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September 16, 2020

Odisha govt proposes amendment in GST Act to make ITC offences cognizable and non-bailable

by CA Shivam Jaiswal in GST

Odisha govt proposes amendment in GST Act to make ITC offences cognizable and non-bailable

GST was introduced in 2017 as a singular indirect tax reform aimed at removing all barriers across states and unifying the country into a common market. It was also meant to create a seamless chain of transactions in which all transactions are documented and backed by invoices to prevent evasion. 

However, bogus firms, fake invoices and fraudulent input tax credit claims have become the biggest headaches for the tax administration of the goods and services tax (GST) regime in just over two years. Tax evasion has been widespread since the GST rollout, with various instances coming to light of taxpayers using methods to evade the indirect tax. GST Officers have uncovered many modus operandi and are aggressively using technology and existing data, from e-way bills to GST returns to check GST evasion.

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.

According to the 2020 Budget statement, several cases of fraudulent input tax credit (ITC) were caught by the authorities since the launch of the goods and services tax (GST). In several of these instances, fake invoices issued by racketeers were obtained by suppliers registered under GST to fraudulently claim ITC and reduce their GST liability. Faced with rising cases of fraud in input tax credit, the Odisha government plans to amend the Odisha Goods and Services Tax making fraudulent input tax credit and retaining benefit as a cognizable and non-bailable offence.

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What do you mean by cognizable offences?

A cognizable offence is an offence in which the police officer as per the first schedule or under any other law for the time being in force, can arrest the convict without a warrant and can start an investigation without the permission of the court. Cognizable offences are generally heinous or serious in nature.

What do you mean by non-bailable offences?

A non-bailable offence is one in which the grant of Bail is not a matter of right. Here the Accused will have to apply to the court, and it will be the discretion of the court to grant the Bail or not.

Expected amendments to the Odisha Goods and Services Tax Act 2017

  • The Cabinet which met on 15th September, 2020 decided to amend the Odisha Goods and Services Tax Act 2017 by bringing Odisha Goods and Services Tax(Amendment) Bill 2020 in its place.
  • It would result in imposition of penalty on people who do fraudulent GST transactions or pass and avail fraudulent input tax credit.
  • The amendment would also make such offences cognizable and non-bailable.
  • The Cabinet also decided to insert a new section 168A in the Odisha GST Act to extend due dates for various compliances during war, epidemic, flood, drought, fire, cyclone and natural calamities.
  • OGST Act shall provide certain facilities to the tax-payers and tax authorities. It includes facilities such as:
    • Extend the scope of ineligibility to opt for composition scheme,
    • Delink the date of issuance of debit note from the date of issuance of the underlying invoice for purpose of availing input tax credit,
    • Empower proper officer to allow cancellation of registration of the registered taxpayers who have voluntarily obtained registration under section 25 (3) of the said Act,
    • Grant the power to the Additional or Joint Commissioner to extend the time limit by further 30 days to file an application for revocation of cancellation of registration subject to sufficient cause being shown
    • Empower the Government to specify the categories of services or supplies in respect of which a tax invoice shall be issued along with time and manner for issuance of such invoice,
    • Provide that a certificate of TDS issued by the deductor of tax shall be issued in such form as may be prescribed
    • Make the beneficiary of the transactions of passing on or availing fraudulent Input Tax Credit liable for penalty similar to the penalty leviable on the person who commits such specified offences
    • Extend punishment to a person who causes to commit the offence of availing fraudulent Input Tax Credit and also to a person who retains benefit making such offences a cognisable and non-bailable offence,
    • Empower the Government to prescribe the manner and time limit for taking transitional credit

The proposed amendment came in the backdrop of a series of cases involving fraudulent input tax credit by dishonest businessmen of the state.

In August 2020, Officials in Odisha busted a GST invoice racket allegedly involving Rs 712 crore. They arrested Madhumita Steels Industries Private Limited director Kashmira Kumar Agrawal for allegedly transferring bogus input tax credit of Rs 129 crore to recipients in and the state Odisha through fake invoices worth Rs 712 crore.

  • Agrawal had hired middlemen who collected documents, like PAN card, Aadhaar card and photographs, from people in Sundargarh and Sambalpur districts seeking employment, in exchange for money.
  • He, then, allegedly misused the documents to create dummy firms in the name of these people.
  • Agrawal also allegedly transferred huge sums of money to dummy firms.
  • In case of one firm, he had shown to have purchased goods worth Rs 13 crore but had transferred Rs 38 crore through its bank accounts.
  • In other cases, documents showed that Agrawal’s firm despatched tonnes of goods, such as steel and iron items, through scooters, motor cycles, tractors and even cars, raising the suspicion of tax sleuths.
  • The arrested businessman created fake bank accounts in which he transferred huge sums of money.
  • At least Rs 2 crore was seized by the enforcement wing of Odisha GST from some accounts. He used to change his address to Rourkela, Haryana, Tata as well as Sambalpur.
  • Some of the accused involved in the racket were also arrested.

In January 2020, Odisha State GST enforcement authorities arrested 2 persons for their involvement in fraudulently availing Rs 89 crore bogus input tax credit and passing input tax credit of Rs 123 crore on the strength of fake invoices.

  • Those 2 persons were identified as Amit Beniwal, proprietor of GS Unitrade, Civil Township, Rourkela and Subash Chandra Swain, proprietor of BB Associates of Basanti Colony, Rourkela
  • Investigation revealed that Beniwal along with Swain and others created 28 fictitious and dummy firms in the name of persons belonging to daily wage labourers, private tutors and unemployed youths.
  • They showed purchase of iron and steel goods worth Rs 493 crore and sale of Rs 687 crore in their names, bypassing taxes and passed on bogus ITC worth Rs 123 crore.
  • To legalize this, they opened and operated bank accounts in the names of these dummy firms.
  • During the course of investigation, many of the dummy firms were found to be functionally non-existent and not operating from their registered place of business.
  • Proprietors of these fake firms have admitted that they are neither doing any business nor effecting any purchases/sales in the name of their firms and the transactions reflected in their returns are paper transactions without actual receipt and supply of goods.

The GST frauds have been a major source of concern for Odisha has come at a time when its collection in the first five months of 2020-21 fiscal went down by 21 per cent compared to the corresponding period of last fiscal. The total collection till August-end was Rs 4362.95 crore as against Rs 5529.33 crore collected during the corresponding period of 2019-20 fiscal.

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