India brings GSTN under PMLA: Expert says data sharing with ED, FIU can trace instant wrongdoings

CNBC-TV18's Parikshit Luthra spoke to Nagendra Kumar, a former member of GST and CBIC; Shailesh Haribhakti, chairman of Shailesh Haribhakti Associates and Satyendra Singh, former deputy director of Enforcement Directorate to understand the impact of the notification.

Kumar: GST laws are quite self-contained in dealing with the fake invoice menace in terms of not only arresting the person who are found to be generating fake invoices and thereby creating a false money trail, but also prosecuting them.

The notification now issued under Section 66(1)(ii) of the PMLA Act is to provide a platform for Enforcement Directorate or for that matter, the Financial Intelligence Unit (FIU) coming under the Department of Revenue, Ministry of Finance to share the information with the GSTN for further trailing the GST offense.

Haribhakti: I think it is part of a pattern that is emerging. India started the GST as a digital law and it has been an evolutionary law, which has kind of improved and changed and metamorphosised through consensus. Almost every state participates in the GST Council, and that's how decisions are made.

Now what they are bringing in, is what I like to call information exchange. And because everything is so digital, there is a gathering of important information which is happening in different parts of the ecosystem. What this provision seems to be doing is bringing all of that onto one platform, in order that instantaneously the revenue authorities can track and trace what wrongs are being done- fake invoices or any other malfeasance that is attempted, will get detected faster.

If on detection, the malpractice is curbed, and the action stops at making sure that the tax which has been sort of taken away from the system is restituted that would be a very positive outcome. But the important thing that everybody has been put on notice is that there is no place to hide.

Information and your footprint are going to be visible and is going to be shared and multiplexed using artificial intelligence and data gathering mechanisms which are available to the private sector, no reason it should not be available to the government sector.

So, that's the context in which I see all of these extensions. It is a question of making sure that people ultimately realise that you will have to come clean and you must make sure that compliance is as full and as accurate as possible. That's the way I look at this whole evolution and the spread.

Kumar: I want to make one point very clear, that today an offense recognised or acknowledged under the GST Act is not a predicate offense. A predicate offense is one where necessarily a police file an FIR and an investigation is conducted. However, the GST offence could also involve an offence under the IPC in the form of a criminal conspiracy or identity theft or fraud, etc. So parallelly if an investigation is carried out by ED in any one of the GST offences involving a predicate offense as prescribed under IPC or any other law listed in that act, ED can investigate it.

Now coming to the question as to what are additional things the GST authorities will have in relation to this notification issued. I must tell you that the GSTN which has got a repository of the data of the taxpayers, including the registration, the return filing, the payment, etc, would have the advantage of the data which is flowing from the ED to the GSTN. This will not only facilitate in recovering the tax quickly from the fraudsters in terms of identifying the money trail but also facilitate in easy prosecution, etc. But the advantage that will accrue to the enforcement directorate is always there. The GSTN is sharing the data with the FIU and also sharing the data with other sister agencies like CBDT or for that matter, the enforcement wing, etc. through a memorandum of understanding. Now the current notification which has been issued on July 7, facilitates the enforcement directorate to share the information with the GSTN in whose hand the information shared will strengthen in fostering the evidence and tightening the investigation and also investigating the case under GST more effectively.

I also agree that the information sharing happening between the ED and the GSTN would strengthen the investigation not only in the hands of the GSTN but will also help ED to investigate the case more effectively and trailing the proceeds of the crime and also attaching it and taking further action under the PMLA.

Haribhakti: Absolutely. I think that is the evolutionary process that I was speaking about a little while ago. The idea for all of us, and we are all in this together. We want to make sure that fair taxes are paid, we want to make sure that GST becomes the self-policing, pull-factor kind of law that it was meant to be. And we want to make sure that the honesty of reporting and uploading and making sure that all the obligations are met is done in a responsible manner by citizens.

Where there is any hint of wrongdoing or fraud, it has to come to light as fast as possible. But where there is an interpretational issue, I think it is important to make sure that a chance is given to make sure that there is a fair representation of what the true issues are. If that is put in place that might mitigate all the angst that seems to be growing and all the press comments that we are hearing about this whole thing being moved to the level of harassment.

I don't think that it necessarily should lead to harassment, it should lead to more quick identification of things that are going wrong. And it should serve as a warning to the people who are subject to the GST that they must fulfill their obligations in an honest manner. It's now become clearer, simpler, more easy to comply with the law. And with the information exchange that is all-pervasive, there is no place to hide.