Tag: GST Evasion

GST officers detected ₹24,000 crore of suspected tax evasion: Finance Minister

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Finance Minister Nirmala Sitharaman on Tuesday said GST officers have detected 21,791 fake GST registrations and over ₹24,000 crore of suspected tax evasion during a two-month-long special drive.

In a written reply to a question in Rajya Sabha, the minister said to safeguard the interest of honest taxpayers and avoid extreme hardship to taxpayers, instructions have been issued from time to time, directing officers to exercise due caution and care in the exercise of powers such as summons, provisional attachment of property, blocking of tax credit etc.

“A total of 21,791 entities (11,392 entities pertaining to state tax jurisdiction and 10,399 entities pertaining to CBIC jurisdiction) having GST registration were discovered to be non-existent. An amount of ₹24,010 crore (state – ₹8,805 crore + Centre – ₹15,205 crore) of suspected tax evasion was detected during the special drive,” Sitharaman said.

The minister was replying to a question on the number of entities identified as having fake registrations, and the total amount of evasion detected during the special drive against fake GST registrations conducted by the Central Board of Indirect Taxes and Customs (CBIC) from May 16 to July 15, 2023.

To a query on whether the government has considered the challenges faced by e-commerce enterprises in obtaining GST registrations, especially operating in virtual spaces, Sitharaman said that considering the special nature of e-commerce operators, a simplified procedure for registration of e-commerce operators has already been notified.

It provides that when an e-commerce operator applies for registration in a particular state or Union Territory where he/she does not have a physical presence, he/she can apply for registration by giving details of the principal place of business located in another state or Union Territory.

Further, amendments have been made in GST Rules to strengthen the registration process, including biometric-based Aadhaar authentication, for high-risk registrants, along with the verification of the original copy of the documents.

A pilot project for this was launched in Gujarat. In July, the pilot project was extended to Puducherry and in November to Andhra Pradesh.

Also, details of bank account, name and PAN of the registered person are required to be furnished within 30 days of the grant of registration or before filing of the statement of outward supply, whichever is earlier.

Entities who do not furnish the details of valid bank accounts within the time period prescribed will be suspended automatically by the system. However, upon compliance with this provision subsequently, by the registered persons such system-based suspension would be automatically revoked by the system.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

GST authorities allege evasion of ₹1.5 lakh crore by shipping companies: Sources

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In yet another case of curbing GST evasion, Directorate General of GST Intelligence (DGGI) Ahmedabad has alleged ₹1.2 to ₹1.5 lakh crore of tax evasion by shipping liners, sources have told CNBC-TV18.

However, shipping liners have given detailed representation to the Finance Ministry, Central Board of Indirect Taxes and Customs (CBIC), DGGI and are seeking a resolution, but DGGI alleges that shipping liners are operating via a branch office in India and have evaded taxes on import of services from head office located abroad, sources added.

“Shipping liners get their operational cost, such as lease rental, fuel charges, crew charges etc. to the head office located abroad and don’t charge the cost of these services to their branch office,” sources said.

Under the GST law, an establishment of a company in India and outside India are treated as distinct persons and any service provided by the head office to the branch office is deemed as a supply, even when it is without any consideration. “Under GST law, any import of service is liable to tax, even if the imported services are without consideration,” sources said.

On this issue, experts said, “The recent CBIC circular of July 2023 may not come to the rescue of the shipping liners as in some cases there have been exempted services provided by the liners. Further, the argument of revenue neutrality may not suffice in the present case looking into judgments in the service tax era.”

“The import of services will be subject to tax when the place of provision with respect to these expenses will be in India. Further, some of these expenses could be in the nature of pure reimbursements, and the angle of pure agency may come into play”, explains Abhishek A Rastogi, who had argued before Delhi High Court (HC) for the foreign banks with respect to the transactions between the head office and the branch.

“The endeavour of the government and the GST Council is that there must not be any coercive recoveries, and unnecessary issuance of summons to harass the top management. In light of this, various circulars have been issued to protect the industry interest”, said Rastogi.

He further added, “In most cases, the import taxes will be revenue neutral and any value can be fixed for the imports when there is a complete pass through. In such situation, there may be insignificant impact”.

Amit Maheshwari, partner AKM Global, a tax and consulting firm, said, ” The ongoing DGGI probe in the case of container and shipping liners is just akin to the case of foreign airlines in India wherein tax evasion has been noticed in import of services from the head offices of the foreign airlines by their branch offices in India wherein the airlines were including records of expenses ranging from HR expenses, management expenses and accounting software expenses borne by the head office, crew charges, fuel charges, etc. in their head office accounts without cross charging these expenses to their Indian offices though the services were used by the Indian branch offices.”

“Supply of service by the head office located overseas to a branch office in India even without consideration is not exempted from the GST regime. Since the import of services is subject to tax under reverse charge when there is an actual receipt of service, the investigation could unearth booking of expenses at the head office or branch office for administrative convenience which should have been subject to tax under reverse charge,” he added.

Eyes will be on how the government will address this issue and whether shipping liners will get any respite or not.

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GST evasion of Rs 14,302 crore unearthed in April-May

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As many as 2,784 cases of GST evasion involving Rs 14,302 crore were detected in the first two months of the current fiscal, while Rs 5,716 crore was recovered during the period, Parliament was informed on Monday.

Finance Minister Nirmala Sitharaman in a written reply in the Lok Sabha gave details of Goods and Services Tax (GST) and income tax evasion, as well as detection of outright smuggling by the Customs department.

As per the data, GST evasion of over Rs 2.68 lakh crore was detected in 43,516 cases between 2020-21 and 2023-24 (April-May). A recovery of Rs 76,333 crore was made during the period while 1,020 persons were arrested.

In the current fiscal (April-May), 2,784 cases of evasion of Rs 14,302 crore were detected. As many as 28 persons were arrested and Rs 5,716 crore recovered during the period.

As per the statistics on surveys, searches and seizures carried out by the Income Tax Department in the last 5 years, searches were conducted on 3,946 groups while assets worth Rs 6,662 crore was seized.

In 2022-23 fiscal alone, 741 groups were searched and Rs 1,765.56 crore assets were seized.

In the last four years, 42,754 cases of outright smuggling detected by the Customs Department, involving value of about Rs 46,000 crore.

In April-May period of the current fiscal, 2,986 cases of outright smuggling involving goods valued at Rs 1,031 crore were detected by the Customs department.

About 12,259 cases of commercial frauds were also detected in the last 4 years, having duty implication of Rs 21,225 crore.

Sitharaman said with the availability of information in electronic form, the Income Tax Department has developed a wide range of non-intrusive methods for detecting tax evasion.

Besides, the GST department too is taking a number of steps to tackle evasion, including using robust data analytics and artificial intelligence to identify and track risky taxpayers; sharing of data with partner law enforcement agencies for more targeted interventions; reduction in threshold limit for issue of e-invoice for B2B transactions from Rs 10 crore to Rs 5 crore from August 1, 2023.

CBIC through its customs field formations, along with DRI, is actively engaged in detecting and curbing import-export related commercial frauds.

Data analysis based risk management and intelligence development along with human intelligence are being employed by said formations to gather actionable intelligence, which has resulted in substantial detections of tax evasion in recent years, Sitharaman said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Karnataka HC quashes Rs 21,000 crore GST notice against Gameskraft

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Karnataka High Court has quashed a Rs 21,000 crore show-cause notice issued by the Directorate General of GST Intelligence (DGGI) to Bengaluru-based online gaming company, Gameskraft Technology Private Ltd (GTPL).

The notice was issued by the DGGI in September 2022 in what was the biggest show cause notice in the history of indirect taxation. GamesKraft was accused of not paying GST (Goods and Services Tax) to the tune of Rs 21,000 crore and the show cause notice is for the period between 2017 to June 30, 2022.

As per Sudipta Bhattacharjee and Onkar Sharma (Indirect Tax partners at the law firm Khaitan & Co), who were at the forefront of this battle from a GST perspective and helped Gameskraft in this long-drawn legal battle from the time the DGGI investigation started in November 2021, this is a heartening development.

“The authorities sought to levy GST against Gameskraft and in the last few months, against the entire online skill-gaming sector in India in a manner that is applicable only for companies indulging in ‘betting and gambling’, thereby obliterating the centuries-old, legally recognised distinction between ‘games of skill’ and ‘games of chance’. This is a historic judgement for the entire online gaming sector in India and it is heartening to note that a position of law which has been settled for more than 60 years, that games of skill cannot fall under the ambit of ‘betting and gambling’ even if played for stakes, has not been deviated from,” Bhattacharjee said.

“The pronouncement today, along with the recent progressive regulations in the online gaming sector including the notification of rules for online gaming by the Ministry of Electronics and Information Technology (MeitY) and the amendments to the Income Tax Act made through the Finance Bill 2023, helps to reinstate the demarcation between online gaming from games of chance involving betting and gambling,” Sameer Chugh, Chief Legal Officer, Games24x7, said.

“The legitimate online skill gaming platforms have been united as an industry in developing strong and ethical self-regulatory mechanisms and have been forthcoming in their commitment to running fully compliant businesses, operating by the laws of the land. We are hopeful that the legal precedence set in this case will guide future discussions on economic and taxation policies pertaining to the skill gaming industry,” he added.

Abhishek A Rastogi, who argued for Witzeal Technologies before the Punjab and Haryana High Court in a similar matter, said “If India has to become an online gaming hub, then it is important to have clear tax provisions and other regulations. Any hanging sword of such a high magnitude, specially on valuation, would only unsettle and discourage the business.”

Roland Lander, CEO, All India Gaming Federation (AIGF), said this judgment will greatly aid gaming start-ups across India to work towards building the industry and ensure its healthy growth.

“We believe that a progressive and rational GST policy will boost investments within the sector … (we) are hopeful that this progressive decision will pave the way towards clarity and certainty from the GST Council in the GST policy for this sunrise sector,” he said.

“The online gaming industry of India is the fastest growing sector in the world and the biggest opportunity for India. However, it continues to suffer significantly due to a lack of taxation clarity, and notices worth the valuation of companies that were issued on various interpretations of the law that very clearly differentiates between games of skill and games of change. FDIs that would create many startups in the country are inaccessible on only one accord — the air that has existed for more than 18 months now, that taxation is unclear,” said Saumya Singh Rathore, Co-Founder at WinZO games.

When CNBC-TV18 sought comments from the Central Board of IndirectTakes and Customs (CBIC), DGGI, and the Union finance ministry, sources said that the government is waiting for the final copy of the order before deciding on possible legal options. The government, however, is determined that the show cause notice issued was following a detailed investigation and not unjustified, the sources added.

Malay Shukla, Secretary, E-Gaming Federation, said this judgment will have a direct impact on the industry.

“We believe this is a meaningful outcome that will have a direct and material impact on the growth of the online gaming industry and will help the industry operate with clarity,” he said.

Saurabh Agarwal, Tax Partner, EY, added that this development is in line with the global position on levying GST on gaming sector on the gross gaming commission. “This is likely to boost investment in this upcoming sector in India,” he added.

(More details will be added to the story once the high court order is available. Keep checking back for updates).

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

DGGI cracks whip on four crypto players for tax evasion; collects Rs 30 crore in arrears

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A day after Central GST wing from Mumbai took action against tax evasion by WazirX, the Directorate General of GST Intelligence (DGGI) took follow-up action against four cryptocurrency players, sources told CNBC-TV18.

As per the sources, the DGGI has detected and made immediate recovery of tax evaded to the tune of Rs 30 crore, collectively by Bitcipher Labs LLP (CoinSwitch Kuber), Neblio Technologies Pvt Ltd (CoinDCX), I Block Technologies Pvt Ltd (BuyUCoin) and Unocoin Technologies Pvt Ltd (Unocoin) on December 31, 2021.

Sources said the entities in question evaded tax on services provided as an intermediary, which attract a GST of 18%. Sources said the arrears were recovered in the form of cash, including interest and penalty.

“These taxpayers were facilitating sale/purchase of cryptocurrency through their online platforms and in lieu thereof were charging commission on these transactions. However, it was gathered that they were not paying GST on such commission. Inspection of their premises were carried out on December 31, 2021, and on being confronted with the fact of non-payment of GST on the commission amount, they deposited GST on the commission amount along with applicable interest and penalty,” sources in the know of the matter told CNBC-TV18.

On Thursday, the Mumbai GST Commissionerate detected tax evasion to the tune of Rs40.5 crore by WazirX. Central Board of Indirect taxes and customs in a press release said the commissionerate has recovered Rs 49.20 crore in cash, including interest and penalty, from the cryptocurrency exchange.

WazirX is managed by Zanmai Labs Pvt Ltd, and the cryptocurrency ‘WRX’ is owned by Binance Investment Co Ltd, based in the Seychelles. WazirX was registered as Zanmai Labs in December 2017 as a domestic cryptocurrency startup.

The press release added that the firm charges commission on each transaction in cryptocurrency from buyer and seller both. But the rate of commission is different — a transaction in rupees attracts a 0.2% commission, while a transaction in WRX attracts a 0.1% commission.

During the investigation, the Commissionerate noticed that the firm collected revenue from commission as trading fees, deposit fees and withdrawal fees, and paid GST only on commission earned in rupees.

The press release also added that further investigation is in progress and that the WazirX case is part of the special anti-tax evasion drive, which relies on intensive data mining and data analytics, initiated by the CGST Mumbai Zone.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

VIEW: The fight against GST evasion

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government is finally cracking the whip. Having recognised the scourge of evasion, 2020 ended with a flurry of goods and services tax (GST) enforcement activity. The last few months of the year witnessed the detection of more than 3000 cases–primarily of misuse of input tax credit facilities. The sheer audacity of some of these fraudsters has been staggering with reports of instances of a single person having more than 500 entities—all operating from non-existent addresses generating fake invoices. The consequential loss of revenue to the government would be in the region of several thousand crores.

The USP of GST is the availability of credit on taxes paid in the earlier stages of the value chain. This is the strength of GST—unfortunately in the hands of unscrupulous entities this very strength is exploited to avail credit that is not due.

The government has apart from initiating stern enforcement action also reacted with several changes in the CGST law and rules aimed at curbing evasion.

Several amendments brought about by the Finance Act 2020 have been made applicable from January 1. The most significant being the provisions relating to punishment spelt out in Sec. 132 of the CGST Act. Thus, the specific situations whereby benefits flowing from fraudulently availing input tax credit without invoice or bill are sought to be retained has been made a cognizable and non-bailable offence. It may be mentioned that the GST law provides for arrests. Last year had seen more than 200 arrests under the provisions of the CGST Act.

Similarly, changes have been made in the CGST Rules. A restriction of 5 percent has been imposed on claiming credit in respect of invoices/debit notes not furnished. This is a relaxation of an existing provision and should ensure the registered person knows his supplier.

More significantly, a new rule has been introduced whereby certain categories of taxpayer whose taxable supply in a month exceeds Rs 50 lakh has now been restrained from using input tax credit in excess of 99% of output tax liability. The balance one percent has to be paid in cash. While only time will tell the efficacy of this new provision, the fact remains that the category of taxpayers to whom this rule has been made applicable are the least liable to evade. The government has in response to concerns regarding this new provision clarified that it will apply only to a minuscule percentage of taxpayers-which is precisely the point being made.

Incidentally, it would appear that this rule goes beyond the assurance which the CGST Act gives that credit of input tax charges on any supply of goods or services or both ‘shall be credited to the electronic credit ledger of such person’. What is being restricted through the new rule is the utilisation—obviously, a distinction is being sought to be made between credit and utilisation, but it would nevertheless be worthwhile to reexamine the legality of this Rule.

The Finance Bill scheduled to be presented to the Parliament on February 1 would provide an opportunity to rectify the position. There has also been a change in the validity of the e-way bill—it will now be valid for a day for every 200 km as against 100 km earlier. This in effect makes the validity of the e-way bill more restrictive.

E-invoicing which was initially introduced for registered persons whose aggregate turnover exceeded Rs 500 crore has now been made mandatory for entities whose turnover exceeds Rs 100 crore. Incidentally, there is a wrong perception that e-invoice means the generation of invoices by the government. The registered persons will continue to prepare their invoices. This will have to be uploaded on the invoice registration portal and an invoice reference number (IRN) obtained. The invoice copy containing inter-alia the IRN (with QR code) issued by the supplier to the buyer is commonly referred to as an e-invoice. What has been done is that the format of the invoice has been standardised and the exchange of data between the supplier and the buyer facilitated.

Earlier, in late December 2020, several changes were made in the Rules relating registration of new GST entities. One of the major challenges which GST officers face while investigating cases of fraud was the non-existence of registered entities. Since the provisions contemplated approval within three days of application, there was little time with the department to cause any verification regarding the credentials of the applicant. Fly by night operators sprung up-all of whom indulged in large-scale availment of fraudulent credit.

The fraudsters would shut shop within a period of a few months leading to investigations reaching a dead end. The changes now made have extended the time period with the department to grant registration to seven days. Further in situations where the applicant fails to undergo Aadhaar authentication, the department has been empowered to carry a physical verification of the existence of the applicant—the time period in such cases has also been extended to 30 days. More powers have also been given to the department to cancel the GSTIN-even, controversially, without a hearing.

The concerted efforts made by the Government have indeed been successful. The GST revenue collection of about Rs.1.15 lakh crore for December 2020 which is an all-time high since the implementation of GST is testimony to this. The government should continue also to focus on upgradation of technology-and for greater coordination between the CBDT and GSTN/ CBIC. Every evader of GST tax is necessarily an income tax evader too.

Ultimately technology and greater coordination amongst the enforcement agencies is the key to curb this menace.

—Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal

Read his other columns here

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

GST intelligence wing to check tax evasion by hand sanitiser manufacturers across India

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The goods and services tax (GST) intelligence wing will check tax evasions by hand sanitiser manufacturers across India, according to government sources.

The Directorate General of Revenue Intelligence (DGGI) has issued a letter to principal chief commissioner/chief commissioner to check evasion of GST by manufacturers of alcohol-based hand sanitisers, government sources told CNBC-TV18.

DGGI sources said, “DGGI first did a few operations against many units and after finding major irregularities, DGGI then sensitised the CGST field formations. It is difficult to guess total amount of evasion so far, but it is estimated to be substantial.”

“Mis-classification of hand sanitizers produced under various established brands is also being looked into by various zonal units of DGGI”, according to the letter reviewed by CNBCTV18

They, requesting not to be named, said the letter was written on June 10. DGGI took note of a Central Economic Intelligence Bureau letter and opinion of World Customs Organisation (WCO) to step up vigil, they say.

The DGGI explains that due to mis-classification of hand Sanitisers (alcohol based), sugar mills and distilleries were filing tax under tariff heading 3004 (12 percent GST) instead of heading 3808 (18 percent GST).

According to the sources, the DGGI suspects a substantial GST evasion.

A list of 62 manufacturers/suppliers have been prepared by the DGGI headquarters by identifying manufacturers with the help of online shopping platforms like Amazon, Flipkart, Snapdeal, PayTm, etc. is also being analysed, they told CNBC-TV18.

Rajat Mohan, senior partner at AMRG & Associates, said, “Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale, including Ayurvaedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail sale are chargeable with GST @12%.”

“Factually speaking Chapter 30 relates to pharmaceutical products and HSN 3004 pertain to “Medicaments”, which basically signal supply of medicines for some disease. Categorising Alcohol Based Hand Sanitizers by sugar mills and distilleries as a pharma product seems to be little overstretch of imagination, whereby companies actually have created a colorable device to systematically evade taxes. It is expected that such action by taxpayers will be charged with malafide intention leading them to pay tax with interest @ 18% and applicable penalty,” Mohan said.

“Also, this is a massive drive, mis-classification is often used as a common modus operandi for evading taxes. However, we don’t know whether the mis-classification is by mistake or due to some missing clarity in the law and whether all manufacturers were carrying out evasion or just the ones linked to sugar mills and distilleries, it is to be seen,” he added.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow