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GST: CAG's Top 5 Concerns

Skewed collections, faulty verifications, jurisdiction confusion, refund delays--key GST concerns pointed out by the CAG.

<div class="paragraphs"><p>GST written on wooden blocks. (Source: Reuters)</p></div>
GST written on wooden blocks. (Source: Reuters)

The Goods and Services Tax regime is riddled with systemic and compliance issues, said the Comptroller and Auditor General of India in a 198-page-long report tabled in the Lok Sabha earlier this week.

While there's significant progress in linking the return filings and restricting input tax credit leakage, further steps need to be taken to achieve a non-intrusive e-tax system with system-verified flow of ITC, such as mandatory filing of GSTR-1 before filing of GSTR-3B and enhanced use of preventive checks in the GST Common portal, the CAG pointed out.

Key takeaways from the report are as follows:

Skewed Collections

The rates of central GST and state GST, levied on goods or services, are equal. Therefore, the amount of tax, declared under both CGST and SGST, by a taxpayer in the return, has to be equal.

That's not the case, the CAG said, pointing to the amounts collected against the state and the central component of the tax declared.

During FY17-20, GSTR-1 data showed a cumulative difference of Rs 6,142 crore in central and state components of GST, where the CGST exceeded the SGST.

Similar differences were noticed upon analysis of GSTR-3B and GSTR-9 data, the report pointed out.

The above data inconsistencies indicate the existence of unreliable data and differential tax collections for the Union and States, in contravention of the GST Acts.
CAG Report

Who's Overseeing 49,077 Taxpayers?

Taxpayers are to be administered either by the central government or the states.

The CAG's analysis revealed that 49,077 taxpayers were allocated to neither.

Out of these, 14,322 were normal taxpayers and 2,419 taxpayers had filed their GSTR-3B returns. - CAG Report

These taxpayers are not monitored by any of the tax authorities, the report said.

Faulty Verification 

The GST department had specified transitional credit verification as one of the key focus areas for the year 2018-19, the report said. There are inadequacies on this front, the CAG said.

The verification process was not yet completed, even after a lapse of more than two years from the targeted completion date. For verified cases, the recovery rate was lower, as per the report.

Out of the audit sample of 8,514 cases, the department has not verified 1,515 cases (18%) and recovery actions were not initiated in 1,042 cases (12%).
CAG Report

Most of these cases, i.e. 846 cases pending for verification and 562 cases pending for recovery action were under the state jurisdiction. Provisions on dual control were not enforced effectively in some zones.

"Audit also noticed that, in Meerut and Lucknow zones, the cases were pending verification due to non-resolution of jurisdictional issues within/between Central Tax Commissionerates." - CAG Report

Further, 11% of the sample size representing Rs 6,849 crore of transitional credit claimed could not be audited. That's because the GST department did not produce records of 954 claims, the CAG said.

Both these issues are illustrative of inadequate record-keeping, it said.

Fraudulent Claims

Even after four years of implementation, there is a lack of proper system for review and audit of refunds, which perpetuates refund-related frauds, the CAG report said.

9,757 taxpayers encashed fake input tax credit. This includes 3,208 taxpayers who were issuing fake invoices.

Between 2018-20, the aggregate quantum of ITC frauds was Rs 23,193 crore. In FY20-21, about 8,000 cases were detected involving fake ITC of over Rs 35,000 crore.

Data from Mumbai West region showed that for nine taxpayers, who were sanctioned a refund of Rs 12 crore were sole proprietary concerns, and e-KYC and Aadhaar were not authenticated.

In six cases, the foreign buyer was common, irrespective of the destination of the consignment. The Customs House Agents and transporters were common in those six cases. This suggested that transporters, CHAs and CAs acted in collusion to prefer these claims, the report said.

A system of real time/near real time red-flagging of high risk taxpayers/refunds may be implemented in the refund-related modules to avoid refunds of fake ITC.
CAG Report

Where 7 Is Synonymous With 749

As per the GST department, the central authority has to communicate an order for a refund to the appropriate state authority within seven working days to facilitate payment of sanctioned refunds. Data presented by the CAG, however, has a different story to tell.

Data consolidated from six commissionerates showed that in 95 out of 5,451 cases with refunds worth Rs 23 crore, communications were made with delays ranging from 2 to 139 days. In one instance, a taxpayer from Gandhinagar was paid a refund of Rs 99 lakh, the original refund amount, after a delay of 88 days.

In 47 cases, taxpayers received the payment of Rs 8 crore after a delay ranging from 9 days to 749 days from the date of sanction by the state authorities.
CAG Report

The audit found it impossible to establish accountability for such inordinate delay, owing to inadequate details of tax receipt from the state authorities.

Failure in record-keeping further led to taxpayers losing out on interest that's legally payable.

In its response to the CAG, the department said that payment of interest was not mandated in the sanction order, the taxpayer didn't ask for it and hence, it's not payable.

The CAG disagreed in its report pointing out that payment of interest on delay over 60 days is a statutory requirement and no such claim needs to be made by the taxpayer.