GST Department's Strengths and Weaknesses in Enforcing Compliance
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The document discusses various notices issued by the GST department for non-compliance and how they can be handled. It mentions notices for differences in GSTR 1 and 2A, ITC claims, default in returns, and anti-profiteering issues. It advises that notices can be challenged on technical or jurisdictional grounds or by requesting more time. The document also discusses the need for businesses to have proper tax governance and ERP systems to avoid issues with the tax authorities. It provides guidance on handling summons and show cause notices issued under GST.
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GST Department's Strengths and Weaknesses in Enforcing Compliance
- 3. CA Pooja Jajwani Impact of GST on Assessee
- 4. CA Pooja Jajwani Various notices issued by GST department • Differences in GSTR 2A and GSTR 1 and in Form 3B and Form 1. • WIP credits/KKC and Cess credit claims. • Verification of credits claimed under TRAN 1. • ITC being more than tax payable. • Defaults in return filling. • Anti profiteering
- 5. CA Pooja Jajwani Client’s casual attitude • A wake up call - GST is the era of survival of the fittest i.e. the most compliant. • Enterprise cannot survive without proper tax governance. • If the client is casual in his attitude then, it is a prerequisite that he should have an ERP that provides tax sensitized data on real time basis. • Without ensuring that the decision making is supported by proper legal reasoning, the businesses may not survive in the long run.
- 6. CA Pooja Jajwani How to handle various notices issued by GST department? • Challenge notice on technical grounds • Challenge on jurisdictional grounds – CGST Vs SGST • Challenge on designation of Authority issuing notice • Praying for some time in case of GSTR 2A reconciliation notice
- 7. CA Pooja Jajwani • Impossibility to submit large number of documents • Earlier regime issues – Check the test of repeals and savings clause • Notices based on data analytics to be responded on technical lines. For example, difference in ITC and output tax may be because of BOT model, huge amount of transitional credits etc. How to handle various notices issued by GST department?..(cont.)
- 8. CA Pooja Jajwani Cross empowerment • Center/States divided assessee’s between them • Concept of cross empowerment • Presently, cross empowerment only for sanction of refunds • Search/Audit/Preventive inquiries to be conducted by the jurisdiction in which the assessee belongs to
- 9. CA Pooja Jajwani Show Cause Notice under GST • Section 73 of CGST Act – SCN can be issued if - - Tax is unpaid/short paid or, - Refund is wrongly made or, - Input tax credit has been wrongly availed/utilised • For reason other than fraud - Maximum time limit for payment order is 3 years from due date of annual return. Proper officer obliged to issue the show cause notice 3 months before the time limit. • For fraud – SCN must be issued 5 months prior to adjudication date. If SCN issued it needs to be adjudicated within 5 years from the date of filing of annual return for the relevant year. • Notice to return defaulters u/s 46 doesn’t mean assessment u/s 73. If return filled, the effect of notice under Section 46 is complete.
- 10. CA Pooja Jajwani Summons to owners Circular No. F. No. 207/07/2014-CX-6 dated 20th January, 2015 issued by CBEC under Service tax • Summons by Superintendents after obtaining prior permission from AC with the reasons for issuance of summons to be recorded in writing. However, under GST a Superintendent of Central Tax is empowered to issue Summons as per Circular No. 3/3/2017 - GST dated 5-7-2017. • Senior management officials such as CEO, CFO, General Managers of a large company or a PSU should not generally be issued summons at the first instance. They should be summoned only when there are indications in the investigation of their involvement in the decision making process which led to loss of revenue. • Summons at the initial level can be issued to Finance/Tax Managers of the businesses.
- 11. CA Pooja Jajwani Validity of Service Tax Audit Service Tax Audit is failed on the grounds of validity on following grounds:- • Service tax audit is a special audit and cannot be initiated unless the specified circumstances prevails. - Travelite (India) vs UOI And Ors. on 4 August, 2014, Delhi High Court • Rule 5A of Service tax rules is excessively delegated, overriding the powers conferred under the Act and is liable to be struck down - Mega Cabs Pvt. Ltd. vs Union Of India & Ors. on 3 June, 2016, Delhi High Court • Whether service tax audit can be initiated after 1.7.2017? No – M/s Ows Warehouse Services LLP on 17-10-2018, Gujarat High Court and Karnataka High Court in WP 35252/2018 dated 01.10.2018/Calcutta High Court in Writ Nos. 29554/2017
- 12. CA Pooja Jajwani
- 13. CA Pooja Jajwani West Bengal received 0 compensation in 2018. Best performing States with 127% increase tax base.
- 14. CA Pooja Jajwani Center Collections - Expected Vs Actual • Centre’s FY19 GST revenue target continues to look ambitious — the monthly mop- up need to grow a quarter to meet the budget estimate of Rs 7.44 lakh crore. • During the July, 2017 – February, 2018 period, the monthly average GST collection was a tad below Rs 90,000 crore; assuming nearly half of this — around Rs 43,000 crore — goes to the Centre’s kittty, the shortfall is a huge `12,000 crore a month.
- 15. CA Pooja Jajwani Compensation given to States Year Collection Figures (Rs. in Crores) (April to May 2018) FY 2017 – 18 Rs. 48,178 FY 2018-19 Rs. 3,899
- 16. CA Pooja Jajwani Issues in collection faced by the Government • Huge amounts of pending refunds. • Increase in credits. • Resources not competent to calculate ineligible ITC. • No MIS for defaulters. • New law and compliance not clear to all. • Cash crunch on businesses after demonetization, RERA and GST.
- 17. CA Pooja Jajwani Govt. is building a lot of database • Data analysis show only 16 % sales in summary returns under GST matched with final returns till December 2017 • Focus shifted from reporting of tax liabilities to forming strong base for information quantifying relevant economic factors (GDP/Share of GDP of a particular product/Contribution by Goods and Service Sector in GDP etc.) • Transparency, tax sensitiveness, completeness and accuracy to taxpayers. A 5 days’ time limit to produce the documents • Inquiry based on data analytics • Aggressive and focused enforcement increasing the role of Intelligence, Audit, Anti- evasion wings
- 18. CA Pooja Jajwani • Quantitative information regarding every provisions asked from the assessee to know the approx. figures of revenue loss to make any change in policies and further tax amendments. • To judge the seriousness of industry to adhere to any specific provision • To judge the consumption pattern and demand of any commodity as the same can be know traced through HSN. • Govt. issuing notices with aggressive enforcement methodology as the notices are now coming in the same year on the basic reconciliations and data analytics . Govt. mindset in issuance of notice and data analytics...(cont.)
- 19. CA Pooja Jajwani GST Council’s Role • The council to intensify • Quick response towards technical glitches • Failure on the part of solving legal matters even after heavy representations from the businesses. • Flexible for reduction of rates • GST helpline not useful for most of issues and there are significant delay in responses
- 20. CA Pooja Jajwani • Positive circulars after some adverse advance rulings • Representations to constitute a single central advance ruling authority however council not made any attempt • Remarkable job for reduction in rates on essential commodities • Inclusion of non GST items cause revenue loss to States. Govt. constantly reducing rates, the revenue loss from which is still in recovery for States. So to expect that Govt. will being non GST items not reasonable GST Council tantrums…(cont.)
- 21. CA Pooja Jajwani Recovery of subsidy given on Fuels • Govt. provided subsidy in Taxes on Fuels • Recovery pressure on GST for balancing the revenue streams • Now is the time to reduce tax rates and may be consolidate tax slabs • In this scenario, Govt. may pay attention to defaulters and be strict in enforcement activities.
- 22. CA Pooja Jajwani
- 23. CA Pooja Jajwani Department’s Strength Place of supply Time of supplyTaxability issues Constitutional Challenges Complexities of Businesses Credit availment and reversal Precedents set under earlier regime International Practices Loop holes in Statue Technical glitches Relying on 2A for credit availment – Legal sanity
- 24. CA Pooja Jajwani Department preparedness Department Functions Compliance Return Registration Assessment Recovery Enforcement Intelligence /Preventive / Audit Driven by Man and IT resources Depends upon compliance function
- 25. CA Pooja Jajwani Intelligence Jurisdiction • CCT's Ref. No. CCW/GST/74/2015 dated 23-8-2018 – Andhra Pradesh empowered Center and State to take intelligence based enforcement Action. • It will have pan-India jurisdiction having presence in all the States/Union Territories - LETTER D.O.F. NO.8/B/208/HRD (HRM)/2015- PT, DATED 13-5-2017
- 26. CA Pooja Jajwani Procedure followed by Intelligence under GST • Central Tax Audit Commissionerates and DGGSTI exercise powers only to issue SCN. • SCN issued to be adjudicated by the Competent Central Tax officer in whose jurisdiction the noticee is registered. • If more than one noticees mentioned in the SCN having their principal places of business falling in multiple Commissionerates, SCN to be adjudicated by Central Tax officer in whose jurisdiction the principal place of business of the noticee from whom the highest demand of central tax and/or integrated tax (including cess) has been made falls.
- 27. CA Pooja Jajwani Department’s Preparedness Resources required by Department Man Material Method Not enough to compensate lack of IT resources Lack of trained staff at State level Lack of sufficient IT resources
- 28. CA Pooja Jajwani Enforcement by Central and State • States have 90% assessee’s in their jurisdiction (in Numbers) • Center has 10% assessee’s in their jurisdiction (in Numbers) • Grade 1 States lack IT resources to check and analyize tax evasion and tax defaulters • Grade 2 States are capable to manage the assessee. • Central Govt. not active in enforcement activities due to lack of IT resources.
- 29. CA Pooja Jajwani System of bogus invoicing Gujarat issued invoice and filed only 1, not paid tax Maharashtra issued invoice and paid nominal tax Punjab passed on the invoice and paid nominal tax
- 30. CA Pooja Jajwani Symptoms of bogus invoicing Short life of entity Entity does not have any property in its ownership GSTR 1 with positive figures, GSTR 3b and GSTR 2A filled NIL Purchase and sale almost equal with very less margin and tax paid for nominal amount
- 31. CA Pooja Jajwani Department tools to catch bogus entities States are of two kinds Grade 2 – MIS for department designed independently by State Grade 1 – MIS for department is same as Centre designed by GSTN
- 32. CA Pooja Jajwani
- 33. CA Pooja Jajwani Over 500 HC and AAR orders have so far been reported and more than 500 writ petitions are pending besides hundreds of Advance Ruling applications.
- 34. CA Pooja Jajwani Advance Ruling / Pain in Advance • GST rulings pronounced by Joint Commissioners – Quality and validity • Major AAR for Classification related issues • Service tax rulings handled by past SC judges • Department not adhering to Advance rulings time limit of 90 days • Unintended issues like different rates for machine and its parts are troubling people, Interpretation of intermediary, liquidated damages, Columbia ruling on Inter branch cross charging.
- 35. CA Pooja Jajwani Where do you belong to?
- 36. CA Pooja Jajwani Validity of High Court Judgements One HC law applicable to all HCs in India Unless the jurisdictional HC has taken opposite view Benefit granted by one HC can be claimed against others
- 37. CA Pooja Jajwani How courts approach to search, seizure and investigations? Courts are generally pro assessee in procedural aspects however pro revenue in crucial matters Madhya Pradesh High Court – Pro Revenue 2018-VIL-26-SC - M/s GATI KINTETSU EXPRESS PVT LTD Vs COMMISSIONER COMMERCIAL TAX OF MADHYA PRADESH & ORS • High Court had upheld the penalty on non-updation of Part B of the E-way bill and not transporting the goods under the cover of an invoice. Upon payment of dues also vehicle was not released by the department. • On an appeal to Supreme Court, it was held that on payment of dues, the vehicle should be released. 2018-VIL-392-MP - ADVANTAGE INDIA LOGISTICS PRIVATE LIMITED Vs THE UNION OF INDIA AND OTHERS - Jurisdiction of SGST Officers upheld in case of inter State movement of goods.
- 38. CA Pooja Jajwani UP High Court – Neutral Approach 2017-VIL-613-ALH M/s ZEBRONICS INDIA PRIVATE LIMITED Vs STATE OF U.P. & 3 OTHERS – Penalty not to be imposed on technical breach Kerala High Court – Neutral Approach 2017-VIL-600-KER M/s SAMEER MAT INDUSTRIES Vs STATE OF KERALA – Assessing Officer is empowered to question valuation and not the check post officer. How courts approach to search, seizure and investigations?
- 39. CA Pooja Jajwani
- 40. CA Pooja Jajwani Impact of GST on Indian Economy Positive Impact • India’s GDP slipped to 6.1 in the first quarter of the year 2017 it has bounced back to 6.3 and continues to progress • Increase in competition • Uniform tax rates across the country • Increase in exports for reduction in cost of production Negative Impact • Increase in prices of goods and services • Lack IT Infrastructure. • Legal issues
- 41. CA Pooja Jajwani Thank you
Editor's Notes
- Affidavit from supplier for claiming return if not reflected under 2A. If supplier forgot to take something in GSTR 1 ask supplier to intimate department and keep a copy with receiver.
- An officer of the rank of Joint Commissioner or above can authorize an officer in writing to carry out search and seize goods, documents, books or things. Such authorization can be given only where the Joint Commissioner has reasons to believe that any goods liable to confiscation or any documents or books or things relevant for any proceedings are hidden in any place.
- Types of Writs There are five types of Writs - Habeas Corpus, Mandamus, Prohibition, Certiorari and Quo warranto. 1. Habeas Corpus "Habeas Corpus" is a Latin term which literally means "you may have the body." The writ is issued to produce a person who has been detained , whether in prison or in private custody, before a court and to release him if such detention is found illegal. 2. Mandamus Mandamus is a Latin word, which means "We Command". Mandamus is an order from the Supreme Court or High Court to a lower court or tribunal or public authority to perform a public or statutory duty. This writ of command is issued by the Supreme Court or High court when any government, court, corporation or any public authority has to do a public duty but fails to do so. 3. Certiorari Literally, Certiorari means to be certified. The writ of certiorari can be issued by the Supreme Court or any High Court for quashing the order already passed by an inferior court, tribunal or quasi judicial authority. There are several conditions necessary for the issue of writ of certiorari . There should be court, tribunal or an officer having legal authority to determine the question with a duty to act judicially. Such a court, tribunal or officer must have passed an order acting without jurisdiction or in excess of the judicial authority vested by law in such court, tribunal or officer. The order could also be against the principles of natural justice or the order could contain an error of judgment in appreciating the facts of the case. 4. Prohibition The Writ of prohibition means to forbid or to stop and it is popularly known as 'Stay Order'. This writ is issued when a lower court or a body tries to transgress the limits or powers vested in it. The writ of prohibition is issued by any High Court or the Supreme Court to any inferior court, or quasi judicial body prohibiting the latter from continuing the proceedings in a particular case, where it has no jurisdiction to try. After the issue of this writ, proceedings in the lower court etc. come to a stop. Difference between Prohibition and Certiorari: While the writ of prohibition is available during the pendency of proceedings, the writ of certiorari can be resorted to only after the order or decision has been announced. Both the writs are issued against legal bodies. 5. The Writ of Quo-Warranto The word Quo-Warranto literally means "by what warrants?" or "what is your authority"? It is a writ issued with a view to restrain a person from holding a public office to which he is not entitled. The writ requires the concerned person to explain to the Court by what authority he holds the office. If a person has usurped a public office, the Court may direct him not to carry out any activities in the office or may announce the office to be vacant. Thus High Court may issue a writ of quo-warranto if a person holds an office beyond his retirement age. Conditions for issue of Quo-Warranto The office must be public and it must be created by a statue or by the constitution itself. The office must be a substantive one and not merely the function or employment of a servant at the will and during the pleasure of another. There must have been a contravention of the constitution or a statute or statutory instrument, in appointing such person to that office.