GST-registered businesses that have reported decline in annual revenue by 20% or more over the previous year have received a flurry of notices over the last few weeks from the tax department. While notices related to mismatch in declaration between GSTR-3B (summary return) and GSTR-1 (outward supplies detail) were common earlier, the department is now comparing firms’ earning under GST with that of erstwhile service and excise regime.
The notices have asked businesses to produce relevant documents and explain the reasons for decline in sales. The department believes that many such cases could point to possible evasion under the new indirect tax regime. The government is sitting on a pile of data that wasn’t available to them before GST. The Indirect Tax dept. is also getting vital information from Customs and direct tax department. The GST IT system is now throwing up many red flags when tax returns under different tax regimes are compared.
Although the GST system generates a lot of data to track evasion, the absence of a full-fledged return system means that there are areas prone to exploitation through fake invoices for claiming additional credit and bringing down tax liability. The Comptroller and Auditor General’s (CAG) report tabled in Parliament recently pointed this out. The new return system is likely to come into force from next year.
However, the notices are also targeting businesses that have genuine reasons for declining revenue which includes a slowing economy. In one instance, a service provider for multinational companies received a notice but its revenue had slacked due to expiry of certain contracts. In another notice, the taxpayer was asked to produce input tax credit documents as it had paid a substantial portion of tax liability through accumulated tax credit.
In some cases, where genuine businesses are not worried over these notices, it does raise the cost of doing businesses for them. Replying to notice under GST requires professionals and could cost as much as Rs 1 lakh.
Meanwhile, tax department has estimated that evasion worth as much Rs 1.2 lakh crore may have taken place under GST regime. An official said that while the government had detected evasion worth over Rs 12,000 crore since GST came into force two years ago, there was indication that such detection were only 10% of the actual evasion taking place.