Tax lapses under scrutiny: CBIC begins with 50,000 taxpayer cases from FY18

Post the instructions issued by the chief of CBIC, Vivek Johri, field formations have been authorised to open scrutiny of GST identification numbers (GSTINs) based on Artificial Intelligence inputs and risk assessment parameters finalized by the department.

“Directorate General of Analytics and risk management (DGARM) has shared the information with all field formations to begin the process. Directorate General of systems and Data Management which looks after the entire data and DGARM along with their teams, zonal chiefs have been tasked to have the data examined,” sources added.

The examination of GST returns under scanner is based on “uniform model of scrutiny, which is initiated to bring in transparency and enhance compliance to plug tax leakages which remain undetected in the system,” sources added.

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Post the first tranche, another tranche of scrutiny will be opened for FY19, followed by FY20, FY21 and FY22 so that several leakages are plugged in the system, there is no tax avoidance by the taxpayers is what the government feels that this particular exercise will initiate.

On April 1, Finance Minister Nirmala Sitharaman in an interview to CNCBTV18, had said that the aim of the government is to plug leakages in GST via system generated alerts and better use of data and artificial intelligence.

This followed by the instructions issued to field formations from CBIC Chairman Vivek Johri, where Johri in his newsletter issued on April 4, to all his officers, across India, said, “With a view towards enhancing compliance through effective and standardized scrutiny of GST returns, the Board has been working towards automating the scrutiny process. Last week, the first tranche of GSTINs selected for scrutiny, on the basis of risk parameters, were shared by Directorate General of Analytics and Risk Management with field formations. This would not have been possible but for the focused attention and hard work devoted to the project by Member (GST), the GST Policy wing, Pr. Director General, Directorate General of systems & Data Management and DG, DGARM and their respective teams. Zonal chiefs may like to have the data examined and suitable taken up as per the prescribed SOP in a time bound manner. They should not hesitate in providing feedback/ suggestions for improvement.”

Sources further shared that some of the SoPs or risk parameters that have been used to identify these 50,000 GSTINs for scrutiny include, “Taxpayers showing significant turnover and not chosen for audit, mismatch in supplies of the taxpayers, tax liability and input tax credit between the GST Returns 1, 3B and 2A are showing a mismatch, among others.”

Meanwhile, reacting to this move initiated by CBIC, the industry feels that it is in the right spirits but officers should refrain from being too far reaching.

“Usage of artificial intelligence to plug leakages is a great initiative of this Government and will certainly augment revenue collection. However, the Executives must not recover money by coercive measures and must follow fair process of adjudication so that the principles of natural justice are not denied,” said Abhishek A Rastogi, partner at Khaitan and Co.

“Various taxpayers would willingly pay tax once it is highlighted by the officer through the artificial intelligence. However, interpretational aspects must be guided by fair process of adjudication so that the issues are pragmatically addressed,” Rastogi added.

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Similarly, Pratik Jain, partner at PwC, said, “FY 2022-23 is likely to be a year of GST audits and scrutiny.  The industry needs to proactively prepare for it and ensure that reliable data is available on a real time basis, probably by efficient use of technology tools available. For the government, it may be worthwhile to examine setting up sectoral groups for key sectors such as FMCG, e-commerce, telecom, etc, so that there is consistency in approach from authorities and exchange of ideas.”

MS Mani, partner at Deloitte India, too feels the same. “It is becoming increasingly important to constantly verify GST compliances and avoid any lapses and take corrective measures for past lapses. This would enable businesses to respond to all scrutinies and enquires that they may be subjected to in a tax world with connected databases ," Mani said.

However, traders across the country, are of a view that instead of penalizing for several such mismatches, leading to scrutiny, the government should be facilitating them to understand the system better. “CAIT is of the considered opinion that laws and rules have to be complied by one and all . Any evasion of tax by anyone needs to be dealt with strongly and CAIT stands with the government. However, FY17-18 being the first nine months of implementation of GST, adequate precaution must be taken by the Department that no innocent or honest traders are penalized," Praveen Khandelwal, the National Secretary General of the Confederation of All India Traders (CAIT).

"We will work as an extended arm of the government in augmenting revenue and widening of tax base, therefore we urge the FM to make a review of the GST act and rules, as in last four years both the government and the traders have experienced GST. There might be some leakages but at the same time in several cases the GST has not been found to be trader-friendly,” he said.