The tax department issues notice to GST-registered businesses who have reported a decline of 20% or more in their annual revenue in the previous year. Earlier, notices concerning mismatch in the declaration made in GSTR-1 (details related to outward supplies) and GSTR-3B (summary return) were common.
The tax department is now making a comparison between earnings of businesses under the GST regime versus earnings from the former service and excise regime. Nevertheless, notices are also focussing on firms, which have legitimate reasons for reporting a decline in their revenue.
With the introduction of the GST regime, a lot of data is being generated to track evasion of taxes. However, since a full-fledged system is still missing, there are certain areas, which are being used by taxpayers to evade taxes. For example, a few taxpayers are raising fake invoices for claiming additional ITC, which thereby reduces their tax liability.
In response to the notices received, businesses will now need to submit relevant documents explaining the reasons for the decline in sales they have reported. Currently, the GST IT system is showing up many red flags in comparison to tax returns of different tax regimes in the past.
The department has made a speculation that Rs 1.2 lakh crore worth tax evasion might have taken place under the new indirect tax regime. Two years ago, the government detected an evasion worth more than Rs 12,000 crore after the implementation of GST.
However, the rule of thumb indicated that from such kind of detection, only 10% of the actual evasion was taking place. In FY19, the GST collection concerning the central government was short of the target by more than Rs 60,000 crore.
This instigated the government to come up with a relatively fair budget estimate of Rs 11.89 lakh crore for the present fiscal year. On a monthly basis, this translates to an average collection of less than Rs 1 lakh crore. The GST collection has maintained the pace as per the required rate for the initial four months of FY 20.