View | Scrutiny of returns the key to ensuring accountability

This is GST’s USP--hence to the extent of credit availed there is lesser revenue for the government. It is nobody’s case that such credit should be denied. It also cannot be anybody’s case that credit not due is wrongly availed with a criminal intent to defraud exchequer.

It should not be forgotten that value added tax system is a tax system which requires the government to not only collect substantial money but also pay much of it back to the same people in the form of credit. A return accompanied by an invoice provides the government a mechanism to verify the details of supply has taken place, to whom and at what value. Returns thus are key documents.

A return and an invoice constitute a potential claim on public funds Hence it is the GST law as it stood provided for matching of returns as a method of verifying that the claims made are correct. Unfortunately matching of returns--the suppliers with the recipients, universally accepted as being an essential tool to check evasion, never took off. Technological support needed to effectively implement it was lacking.

The Union Budget 2022-23 at Clause 106 did away with Sections 42, 43 and 43A Act of the CGST Act, in effect doing away with the two-way communication process in return filing. A key provision which would have catapulted India to the most technologically advanced tax administration had an unsung and unfortunate demise. The Budget proposed to auto-generate a statement of inward supplies which would hopefully take care of any possible attempted mischief. This has not yet happened.

Returns once filed cannot sit in the systems of the department. They have to be scrutinised to confirm veracity of the claims made. The GST law (section 61 of the CGST Act) provides for scrutiny of returns and other particulars furnished by the registered person.

It is against this backdrop that we have to view the latest instructions--No. 02/2022-GST dated March 22, 2022--issued by the Central Board of Indirect Taxes and Customs (CBIC). These provide a Standard Operating Procedure (SOP) for Scrutiny of returns for FY 2017-18 and 2018-19. This SOP is said to be an interim measure till technology provides solutions.

The SOP seeks to ensure uniformity in selection/ identification of returns for scrutiny, methodology of scrutiny of such returns and other related procedures. Given the sheer number of registrants and returns available, the SOP seeks to sensibly make the process of selection of returns for scrutiny risk drive. The Directorate General of Analytics and Risk Management (DGARM) has been assigned the task to select the GSTINs registered with Central tax authorities, whose returns are to be scrutinized and inform the field formations accordingly.

The SOP makes it clear that the officer is expected to rely only upon the information available with him or with the department. The instruction states that there should be minimal interface between the officer and the registered person. This is good and necessary. Scrutiny should not become a fishing exercise.

The present SOP is for scrutiny of returns filed in 2017-18 and 2018-19. It has to be done urgently in a time bound manner. There is danger of the process getting barred by time limitation. The statutory limit for issue of notice is three years from the date of filing the annual return in cases other than those of fraud -and five, in cases of fraud.

Thus, the present drive for scrutiny of returns is a welcome measure. Having said that, the rampant evasion as evidenced by the cases detected by the department is a cause for serious concern. Timsy Jaipuria of CNBC-TV18 has estimated the detections of such cases of fraud to be in the region of a humongous Rs 52,000 crore.  Scrutiny is the first step to check such evasion. Regular Audit and intelligence driven enforcement should go hand in hand. And hopefully, our tax payers will realize the importance of paying taxes due -and the folly of trying to evade taxes.