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January 5, 2021

Govt has initiated action against 7000 entities for tax evasion

by Mahesh Mara in Compliance Law, GST

Govt has initiated action against 7000 entities for tax evasion

In a massive crackdown on GST evaders, the government has initiated action against 7,000 entities including the arrest of 187 people.This campaign contributed to buoyancy in tax collection as the government was armed with data analytics and information from agencies.

Who have been arrested by the Government?

  • Action against fake invoicing racket in last one-and-a-half month has led to arrest of 187, including five chartered accountants and one company secretary. 
  • Many of them including some managing directors were in jail for the last 40-50 days.
  • There were few large companies which too are found involved in taking fake bills through multiple layers, thereby evading GST and income tax. So, they have also been booked.
  • They have taken action against 7,000 evaders out of a tax base of 1.20 crore.

What led to the arrest of the tax evaders?

  • The finance secretary said that the action against those who try to misuse the system was based on collating information from various agencies such as Income Tax Department, Customs Unit, FIU, and GST department and banks. 
  • The income tax department immediately follows up on all the cases booked under GST fake invoice because the tax implication is higher.
  • Because of the data available, it is very difficult to escape because sooner or later they will get caught.
  • They detected many shell companies that were issuing invoices worth crores of rupees and not paying income tax and paying the entire liability through ITC.
  • So, in order to ensure that these companies are not able to abuse the system, this particular anti-abuse provision has been put in and this will impact less than 45,000 units in the entire tax base of 1.2 crores.

The government netted a record GST collection of Rs 1.15 lakh crore in December 2020, helped by the action against tax evaders alongside pick up in the economy. GST, which is levied when a consumable item is sold or a service is rendered, in December was 12% higher than such receipts in the same month of 2019.

What is the reason for increase in invoice fraud?

  • One of the primary reasons for an increase in companies availing ITC fraudulently is the lack of due diligence during the GST registration.
  • The process of registration was made easy and hassle free by the government so that businesses could be easily on-boarded to the system.
  • However, this meant that a number of dummy companies too obtained the GST registration in the absence of scrutiny or physical verification of the registered address of the companies.
  • Apart from this, lack of data exchange among the enforcement agencies and banks have also led to increase in fraud cases.

What are the steps taken by the Government to control such invoice frauds?

Previously, businesses used to generate invoices through various software’s, and the details of these invoices were manually uploaded in the GSTR-1 return. The invoice information was thereafter reflected in GSTR-2A for the recipients for viewing only. On the other hand, the consignor or transporters had to generate e way bill by again importing the invoices in excel or JSON manually.

The GST Council, in its 35th meeting, decided to implement a system of e-invoicing, which would be applicable to specified categories of persons. The concept of GST e-invoice generation system was taken into consideration for the reduction in GST evasion.

  • GST e-invoice is basically a digital invoice for goods and services provided by the business firm generated at the government GST portal.
  • ‘E-invoicing’ or ‘electronic invoicing’ is a system in which B2B invoices are authenticated electronically by GSTN for further use on the common GST portal.
  • Under the e-invoicing system, an identification number will be issued against every invoice by the Invoice Registration Portal (IRP) to be managed by the GST Network (GSTN).
  • All invoice information will be transferred from this portal to both the GST portal and e-way bill portal in real-time.
  • E-invoicing replaces the physical invoice and will soon replace the existing e-way bill system, and taxpayers will not have to generate separate e-way bills.

The e-invoicing process was introduced to capture sales details, reduce errors, automate data entry and improve compliance and trust between tax officials and companies. It will also help auto-populate certain forms. E-invoicing will most definitely provide a push towards a digital economy. Curbing tax evasion and increasing tax collections for the government may ensure that the government will not increase GST rates any further.The government is also planning to tighten the GST registration process and legal measures to deal with the rising cases of fake invoicing.

After unearthing a rampant fake invoicing scam to evade GST, the CBIC amended rules making it mandatory for businesses with a monthly turnover of over Rs 50 lakh to pay at least 1% of their GST liability in cash from 1stJanuary, 2021.

The new rule restricts the use of input tax credit (ITC) for discharging GST liability to 99%. 

The measures like e-invoice, pre-population of information on supplier wise input tax credit, which deter those who are trying to claim excess ITC, are helping compliance. By targeted action against tax evaders by way of full data analytics, it is possible to pinpoint the entity which issued the fake bill and also the ultimate beneficiary.

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