GST Audit: In an interview, CBIC chairman Vivek Johri reported that in the current financial year, GST audit conducted by the indirect tax administration have uncovered tax evasion amounting to ₹22,000 crore from nearly 48,000 cases. The indirect tax authority is currently analyzing corporate tax returns filed by businesses with the Income Tax department and GST registration data to identify entities that should have registered for GST but failed to do so, as part of an effort to broaden the tax base.
Johri stated that there are no plans to reverse the Finance Bill clarification that companies cannot claim input tax credit for CSR spending, and he believes that the customs duty changes proposed in the budget will help various industries achieve self-sufficiency, citing numerous examples. The following are edited excerpts from the interview.
What is the progress of GST audit, and what are the major breaches noticed during the audit?
According to available data, around 48,000 GST audits have been conducted (as of the second quarter of the financial year 2022-23) for the first two years of GST, namely FY18 and FY19. During these audits, tax evasion worth ₹22,000 crore has been detected and approximately ₹4,000 crore has been recovered. One of the primary issues found during the GST audit was taxpayers availing of input tax credit on inputs for which credit is not available. There were also cases where the value of goods was not properly declared and misclassification resulted in the wrong tax rate being applied. These were the three broad categories where compliance gaps were found.
How do you plan to widen the GST base significantly from around 14 million registered taxpayers now?
The government has two broad strategies to increase the GST base. The first one involves using data triangulation to compare the income tax and GST taxpayer base of businesses and identifying taxpayers who should also be registered under GST. The second strategy includes more outreach programs, where the government will educate potential taxpayers on the benefits of being a part of the GST value chain, such as input tax credit availability and simplified return filing with automation.
Highlight of indirect tax proposals in the Union budget for FY24 is the customs duty changes. How will these help the industry?
The customs rate structure has been simplified by reducing the number of rates from 21 to 13. This move is intended to indirectly help importers with a simpler rate structure, which will increase clarity and reduce disputes. Around 85% of imports, by value, are either raw materials, intermediates, or capital goods. To promote manufacturing, the government has given duty exemptions or reduced rates for inputs that are not readily available domestically. This will eventually help with value addition in the country.
Likewise, we’ve given some exemptions for inputs that go into the manufacture of mobile phones. We’ve given an exemption to lenses that are used for making camera modules of mobile phones. There are other sectors which contribute not only by way of value addition but also through exports (where relief has been given). One is the full exemption given to seeds for lab-grown diamonds. Again, the idea is that we should be able to produce lab-grown diamonds in the country. We already have a very robust cutting and polishing sector in Surat and in other places. If you make lab-grown diamonds here, you can cut and polish and add value here and either export or use it for manufacturing jewellery domestically. Similarly, we have exempted ingredients for the manufacture of shrimp feed because marine exports are a very important part of our export basket.
What is the progress of GST return filing automation?
GST return filing is gradually becoming more automated, making it simpler for taxpayers. Unlike income tax, GST tax returns are constructed on the basis of transaction-level data. E-invoicing has been introduced to capture electronic invoices for business-to-business transactions, and any business with a turnover of more than ₹10 crore is required to generate e-invoices electronically. This makes it easier to construct the taxpayer’s return. The taxpayer will have better visibility of available tax credits, and the system will allow the taxpayer to verify the auto-constructed return.
Read Also: FAQ’s on GST Annual Return and GST Audit
So the system will have an idea about the tax liability of a business even before the person prepares the return?
The system will know, but we will also be able to show it to the taxpayer just in time for the filing cycle. So the taxpayer and the department will know it at the same time. Of course, the taxpayer can edit that return, but you know, we will have a fair idea of the liability.
Will there be any relaxation on the government’s proposal in the Finance Bill to clarify that input tax credit will not be available on CSR spending?
There’s no proposal right now to change it.
What is the progress in clarifying the GST liability for crypto assets?
There’s a group of officers studying it. We are waiting for their recommendations.