When PM Narendra Modi rolled out the goods and services tax (GST) at the stroke of midnight on July 1 last year, it was heralded as a game-changing tax reform, the biggest in independent India, that would bring ease and transparency and boost the economy. The launch was marred by a glitch-ridden GST web portal and poor compliance levels which appeared to be teething troubles.But a year on, cases of tax evasion and fraud, worth a few crores of rupees to a few hundreds of crores, are cropping up, exposing the loopholes dogging the system. In Karnataka alone, fake invoice scams worth Rs 500 crore have been unearthed, with racketeers availing input tax credit without selling any goods or services. Six people have been arrested in four cases in less than three months of the commercial tax department launching an aggressive enforcement drive in July this year.
At least 50 more cases involving fake transactions of not less than Rs 2,000 crore are being probed. “What we have detected so far seems to be just the tip of the iceberg. Data analytics indicates the malaise is much deeper and the size of the scams in terms of money is mind-numbing,” said commercial tax commissioner Srikar MS. Fraudsters seem to be milking the advantages of GST’s online architecture to perpetrate scams. Unlike the VAT regime where dealers could register online but would get approval only after physical verification, in GST all registrations are deemed approved within three working days of applying online. To limit human intervention and cut delay, GST has done away with physical verification which has proven costly.
Tax officials said fraudsters indulging in bill trading have got GST registrations in the name of their drivers, domestic helps, and even those long dead. In a Rs 203-crore fraud unearthed last week, the accused had obtained 14 benami registrations. Besides bill trading, other kinds of irregularities have also been found. Big businesses collected tax from customers which they did not remit to the government. A big mall in Bengaluru was among the first to be caught and forced to cough up Rs 6.6 crore. In another instance, a telecom giant paid a penalty of Rs 30 crore. A five-star hotel was found to have held back Rs 10 crore in a month. Nitesh Patil, additional commercial tax commissioner (enforcement), said his team has visited about 2,500 business premises in the past three months and booked more than 1,000 cases against registered establishments, including reputed firms.
The most common tax irregularity is traders selling goods without issuing invoices. By doing this, they don’t just evade tax but also conceal their real income. Tax officials confirmed that thousands of such frauds occur daily. The government has given a facility of composition tax (COT) scheme for traders with annual turnover below Rs 1.5 crore, under which a trader has to pay tax on only 1% of his turnover without collecting tax from consumers. Hoteliers, irrespective of their turnover, come under the COT scheme and are liable to pay 5% of their turnover as tax. There is also a provision under GST law allowing traders under COT scheme not to pay tax if they purchase goods from unregistered dealers. Taking advantage of this, many traders are evading tax by claiming their purchases are from unregistered dealers, while their registered supplies don’t document the transaction.
Another avenue for fraud is the e-way bill, a significant part of the GST regime. The online procedure applies to all sellers, buyers and transporters moving designated goods worth more than Rs 50,000. The registrants have to upload all transaction details on the portal and obtain unique numbers as proof of having uploaded them. This is subjected to random checks by officials who stop the vehicle ferrying the goods. Several traders have been found to raise fake e-way bills and transport goods illegally without paying GST. The commercial tax department has booked 692 cases and collected Rs 12 crore penalty to date from January this year. Also, affixing stickers displaying maximum retail price (MRP) on packaged commodity is a must, but many traders are found to be selling goods without MRP stickers. “Traders and manufacturers join hands and retailers get the packets without MRP mentioned on them and sell it at arbitrary prices,” said M Mamatha, assistant controller of the department of legal metrology. In all, 547 cases of MRP violations have been booked across Karnataka since GST kicked in.