GST: Revenues remain high while fake invoicing menace continues

Considering the way some taxpayers are outthinking the department, human intelligence could play a more important role than DGARM in detecting fake registrations.

News regarding GST from across the country continues to be an amalgam of the good, the bad and the ugly. The good news is that monthly GST collections are consistently exceeding the Rs 1.50-trillion mark. The bad news is that taxpayers still do not have a full-fledged appeal process at the tribunal level. The ugly news is that despite e-invoicing and other checks and balances being introduced, the menace of fake invoicing to claim input tax credit (ITC) continues unabated.

The Ugly

A recent report from Noida gives us the ugliest of ugly news. As many as 2,660 fake companies were created using stolen or fake IDs and 6.3 lakh PAN cards were compromised.

The amount of ITC that passed through these companies was to the tune of Rs 10,000 crore. Fake e-way bills were generated to the extent of Rs 2-3 crore every month. PAN data was purchased from companies and used to generate Aadhaar cards, which were in turn used to obtain GST numbers.

Also Read | Bring GST frauds under IPC, Karnataka tells Centre

In one such recent case detected by Gujarat tax authorities, it was found that a few fraudsters had obtained fake GST registrations on the basis of PAN and Aadhaar number of persons from economically weaker sections without their knowledge.

It was revealed that the phone numbers on the Aadhaar cards of these persons were fraudulently modified at the nearest Aadhaar Seva Centre. Fraudsters took these persons to the said centre by giving them a nominal cash amount under the guise of a government scheme and linked their Aadhaar cards to dummy mobile numbers by using their thumb impressions.

In an innovation that can probably be said to exist only in India, these fake companies were sold to willing buyers, which appeared to provide a sense of authenticity about the company.

The GST policy wing launched a special drive, which will go on till the middle of July 2023, to weed out fake registrations through an instruction issued to all department officers concerned.

The GST department has an array of tools to identify false GSTINs. At the central level, data can be provided by the Director General of Analytics and Risk Management (DGARM); at the state level, officers can rely on Business Intelligence and Fraud Analytics Unit (BIFA), Advance Analytics in Indirect Taxation (ADVAIT) and NIC-Prime.

Despite having all these tools, the instruction issued by the department exhorts the officers to also use another critical tool — human intelligence!

Considering the way some Indian taxpayers are outthinking the department, human intelligence could play a more important role than DGARM in detecting fake registrations.

With effect from August 1, 2023, e-invoicing is being made mandatory for all taxpayers with an aggregate turnover more than Rs 1 crore. While there is no direct evidence to prove that e-invoicing prevents fake invoices (if both the e-invoice and the e-way are manufactured, it could pass of as a genuine transaction on the e-invoicing portal), this could act as a dampener for those resorting to fake invoicing.

The GST Department has also issued instructions on selecting returns for scrutiny based on data that DGARM provides. It appears that the most popular metric that will be used to select returns would be a possible increase in revenue collections. This could turn out to be a tool for trigger-happy assessing officers to force taxpayers to cough up some revenue.

The Bad

Taxpayers have gotten used to receiving notices from the GST department with strange demands for tax. They have also found a way to respond. However, not all notices are settled easily, resulting in protracted litigation.

Taxpayers will feel short-changed here since there are not enough adequately staffed appellate tribunals where they can file their appeals. Since high courts can only investigate matters of law, taxpayers could feel all possible avenues for appeal are closed in case they lose at the first appellate tribunal.

Budget 2023 did speak about the establishment of a committee to decide on tribunals. A meeting of the GST Council is scheduled in June, which would discuss the nitty-gritty of the GST Council. If all goes well, tribunals should be up and running by November this year. Better late than never.

The Good

On the first day of every month, there is always good news about the GST collections over the previous month. The numbers reported in May 2023 were Rs 1.57 trillion. Maharashtra, Karnataka, Gujarat, and Tamil Nadu lead the list of states that contribute the most GST revenues.

The fact that there have been no outliers that have changed in this pecking order, and the fact that GST revenues from tourism-reliant states and Union Territories such as Kerala, Goa and Puducherry have shown a steady increase post-pandemic enables one to conclude that increased GST revenues are the result of increased economic activity.

It is only a matter of time before the attention of the government is focused on the elections next year. Taxpayers can expect some relaxation and relief in the build-up to the elections. Other than these measures, the Central Board of Indirect Taxes and Customs is not expected to boil the ocean and completely revamp GST laws.

(The writer is a tax expert based in Bengaluru.)