The government is finally cracking the whip. Having recognised the scourge of evasion, 2020 ended with a flurry of goods and services tax (GST) enforcement activity. The last few months of the year witnessed the detection of more than 3000 cases–primarily of misuse of input tax credit facilities. The sheer audacity of some of these fraudsters has been staggering with reports of instances of a single person having more than 500 entities—all operating from non-existent addresses generating fake invoices. The consequential loss of revenue to the government would be in the region of several thousand crores.
The USP of GST is the availability of credit on taxes paid in the earlier stages of the value chain. This is the strength of GST—unfortunately in the hands of unscrupulous entities this very strength is exploited to avail credit that is not due.
The government has apart from initiating stern enforcement action also reacted with several changes in the CGST law and rules aimed at curbing evasion.
Several amendments brought about by the Finance Act 2020 have been made applicable from January 1. The most significant being the provisions relating to punishment spelt out in Sec. 132 of the CGST Act. Thus, the specific situations whereby benefits flowing from fraudulently availing input tax credit without invoice or bill are sought to be retained has been made a cognizable and non-bailable offence. It may be mentioned that the GST law provides for arrests. Last year had seen more than 200 arrests under the provisions of the CGST Act.
Similarly, changes have been made in the CGST Rules. A restriction of 5 percent has been imposed on claiming credit in respect of invoices/debit notes not furnished. This is a relaxation of an existing provision and should ensure the registered person knows his supplier.
More significantly, a new rule has been introduced whereby certain categories of taxpayer whose taxable supply in a month exceeds Rs 50 lakh has now been restrained from using input tax credit in excess of 99% of output tax liability. The balance one percent has to be paid in cash. While only time will tell the efficacy of this new provision, the fact remains that the category of taxpayers to whom this rule has been made applicable are the least liable to evade. The government has in response to concerns regarding this new provision clarified that it will apply only to a minuscule percentage of taxpayers-which is precisely the point being made.
Incidentally, it would appear that this rule goes beyond the assurance which the CGST Act gives that credit of input tax charges on any supply of goods or services or both ‘shall be credited to the electronic credit ledger of such person’. What is being restricted through the new rule is the utilisation—obviously, a distinction is being sought to be made between credit and utilisation, but it would nevertheless be worthwhile to reexamine the legality of this Rule.
The Finance Bill scheduled to be presented to the Parliament on February 1 would provide an opportunity to rectify the position. There has also been a change in the validity of the e-way bill—it will now be valid for a day for every 200 km as against 100 km earlier. This in effect makes the validity of the e-way bill more restrictive.
E-invoicing which was initially introduced for registered persons whose aggregate turnover exceeded Rs 500 crore has now been made mandatory for entities whose turnover exceeds Rs 100 crore. Incidentally, there is a wrong perception that e-invoice means the generation of invoices by the government. The registered persons will continue to prepare their invoices. This will have to be uploaded on the invoice registration portal and an invoice reference number (IRN) obtained. The invoice copy containing inter-alia the IRN (with QR code) issued by the supplier to the buyer is commonly referred to as an e-invoice. What has been done is that the format of the invoice has been standardised and the exchange of data between the supplier and the buyer facilitated.
Earlier, in late December 2020, several changes were made in the Rules relating registration of new GST entities. One of the major challenges which GST officers face while investigating cases of fraud was the non-existence of registered entities. Since the provisions contemplated approval within three days of application, there was little time with the department to cause any verification regarding the credentials of the applicant. Fly by night operators sprung up-all of whom indulged in large-scale availment of fraudulent credit.
The fraudsters would shut shop within a period of a few months leading to investigations reaching a dead end. The changes now made have extended the time period with the department to grant registration to seven days. Further in situations where the applicant fails to undergo Aadhaar authentication, the department has been empowered to carry a physical verification of the existence of the applicant—the time period in such cases has also been extended to 30 days. More powers have also been given to the department to cancel the GSTIN-even, controversially, without a hearing.
The concerted efforts made by the Government have indeed been successful. The GST revenue collection of about Rs.1.15 lakh crore for December 2020 which is an all-time high since the implementation of GST is testimony to this. The government should continue also to focus on upgradation of technology-and for greater coordination between the CBDT and GSTN/ CBIC. Every evader of GST tax is necessarily an income tax evader too.
Ultimately technology and greater coordination amongst the enforcement agencies is the key to curb this menace.
—Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal
Read his other columns here (Edited by : Ajay Vaishnav)
