. Yet, there seems to be confusion in implementation, especially for exempt goods like vegetables.
Broader Implications
-
Fear Among Small Vendors:Many small shopkeepers and vendors, like Shankargouda, are now terrified of using digital payments, fearing arbitrary tax demands based on raw transaction data.
-
Need for Clarity:Tax experts argue that the GST system is not designed to penalize sellers of exempt goods, even if their turnover exceeds thresholds. The burden should be on the authorities to prove taxable supply, not just total money flow.
-
Policy Disconnect:The situation reflects a growing disconnect between tax enforcement and financial inclusion policies. If left unaddressed, it could discourage lakhs of small traders from embracing digital tools.
What Can Be Done
-
Better Guidelines:The GST Council or Central Board of Indirect Taxes and Customs (CBIC) should issue clear clarifications for unregistered sellers of exempt goods using UPI.
-
Simplified Reporting for Exempt Goods:A voluntary declaration portal for small traders selling exempt goods could help avoid harassment and provide clarity.
-
Revoke Notices Where No Tax is Due:In cases like Shankargouda’s, if it is proven he only sells untaxed vegetables, the GST notice should be withdrawn immediately.
In Summary
The ₹29 lakh GST notice to a humble vegetable seller reflects a systemic flaw where digital payment transparency is punished, not rewarded. If not addressed quickly, this will erode trust in both digital platforms and tax administration, hitting the very backbone of India’s informal economy.
