The Directorate General of Goods and Services Tax Intelligence (DGSTI) has initiated a crackdown on fake invoicing networks which have caused a huge loss of more than ` 1.19-lakh crore in the last three years. This amount is close to the deficit that the Centre owes to the states in GST revenues. More than 60 individuals have been arrested by DGSTI with amounts running up to ` 2,500 crore or more.
Fake invoicing is generally carried out to claim input tax credit without doing any transaction and also to defraud banks. It is used to show lower profit and avoid payment of income tax. Therefore, improved coordination with direct tax data is called for to know whether the transactions being reported are in sync with the wealth of the firm and its promoter. It is also found that the movement of goods has been falsified through fake e-way bills. So, the lack of real time connect between the e-way bill system and GSTN is exploited by fraudsters. Though the e-invoicing system, introduced for entities above ` 500 crore, may probably solve the issue, firms above
` 100 crore only will come under the e-invoicing system after April next year. The network of fake invoicing also involves powerful vested interests, such as politicians and their relatives A network of shell companies at work has also been pointed out.
Suggestions of the Law Panel in November 2020
The law committee of the GST Council made the following suggestions to meet the challenge of fraudsters:
- There should be an Aadhaar-like registration process for new applicants under the GST regime and such new registrations can be done online by verifying documents, using live photo and biometrics. Banks, post offices, and GST seva kendras can offer facilities for this.
- In case a new registrant opts for non-Aadhaar authentication-based registration and does not have the income-tax (IT) return in support of his adequate financial capability, there must be compulsory physical verification and personal identification.
- To be categorised as ‘trustworthy’, the person registered should have good income tax credentials, with no previous cancellation of GST registration on the same PAN (permanent account number) for any discrepancy or violation of law.
- Registration can be given within seven working days to those falling under ‘trustworthy’ category. In other cases, registration can be given within 60 working days after verification. The input tax credit shall be allowed only after filing of tax return.
- Dealers may need to pay a certain part of their taxes through cash or through bank guarantee up to 2 per cent of their tax dues. In order to get the benefit of an input tax credit based payment, they should have financial credibility in terms of I-T payment. However, these conditions could be relaxed or waived by jurisdictional officers, based on verification.
- A full application of the business intelligence and fraud analytics tool should be made to precisely identify riskier dealers, based on the riskier input supply chain and outward supply chain, and abnormal taxpayer behaviour in terms of input tax credit availment, etc.
- The first lot of riskier traders should be suspended if their identification is based on significant criteria like non-filing of tax return for six months, etc.
It was also suggested that these measures should be discussed with states and other stakeholders before formally putting them to the GST Council for further action.
Apart from the above measures suggested by the law panel of the GST Council, analysts suggest the DGSTI should be given a free hand. At the same time, a distinction needs to be made between booking the guilty and leaving bona fide entities alone. A list of wrongdoers should be published on the DGSTI portal so that the wrong choice of parties to transact business could be avoided. The Centre should pursue the matter in a fair and even-handed way so that the rule of law rather than arbitrariness may prevail.
Input tax credit (ITC) means reducing the taxes paid on inputs from taxes to be paid on output. Input tax is the GST charged when any supply of services or goods is supplied to a taxable person. It already existed under the pre-GST indirect taxes regime (service tax, VAT, and excise duty), but its scope has widened under GST. Earlier, no claims for ITC were possible for central sales tax, entry tax, luxury tax, and other taxes. Besides, manufacturers and service providers were not able to claim the central excise duty.