Goods & Services Tax (GST) gross revenue has been on a roll. The gross revenue collection in February, 2024, was ₹168,337crore, while the collection for the financial year 2023-24 already touched ₹18.40 lakh crore — a 11.7% year-on-year growth.
The average monthly gross collection of FY 2023-24 is ₹1.67 lakh crore, up from the ₹1.5 lakh crore of the previous fiscal. Net revenue has also been doing well and at ₹16.36 crore for the year shown a 13% growth. This is also the reflection of the estimated GDP growth of 8.4% in the third quarter of 2023-24.
The Gross Value addition (GVA) grew in the third quarter in manufacturing by 11.6% followed by construction by 9.5%. Maharashtra, Karnataka, Gujarat, Tamil Nadu, Telangana, and Haryana were the major contributors with nearly 50% of the revenue.
But the moot point is whether the Government is getting all what is due? Or to put it differently, should we be sanguine with the revenues doing well or concerned about what we are not getting?
Going by the trend of detections this concern is not misplaced. The Directorate General of GST Intelligence had during 2023 detected 6323 cases involving evasion of duty of ₹1, 98, 324 crore —a phenomenal 119% increase in detecting cases year-on-year. Fake registrations and bogus billing alone from May 2023 have resulted in detection of Input Tax Credit (ITC) evasion of ₹49, 623 crore involving 31,512 bogus firms — the total quantum of fake ITS evasion from 2020 till date being ₹1, 14,755 crore. This is troubling.
It is a generally accepted axiom that what is detected is but a percentage of what is evaded. So, the actual revenue lost will be much more. Or as the parliamentary question replies to questions of quantum of evasion normally state, ‘since evasion is a clandestine activity, it is difficult to estimate the quantum of evasion.’ But this gap analysis between what we ought to have got and what we have got is something which tax administrations have to constantly do — only then can there be a focused approach to tackling the problem of evasion.
It is in this background that one should view the first ever National Conference of Enforcement Chiefs of the Central and State GST Formations held recently in New Delhi. Given the extent of the problem this was a welcome first step.
The agenda was comprehensive — ranging from sharing best practices and fostering synergy to leveraging technology and data. The outcome of the conference as evidenced from the press note issued thereafter witnessed the finance minister urging the use of technology to plug loopholes as also for better delivery of services. The revenue secretary has highlighted priorities – targeting high risk areas, combating tax evaders, strengthening collaboration between central and state authorities, and gathering feedback for technological innovation.
Challenges For The Enforcement Officers
What then are the challenges for the enforcement officers? The most rampant issue and challenge which enforcement authorities face is fake invoicing. Fake invoice has not been defined in the CGST Act — but as is evident it refers to raising an invoice without supply of goods or services; it could also mean raising an invoice in the name of one entity but supplying the goods to another entity.
It should not be forgotten that in the GST scheme, an invoice is as good as money; it is a promise made by the government that credit of tax paid on the invoice will be available and to that extent there is a set-off from the final liability. A fake invoice is issued for multiple reasons —from wanting to inflate turnover, to using it to discharge tax liability fraudulently, to laundering of money, to claiming refund either of exports or inverted duty.
This problem was prevalent in Central Excise and Service Tax also. Hence while drafting the GST law the model law at section 29 suggested that ITC would be confirmed only if the inward details filed by the recipient are matched with the outward details furnished by the supplier in his return.
It was hoped that technology would facilitate the matching of invoices and at least this mode of evasion would be plugged. However, given the sheer number of documents involved and the technological challenges in matching this provision was shelved. While GSTN has been making rapid strides and there will be technological solutions, the underlying causes which prompt a potential evader to issue fake invoices must be addressed; if not enforcement agencies will always be fighting a losing battle.
The other modus operandi for evading taxes is to undervalue the goods or services — this obviously results in payment of lesser tax. Enforcement agencies can with the help of cost accountants and chartered engineers address this issue — the key of course is to have intelligence to identify a potential case of undervaluation to have a more detailed examination.
Outright clandestine removal of goods rampant in the days of old, especially in commodities like iron and steel, plywood have reduced in the GST era-but not eliminated. Reverse charge mechanism, especially in the services sector also is an area of concern and liable for misuse. The worst form of evasion (apart from fake ITC) is collecting tax from the recipients but not paying it to the exchequer. I am told that such cases are being detected —and the severest of punishment should follow such offenders because they abuse trust — both of government and the recipient who has honestly paid the tax.
Surprisingly, the conference did not address the issue of improving efficacy of audit by the department. If robust internal audit mechanisms are in place very many of the potential evasion cases can be checked. Training of the audit officers is critical. GSTN is sitting on a mountain of data — data analytical tools which are being utilised need to be constantly upgraded. The time has also come to put in the public domain the GSTN data — this will help in research which will only strengthen the hands of government.
Revenue is the consequence of enhanced economic activity. It is the consequence of ensuring ease in compliance. It should not be the result of aggressive assessments — ‘revenue at any cost’ cannot be the mantra of a good tax administration.
Tax administrators should constantly keep in check such a tendency. The balance between enforcement and taxpayer rights about which there was eloquent mention in the conference should be maintained. The conference is a welcome first step and would have increased awareness about the extent of the problem and ways and means of addressing them. The test of the success of the conference will ultimately lie in the results.
—The author, Najib Shah, was Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.
(Edited by : C H Unnikrishnan)
First Published: Mar 5, 2024 4:33 PM IST
