For some time now, the GST revenue collections being below-the-target has worried the GST Council and the CBIC. Many enthusiasts have cited that the economic downturn is a primary factor for the slump in the revenue collections.
However, another major factor contributing here is the flow of fraudulent input tax credit (ITC) in the tax system, backed by fake invoices. These have swelled over the last two years such that, the tax amount involved in ITC frauds has hit the sky-high. A whopping Rs.11,251 crore worth fraud ITC cases were unearthed in the year 2019 against a meagre Rs.13 crore identified in the year 2018. This revelation is a mirror to the current deficit in the GST collections.
The CBIC has announced a heap of measures to gear up the GST collections for the last quarter of the current fiscal 2019. Primarily, the taxman is nudging the taxpayers to upload the GSTR-1 regularly by adding new controls such as blocking of e-way bill generation and sending notices for non-filing more promptly.
Moreover, ITC claimed by the taxpayer in his return is now being filtered at source, unlike the earlier mechanism. Previously, the taxpayers were claiming ITC as a summary figure without the need to justify the eligibility at the time of filing GSTR-3B. Also, the taxpayers were not concerned whether or not the figure was as per the ITC appearing in GSTR-2A. Accordingly, the process of reconciliation with GSTR-2A was saved for a yearly exercise, at the time of filing annual returns.
The seriousness of GSTR-2A reconciliation only came to prominence with the provisional ITC cap of 10% (earlier 20%) since October 2019. The taxpayers claiming ITC must now ensure that their ITC claims in GSTR-3B be restricted to the amount appearing in GSTR-2A. 10% of ITC in GSTR-2A is allowed in addition to this amount. Time is given to such taxpayers to follow up with their suppliers to upload the invoices. These entries will be verified when they appear on GSTR-2A in the later months of the fiscal. Hence, cases of fake ITC can be curbed to a maximum extent.
Amidst these measures, the department has laid a course of actions for its officers against the non-compliant persons under GST. A tax officer may put conditions for using the amount available in the electronic credit ledger of a taxpayer. A new rule 86A was added in December 2019 to block the ITC utilisation in cases that are identified as fraud or fake invoice. It also covers cases of not depositing tax liability with the government against the invoices on which the ITC is already claimed.
Furthermore, in case a person fails to file GSTR-3B or pay the tax liability and does not respond to notices, the department can go for the best judgment assessment. Under this assessment, the assessing officer shall determine the tax liability defaulted by the taxpayer based on the facts available with him.
A tax officer has the liberty to issue an order without further communication with the taxpayer. It can put such taxpayers in serious jeopardy of interest liabilities and penalties. In case the taxpayers do not respond to such order by furnishing a GST return within the set deadline, the taxman may begin with proceedings and take measures for recovery.
Under the powers of recovery, tax officers can attach the bank accounts of the taxpayer in question, while the proceedings are still pending. The power given under the law is necessary for ensuring tax recoveries, but the larger picture suggests differently.
The tax officers have been allowed to decide the deserving cases based on the facts of the case to undertake proceedings. The law states that the grounds could be in the interest of the government’s revenue. The absurdity and subjectivity of deciding whether or not to initiate recovery could be debated. Moreover, there are no limitations or exceptions to protect the interest of taxpayers in contrast to any other GST provisions imposing criminal proceeding.
The form DRC-22 is the order for provisional attachment of the property of the taxpayer. This form is not equipped to include the reason for such action and could be another cautioning factor for taxpayers. Further, the long period of one year for keeping the provisional attachment is force can do collateral damage. It can affect the normal functioning of such taxpayer much against the ideology of the ease-of-doing-business mission of the government.
Other tax laws such as the Income Tax Act have provisions for issuing show cause notice before attaching the taxpayers’ property and approval of chief commissioners or principal commissioners before proceeding to do so. Even a recent judicial pronouncement has indicated that attachment of property cannot be done on a routine basis. The legislative whip should be strongly used in severe offences that involve fraud or willful misrepresentation of facts. One may only hope the government to reconsider an amendment or define the specifics such as the extent of its applicability.
While the government, along with the tax department, aims to keep a clean tax system, it must not cause undue hardships for the genuine and compliant taxpayers. GST in India must evolve to be an inclusive system run by well-planned and tested measures to build tax harmony.
For any clarifications/feedback on the topic, please contact the writer at firstname.lastname@example.org.
Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.