GST Council may crack down on fraudulent invoices, input tax credit refunds

The Goods and Services Tax (GST) Council, in its meeting on Wednesday, is expected to take up the issue of fake invoices and fraudulent input tax credit (ITC) refunds. In the backdrop of a severe revenue shortfall, the Council would examine several enforcement measures such as blocking input tax credit, imposing penalties and even arrest in the case of fake invoices. Besides discussing revenue augmenting measures, the Council, chaired by Union Finance Minister Nirmala Sitharaman, will also deliberate on the merits of setting up a public grievance body to reduce litigation. 

The law committee has proposed blocking of input tax credit for errant businesses “with the intent to safeguard government revenue’’. It has recommended an enabling provision in the law to allow the commissioner or an officer to restrict full or part amount from the credit available in the electronic credit ledger, for paying output tax or claiming input tax credit refund. “Demands to focus on plugging revenue leakages have come by way of representations from industry on social media and by way of letters.” said an official.

“Some of them require amendments in the law and will be placed before the Council,” he added.

He further said that fake input tax credit meant tax lost. Input tax credit is not backed by transaction in goods or services in reality, the official explained.

The Council may also decide to restrict input tax credit under GST to 10 per cent of the eligible amount as against 20 per cent at the moment if the supplier has not uploaded relevant invoices. Besides,the Council may even decide to waive penalty for the defaulters who have not paid taxes for the  last two years as a one-time measure. They will be given time till January 10 to avail the scheme.

The Council will also take a look at revenue augmentation measures to be presented by the officers’ committee and the group of ministers for ‘’broadening of tax base, additional resource mobilisation and improved tax compliance’’, another source pointed out. Since the introduction of GST, several rate revision and rationalisation exercises have been done and several other factors such as increase in the threshold limit for exemption and changes in composition scheme have impacted GST revenue, according to the GST Council agenda document reviewed by Business Standard. ‘’There’s a widening gap between the projected revenue collection and the fund requirement which calls for immediate measures for revenue augmentation,” the agenda document says.

M S Mani, partner, Deloitte India, said the decline in collections compared to the targets may lead to several anti-evasion measures. Minister of State for Finance Anurag Thakur, in his reply in the Rajya Sabha, during the monsoon session had stated that Rs 44,466 crore worth of GST fake invoice fraud was detected in the last two years.