To put a check on fly-by-night operators and generation of fake invoices under the Goods and Services Tax (GST) regime, the Centre is mulling limiting the number of invoices generated by new registrants. The cap on the number of invoices will be in line with the annual turnover of the businesses, which could then be raised on basis of credit history, a senior Finance Ministry official said.
The restrictions on the number of invoices are likely to come into effect once the new GST returns system is rolled out from April 1 next year. “We are detecting tax evasion through data analytics and artificial intelligence instead of randomly going on the street and trying to scare traders and businessmen. What we are doing is very, very targeted, non-obtrusive, non-manual approach. In most cases, it is based on concrete data analytics, solid information and in most cases we end up being successful. Now, we are going a step beyond — we will go further as to how to check the tax evasion from taking place,” the official told The Indian Express.
“The use of Aadhaar is being brought for new registration. So, the fly-by-night operators will not be able to register and issue invoices, pass on input tax credit (ITC) and disappear. Now, at the time of registration itself these checks will be introduced. Any new registration will have some initial checks. There could be a limit on issuing the number of invoices for new registrants and if he needs a higher limit, then there could be a completely objective method to increase the limit depending upon the requirement and once he establishes his credit history, then these limits could be further increased,” the official added.
The cap on number of invoices would be in line with the annual turnover so that small businesses do not generate large number of invoices seen for big companies to possibly generate a fraud trail for claiming ITC, as has been seen in some cases, officials said.
Tax evasion under the GST regime has been a major concern for both the Centre and the states. As per government data shared in Parliament in July, a total of 9,385 cases of tax fraud involving an amount of Rs 45,682.83 crore have been detected by the tax authorities under the GST regime since its rollout on July 1, 2017. Out of this, 1,593 tax fraud cases involving an amount of Rs 6520.40 crore were detected in April-June, the first three months of this financial year.
The Centre recently amended rules to restrict ITC under GST to 20 per cent of the eligible amount for an entity if its supplier has not uploaded relevant invoices. There was no such restriction earlier and ITC was claimed by taxpayers on the basis of self-assessment.
The 20 per cent restriction on availing ITC was initially part of the recently introduced Section 43A in the Central GST (CGST) Act, which would be notified once new returns system would be rolled out next fiscal. However, discrepancies in ITC being claimed by businesses prompted the government to bring in this restriction first via changing the GST rules, another Finance Ministry official said.
The recently introduced Section 43A of CGST Act relates to the procedure for furnishing return and availing ITC. Section 43A (8) states the procedure, safeguards and threshold of the tax amount in relation to outward supplies details have to be furnished by a registered person within six months of taking registration and the one who has defaulted in “payment of tax and where such default has continued for more than two months from the due date of payment of such defaulted amount, shall be such as may be prescribed.”