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Fake invoices to evade GST pose a big challenge, tax officials looking at different strategies to curb menace

Fake invoices to evade GST pose a big challenge, tax officials looking at different strategies to curb menace

Faced with the big challenge of tackling fake invoicing in GST regime, tax officials are looking at different strategies to curb this menace and shore up revenue collections.

Central Board of Indirect Taxes and Customs (CBIC) Member (Investigation) had recently said that between April and February 2018-19, GST evasion to the tune of ₹20,000 crore was detected, of which ₹10,000 crore was recovered.

Officials estimate that evasion through fake and under-invoicing could be pegged at anywhere between one percent and five percent of the collection.

Tax officials at both the Centre and States have regularly been busting such rackets “This is just the tip of the iceberg,” said an official, who did not wish to be named.

CGST and SGST officials are also looking at the use of data analytics from the GST Network for variation in returns, variation in e-way bills and are also looking at trends in various sectors to understand where such evasion is taking place.

Setting up of fake cos

According to people in the know, one of the popular ways of generating fake invoices is setting up of fake companies to which businesses issue invoices for sales or by issue invoices to companies within the group or known persons for sales. Issuing invoices allow them to claim an input tax credit.

“Companies have to file annual returns by June 30, 2019, and these are likely to be taken up for scrutiny only by 2020. By then, many of these companies would have shut down or vanished,” said a person familiar with the development, adding that enforcement is a big challenge.

Invoice matching

One expert pointed out that there is no proper invoice matching under GST until now. Another handicap is that visiting the businesses premises prior to granting GST registration is not followed fully.

“There has to be a control on the invoice matching process to weed out fake invoices. While the introduction of an E-Way bill would have helped to some extent, there is a need to introduce non-invasive system level checks at this stage itself to ensure that the magnitude of the problem is curtailed,” said MS Mani, Partner, Deloitte India.

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Source:  The Hindu Business Line
No arrest can be made without following procedures in GST evasion cases: HC

No arrest can be made without following procedures in GST evasion cases: HC

The Bombay High Court on Wednesday gave an ad interim relief that no arrest can be made without following the procedures in cases of GST evasion.

The court direction came in a matter involving allegations of evading GST by circular trading and claiming an input tax credit (ITC) through fake invoices.

The matter is based on Section 132 of the Central GST (CGST) Act. It clearly says that if the amount of tax evaded or ITC availed on the basis of fake invoices is less than ₹5 crore, then the offense would be bailable and non-cognizable. However, if the amount is more than ₹5 crore it would be non-bailable and cognizable. Though the matter presented before the court involved allegations of tax evasion amounting little over ₹3 crore, the petitioner highlighted other cases as well.

It was said that based on the circular trading and issuance of fake invoices, there have been various arrests in the country.

However, it was alleged that, in few cases where the proceedings had been initiated by the authorities, there were procedural irregularities and the offense falls clearly within the category of ‘non-bailable and cognizable offense’. Criminal writ petitions have been filed in the Bombay High Court to ensure personal liberty.

One of the petitioner’s firms, during February-October 2018, received metallic scrap from a vendor. It was substantially consumed on the manufacturing process and roughly 1.86 percent of the quantum of metallic scrap received was sold as such to other persons on account of the inferior quality of the products. The petitioner claimed that GST amounting to ₹3.2 crore was paid on such supply, out of which ₹33 lakh were reversed through debit note due to poor quality. All these transactions were duly reported in the GST returns filed.

However, the tax authority alleged, during the course of an investigation, that the petitioner had availed input tax credit on invoices without actually receiving the supply. As per the purported allegations it seeks to dispute all the quantum of input tax credit availed during February-October 2018 without any basis and accordingly qualify the offense as ‘cognizable’ and ‘non-bailable.’

No loss of revenue
“Section 132 of the CGST Act provides that offenses prescribed become non-bailable and cognizable offenses only when the loss to the exchequer is more than ₹5 crore and the relevant provisions of the GST Act have been contravened,” Abhishek A Rastogi of Khaitan & Company said. He argued a couple of such criminal writ petitions in the Bombay High Court on Wednesday while emphasizing that no arrest should be made when there is no loss of revenue to the exchequer.

Risk of judicial custody
“There is a high risk of judicial custody in various cases and hence the accused should seek an ad interim protection with a court direction that the proceedings should be conducted in a fair manner after following all the procedures and the judicial custody is ordered only in those cases which clearly fall within the offenses prescribed as non-bailable and cognizable,” Rastogi said.


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Source: The Hindu Business Line
Govt detects Rs 20,000 cr GST evasion in April-February FY19

Govt detects Rs 20,000 cr GST evasion in April-February FY19

The government has detected Rs 20,000 crore worth GST evasion so far this fiscal and will take more steps to check frauds and increase compliance, a senior tax officer said on Wednesday.

Central Board of Indirect Taxes and Customs Member (Investigation) John Joseph further said the department would soon call a meeting of the representatives of the real estate sector to understand transition issues faced by the sector post reduction in GST rates.

The GST Council, chaired by Finance Minister Arun Jaitley and comprising state counterparts, earlier this week decided to cut tax rates on under-construction apartments and affordable housing to five percent and one percent, respectively.

However, builders will not be able to claim credit for the taxes paid on inputs, like steel, cement.

The earlier GST rate on under-construction apartments and affordable housing was 12 percent and eight percent with an input tax credit (ITC), respectively.

On-demand for giving ITC relief to the builders of the under-construction flats which are already built but not yet sold to buyers, Joseph said the real estate sector will have to raise the issue with the urban development ministry.

“You need to talk to them (urban development ministry). As revenue department we cannot give you any benefit of subsidy to that extent,” he said at an Assocham event here.

Joseph said between April-February 2018-19, GST evasion worth Rs 20,000 crore has been detected of which Rs 10,000 crore was recovered.

He said the tax officers on Tuesday detected fake invoice worth Rs 1,500 crore which was used to claim illegal GST credit of Rs 75 crore.

“We have already recovered Rs 25 crore and the rest is on the way,” Joseph said.

Stating that only 5-10 percent of the businesses are “black sheep” and bring a bad name to the industry, he said the government will take more measures to increase compliance, and act against evaders in a way such that genuine businesses do not suffer.

Joseph said the government has been dynamic in rationalizing tax rates since GST rollout on July 1, 2017, while increasing compliance for 1.2 crores registered businesses.

“In future, as GST moves forward, the rates need to consolidate. Across the world, it is one rate, but it may not be possible for us to implement it here… because we have the poorest of the poor and the richest of the rich in the country. “What is good for the richest, cannot be the best for the poor… But five rates converging into two or three, depending on what the Council decides. This is the way forward,” he said.

Currently, GST has a 4-tier slab of 5, 12, 18 and 28 percent, while essential items are zero-rated.


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Source: Money Control.
Curb misuse of GST Act before it snowballs into a mega scam: HC

Curb misuse of GST Act before it snowballs into a mega scam: HC

Refuses to grant anticipatory bail to 9 individuals accused of cheating
Attempts to misuse the Goods and Services Tax (GST) by unscrupulous elements, who create fake invoices to claim input tax credit from the government, should be nipped in the bud to ensure that it does not grow into another mega scam having a direct impact on the nation’s economy, the Madras High Court has said.

Justice N. Anand Venkatesh made the observation while refusing to grant anticipatory bail to Vimal Nayan, Pramod Sharma, Ankit Sharma, Natesh Kothari, Narendra Kumar Kothari, Sanjay Kumar Sharma, Vikrant Sharma, Nemichand Kothari and Sandeep Kothari in a case booked under Central Goods and Services Tax Act of 2017.

The case of the prosecution was that several companies, as well as individuals, had registered themselves with the Goods and Services Tax Network (GSTN) portal and begun the practice of issuing fake invoices without supplying goods. The receiver of such invoices claims input tax credit by cheating the public exchequer.

‘Huge loss’
Claiming that the petitioners were part of one such transaction, Special Public Prosecutor for GST cases V. Venkateswaran told the court that what had been unearthed so far was only a tip of the iceberg whereas the offense was expected to unearth huge loss, running to several thousand crores, having been caused against the interest of the country’s economy.

Hence, the Principal Commissioner of Goods and Services Tax and Central Excise had decided to invoke the 2017 Act which provides for arresting the accused and imposing a maximum punishment of five years of imprisonment.

Since prima facie materials were available to suspect the involvement of the petitioners, the prosecution wanted to act fast against the perpetrators.

Observing that the department must be given complete freedom to investigate cases of the present nature because they involve national interest, Justice Venkatesh said: “This court by entertaining an anticipatory bail petition and by imposing certain conditions, should not tie the hands of the department in proceeding further.”

Though the petitioners’ contended that they need not be unnecessarily arrested in a case that rested entirely on written records, he said: “When the accused persons are charged with violation of CGST Act involving colossal loss of revenue and the investigation is at a very nascent stage, prudence demands that this court should keep its hands off.”

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Source: The Hindu.
Dept suspects GST Software Loopholes liable for Evasion, Likely to approach ICAI to investigate Involvement of CA

Dept suspects GST Software Loopholes liable for Evasion, Likely to approach ICAI to investigate Involvement of CA

The Goods and Services Tax department recently unearthed a scam of Rs 230 crore in Tamil Nadu and suspected that the evasion is due to the loopholes in the GST software.

The State Department is investigating a scam involving Salem-based steel traders Mahendra Kumar Singhi and wife Suman, owners of Steel Hypermart India Pvt Ltd, and chartered accountant Mukesh Surana, who allegedly claimed several crore rupees as an input tax credit by producing fake invoices of steel trading, Times of India reported.

The scam is believed to be one of the biggest GST evasion in the State. The department has sealed the offices and residential premises of the accused in Hosur, Bengaluru, and Salem.

“Around Pongal, we found that the invoices of some companies were suspicious and searched their offices and residences of their promoters in Salem and Bengaluru. The searches revealed that a CA was the mastermind behind the fraud. It was going on since 2017 when the GST was rolled out,” a senior commercial tax official told TOI.

‘Loophole in GST software reason for malpractice’ “The modus operandi is in the form of a circular ‘trade’ of steel and some byproducts using just invoices. It was started by Mahendra Kumar Singhi and his wife Suman Singhi, owners of Steel Hypermart India Pvt Ltd. They were operating in Salem, Hosur, and Bengaluru,” said the official. The Singhi’s were helped by chartered accountant Mukesh Surana, who also owns a company dealing in steel.

“Surana was helping them claim the input tax credit in the name of five companies. Some companies which were actually trading in steel also used fake invoices, our investigation revealed,” the official said. The department has sealed the offices and residential premises of the accused in Hosur, Bengaluru, and Salem. “The Singhis obtained anticipatory bail, fearing arrest. We will take action against the accused as per the GST Act,” he said.

The department is likely to lodge a complaint with the Institute of Chartered Accountants of India (ICAI) against Surana for his involvement in the racket. At present, GST software does not match purchases and sales. “This loophole has been one of the main causes for traders claiming input tax credit using fake invoices.

For every sale, there should be a purchase. But at present, we are not able to ascertain it using the software. We are trying to fix this problem and by June, the new software will be rolled out,” said the official.

The commercial taxes department has also developed its own software to scrutinize returns filed by assessees periodically. “The Statistical Analysis Software helps us analyze the returns and throw up suspicious entries. All assessing officers have been instructed to use this software to detect suspicious returns,” he said.


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Source: Tax Scan
Soon, no e-way bill if GST returns not filed for 6 months

Soon, no e-way bill if GST returns not filed for 6 months

Non-filers of GST returns for 6 consecutive months will soon be barred from generating e-way bills for movement of goods.

The Goods and Services Tax Network (GSTN) is developing such IT system that businesses who have not filed returns for two straight return filing cycle, which is 6 months, would be barred from generating e-way bills, an official said.

“As soon as the new IT system which will ensure barring of e-way Bill generation if returns are not filed for 6 months is put in place, the new rules will be notified,” an official told PTI.

The move, officials believe, would help check Goods and Services Tax (GST) evasion.

Central tax officers have detected 3,626 cases of GST evasion/violations cases, involving Rs 15,278.18 crore in April-December period.

Touted as an anti-evasion measure, e-way bill system was rolled out on April 1, 2018, for moving goods worth over Rs 50,000 from one state to another. The same for intra or within the state movement was rolled out in a phased manner from April 15.

Transporters of goods worth over Rs 50,000 would be required to present e-way bill during transit to a GST inspector, if asked.

Officials feel that to shore up revenue and increase compliance, stringent anti-evasion measures have to be put in place.

To this effect the revenue department is working towards integrating that e-way bill system with NHAI’s FASTag mechanism beginning April to help track movement of goods.

It has come to the investigative officers’ notice that some transporters are doing multiple trips by generating a single e-way bill. Integration of e-way bill with FASTag would help find the location of the vehicle, and when and how many times it has crossed the NHAI’s toll plazas.

As against the budgeted monthly revenue target of over Rs 1 lakh crore, GST collections have so far this fiscal averaged Rs 96,800 crore per month.


XaTTaX – World Class Automated eSolution for Return filing and e-Waybill

Source: Times of India
E-way bill to be integrated with NHAI’s FASTag to track GST evasion from April

E-way bill to be integrated with NHAI’s FASTag to track GST evasion from April

The GST e-way bill system is likely to be integrated with NHAI’s FASTag mechanism from April to help track movement of goods and check GST evasion.

The revenue department has set up an officers committee to integrate e-way bill, FASTag and DMIC’s Logistics Data Bank (LDB) services, after consultation with transporters.

“It has come to our notice that some transporters are doing multiple trips by generating a single e-way bill. Integration of e-way bill with FASTag would help find the location of the vehicle and when and how many times it has crossed NHAI’s toll plazas,” the official said.

The integrated system on an all-India basis is planned to be rolled out from April, the official told PTI.

Karnataka is implementing an integrated system on a pilot basis, and integration at national level would be highly beneficial in terms of tracking of goods and ensuring that e-way bill has been generated for the correct duration of travel.

“The officers committee would explain the benefits to all stakeholders,” an official said, adding the move would also improve operational efficiencies across the country’s logistics landscape.

Currently, lack of harmonisation under the ‘track and trace’ mechanism in terms of sharing information among different agencies is affecting the ease of doing business in the country. Besides, it is leading to misuse of e-way bill.

“This would also help in preventing goods and services tax (GST) evasion by unscrupulous traders who take advantage of the loopholes in the supply chain,” the official said.

Central tax officers have detected 3,626 cases of GST evasion/violations involving Rs 15,278.18 crore during April-December period.

Touted as an anti-evasion measure, e-way bill system was rolled out on April 1, 2018, for moving goods worth over Rs 50,000 from one state to another. The same for intra or within the state movement was rolled out in a phased manner from April 15.

Transporters of goods worth over Rs 50,000 would be required to present e-way bill during transit to a GST inspector, if asked.

“The integration of the e-way bill system with FASTag and LDB is expected to help boost tax collections by clamping down on trade that currently happens on cash basis,” the official said.

The National Highways Authority of India (NHAI) has put in place the FASTag system for collection of toll electronically on national highways. FASTag also offers non-stop movement of vehicles through toll plazas.

Integration of e-way bill with FASTag will help revenue authorities track the movement of vehicles and ensure that they are travelling to the same destination as the transporter or the trader had specified while generating the e-way bill.

It will also help the suppliers locate the goods through the e-way bill system. Transporters, too, would be able to track their vehicles through SMS alerts that would be generated at each toll plaza.

Similarly, Delhi-Mumbai Industrial Corridor’s (DMIC’s) container tracking services, also called LDB programme, would be integrated with the e-way bill to improve the logistics ecosystem.

With GST system now stabilising, the focus of the Central Board of Indirect Taxes and Customs is now on increasing compliance and checking evasion.

The government has also set up the Directorate General of GST Intelligence (DGGSTI) to investigate cases of tax evasion and conduct search and seizure operations under the GST Act, and erstwhile Excise and Service Tax Act.


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Source: Money Control
Not just lower taxes, evasion too a factor in the GST shortfall

Not just lower taxes, evasion too a factor in the GST shortfall

It’s fairly clear by now that goods and services tax (GST) collections are falling way short of the government’s initial expectations. The monthly run rate of collections until November was less than ₹90,000 crore, far lower than the monthly average of ₹1.05 trillion required to meet the annual target.

Graphic: Paras Jain/Mint

One reason, of course, is the downward revision of tax rates on various products. But another, and more worrying cause is widespread tax evasion despite measures such as e-way bills.

Shiv Pratap Shukla, minister of state for finance, provided data in Parliament on Friday that showed the percentage of eligible taxpayers who are not filing returns has risen sharply. A year ago, 84.4 million hadn’t filed returns; this has risen to a whopping 283.1 million.

“Our understanding is that people are still gaming the system and this has to do with input credit,” said an expert in indirect taxation, who did not want to be named.

“Basically these companies are claiming input credit by showing estimates of their sales in the GSTR-1 form, as you just have to give details of your sales in this form and not show the actual invoices based on which the input credit is being availed. Later, they avoid paying GST, as payment of taxes happens when you file the GSTR-3B form. So, in many cases, registrations are made, and initial GST payments are missed. By the time the tax authorities figure it out, many of them have deregistered or shut shop,” he added.

The data presented by Shukla showed that until December, 499 cases of fake invoices, which were used for claiming input tax credit worth ₹3,895 crore, were detected. In contrast, in the July 2017-March 2018 period, only four such cases had been detected, cumulatively worth ₹9.75 crore.

“Many companies, which have not been paying income tax, continue to remain outside the GST net as well. They have simply decided to not get registered,” said another tax expert requesting anonymity. “Frankly, the government doesn’t have the bandwidth to detect all such cases, ” added the tax expert.

The dice seems loaded against the government, which also may not want to be seen as being too tough on small businesses ahead of the general elections.

Leakages are especially high in industries where the market share of unorganized companies is high.

Analysts at JM Financial Institutional Equities recently visited Haryana’s Yamunanagar, a region where 550-600 plywood manufacturing units are located. According to their interactions, while invoicing levels have increased, e-way bill implementation is still not strict at most places and companies are able to get away with under-invoicing, it said in a report on 12 December.

“Reconciliation of GSTR-1 and e-way bills generated by taxpayers need to be implemented at the earliest for e-way bills to be a more effective anti-evasion measure,” says Abhishek Jain, tax partner, EY.

After the implementation of e-way bills in April 2018, revenues were expected to rise. It was expected that lower effective taxes, along with increased compliance, would accelerate formalization, and organized businesses would gain share and tax collections would surge. But it seems the mechanism has failed to yield the desired results so far.

“The government is committed to increase the percentage of compliance by taxpayers under GST,” Shukla told Parliament. “In this regard, an extensive outreach programme has been carried out across the country to create awareness among traders, industry bodies and other stakeholders. Further, effective enforcement measures are being undertaken to check cases of tax evasion and fake invoices.” It’s another matter that the numbers he provided don’t hint at any reduction in evasion.

In fact, the way things stand, shoring up GST revenue collections meaningfully could be a long row to hoe.


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Source: Live Mint

 

GST evasion worth Rs 12,000 crore detected between April-Nov

GST evasion worth Rs 12,000 crore detected between April-Nov

The government has detected GST evasion worth Rs 12,000 crore in 8 months till November, a senior tax official said on Wednesday.

Central Board of Indirect Taxes and Customs (CBIC) memberJohn Joseph said despite the electronic way or e-way bill mechanism there has been rampant evasion and there is a to increase compliance.

“We started anti-evasion measures from April onwards, and from April-November we have detected Rs 12,000 crore of GST evasion. There are smarter guys outside who knows how to pocket the money, Joseph said addressing an Assocham event.

Joseph, who looks after investigation in the CBIC  said almost Rs 8,000 crore worth GST evasion has been recovered by the tax officials.

Goods and Services Tax (GST), which subsumed 17 local taxes, including excise duty and service tax, was introduced on July 1, 2017. Since it was a new tax, the government had decided to go slow on government had decided to go slow on its implementation.

Joseph said only 5-10 per cent of the 1.2 crore assessees are evading GST and bringing a bad name to the industry. “We need to improve compliance mechanism.”

On industry concerns as to whether a change in government might lead to an overhaul of the GST process, Joseph said: With all the apprehensions that you have, whether the election results are going to be bad for the GST or not, I can tell you very clearly that the same politicians whether in opposition or ruling party, they all came together to conceive this.

“There may be some changes in law, some procedural changes can definitely happen, but it will not be lock, stock, and barrel as in the case of Malaysia.”

He said the GST Council, comprising the Centre and states, had taken all decision relating to the new indirect tax regime.

The CBIC member also said the new GST return forms will have a beta version initially, so that industry has enough time to suggest what could be done to improve the quality of returns.

In July, the CBIC had put up in public domain draft GST  return forms ‘Sahaj’ and ‘Sugam’ and sought public comments. These forms will replace GSTR-3B (summary sales return form) and GSTR-1 (final sales returns form).

The new forms are slated to be launched in April 2019.

With regard to industry concerns over varied orders passed by the authority for advance ruling (AAR), Joseph said the Centre was pushing for a national bench for AAR but it hit the roadblock as the bench was required to have about 40 members with representations from every state.

“I do agree, there is a real serious issue in that (Advance Ruling). The Centre is trying to push that there has to be a single advance ruling authority but unfortunately think about a situation where every state says I have equal right as the Centre. So, think about a situation where a national bench is constituted with 39/40 people sitting, how do you think it will work. That is where the problem is coming in,” Joseph said.

He said even for setting up regional benches there is a huge disagreement between the states.

Currently, what the government is doing is they are going through the entire thing, studying the issue and then issuing a clarification, Joseph added.

“Once the clarification is issued, the entire advance ruling thing becomes null and void. For some time, you have to adjust to that situation till a trust is developed between the Centre and states,” Joseph added.

As per the law, all states are required to set up at least one AAR for seeking advance ruling over GST levy and one appellate authority to hear appeals against the AAR order.

In March, the New Delhi bench of the AAR had held that duty-free shops at airports are liable to deduct GST from passengers. However, these shops were exempt from service tax, and Central Sales Tax in the earlier regime.

Further, the solar industry too was left in a vexed situation when the Maharashtra AAR said that 18 per cent GST rate would be levied for installation works, but the Karnataka-bench of AAR passed an order levying 5 per cent GST on the same.

On concerns over availing input-tax credit, Joseph asked the industry to submit their representations, backed by data, along with suggestions.


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Source : Times Of India
Rs 29,088 cr indirect tax evasion detected during April-Oct.

Rs 29,088 cr indirect tax evasion detected during April-Oct.

The investigation arm of the Finance Ministry has detected tax evasion worth Rs 29,088 crore in 1,835 cases during April-October period of the current financial year, a senior official said Wednesday.

Of this, the Directorate General of GST Intelligence (DGGI), which is enforcement agency for checking indirect tax evasion, has detected evasion of goods and services tax (GST) worth Rs 4,562 crore in 571 cases.

However, the bulk of the evasion was detected in case of service tax. The total number of cases where service tax was evaded stood at 1,145 involving Rs 22,973 crore.

In the case of central excise duty, the DGGI detected 119 cases where tax evaded was worth Rs 1,553 crore.

“DGGI officers have detected total indirect tax evasion of Rs 29,088 crore during April-October,” the official told PTI.

He further said that the total amount of detection was likely to be more as the data does not include detection by field offices of the Central Board of Indirect Taxes and Customs (CBIC)

On recovery of evaded taxes, the official said that a total amount of Rs 5,427 crore was realised during the seven-month period till October.

These, he added, includes recovery from previous cases and those detected during the current financial year.

Of the total recovery, Rs 3,124 crore was from GST evaders, followed by Rs 2,174 crore in case of service tax, and Rs 128 crore from those who had evaded central excise.

The larger chunk of recovery during April-October in GST, the official said, can be attributed to the decision of the CBIC to tighten on evaders.

With a view to focus on checking evasion, the apex indirect tax body had in September set up the Office of Commissioner GST (Investigation), headed by Neeraj Prasad.

Last month, the Finance Ministry had extended the informant reward scheme of central excise and service tax to GST. The scheme was modified to include officers of other government agencies like police, BSF, CISF and coast guard.

As per the reward scheme, informers and government servants were eligible for reward up to 20 per cent of the net sale proceeds of the contraband goods seized and/or amount of duty/ service tax evaded plus amount of penalty levied and recovered.

With respect to cases of detection of drawback frauds or abuse of duty exemption schemes under various Export Promotion Schemes, the informers are eligible for reward up to 20 per cent of recovery of drawback claimed fraudulently and/or recovery of duties evaded.

GST, which subsumed 17 local taxes like excise and service tax, was rolled out on July 1, 2017. In the run up to launch of the new indirect tax regime GST, the ministry had renamed the Directorate General of Central Excise Intelligence (DGCEI), mandated to check service tax and central excise duty evasion, as DGGGI.

 


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Sources: Economic Times.India Times