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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
Forthcoming changes in E-Waybill system

Forthcoming changes in E-Waybill system

1. Auto calculation of route distance based on PIN code for generation of EWB

Now, E-waybill system is being enabled to auto calculate the route distance for movement of goods, based on the Postal PIN codes of the source and destination locations. That is, the e-waybill system will calculate and display the actual distance between the supplier and recipient addresses. The user is allowed to enter the actual distance as per his movement of goods. However, it will be limited to 10% more than the displayed distance for entry. That is, if the system has displayed the distance between Place A and B, based on the PIN codes, as 655 KMs, then the user can enter the actual distance up to 720KMs (655KMs + 65KMs). In case, the source PIN and destination PIN are same, the user can enter up to a maximum of 100KMs only. If the PIN entered is incorrect, the system would alert the user as INVALID PIN CODE. However, he can continue entering the distance. Further, these e-waybills having INVALID PIN codes are flagged for review by the department.

Route distance calculation between source and destination uses the data from various electronic sources. This data employs various attributes, for example: road class, the direction of travel, average speed, traffic data etc. These attributes are picked up from traffic that is on National highways, state highways, expressways, district highways as well as main roads inside the cities. A proprietary logic is then used for approximating the distance between two postal pin codes. The distance thus derived is then provided as the motorable distance at that point of time.

2. Blocking of generation of multiple E-Way Bills on one Invoice/document

Based on the representation received by the transporters, the government has decided not to allow generation of multiple e-way bills based on one invoice, by any party – consignor, consignee, and transporter. That is, once E-way Bill is generated with an invoice number, then none of the parties – consignor, consignee or transporter – can generate the E-Way Bill with the same invoice number. One Invoice, One E-way Bill policy is followed. The change will come in the next version.

3. Extension of E-Way Bill in case Consignment is in Transit

The transporters had represented to incorporate the provision to extend the E-way Bill when the goods are in transit. The transit means the goods could be on Road or in Warehouse. This
the facility is being incorporated in the next version for the extension of E-way Bill. During the extension of the e-way bill, the user is prompted to answer whether the Consignment is in Transit or in Movement. On selection of In Transit, the address details of the transit place need to be provided. On selection of In Movement, the system will prompt the user to enter the Place and Vehicle details from where the extension is required. In both these scenarios, the destination PIN will be considered from the PART-A of the E-way Bill for calculation of distance for movement and validity date. Route distance will be calculated as explained above.

4. Blocking of Interstate Transactions for Composition dealers

As per the GST Act, the composition taxpayers are not supposed to do Interstate transactions. Hence next version will not allow generation of an e-way bill for inter-state movement, if the supplier is composition taxpayer. Also, the supplies of composition taxpayers will not be allowed to enter any of the taxes under CGST or SGST for intrastate transactions. In the case of Composition taxpayer, document type of Tax Invoice will not be enabled.

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Above article was posted on the E-way Bill Government Website Click here to read more

No Consensus On Why Consumer Goods Demand Rose After GST

No Consensus On Why Consumer Goods Demand Rose After GST

Consumer goods makers’ volumes jumped as the supply-chain emerged from the initial disruption of goods and services tax. There’s no consensus on why. Makers of soaps to biscuits say lower GST tax rates drove higher demand. But distributors and retailers aren’t sure if that was the trigger and attribute it largely to recovery after the twin disruptions of demonetization and GST.

Wholesale demand had slowed as distributors pared inventory ahead of the July 2017 rollout of GST, fearing losses on leftover stock. Starting three months ended September 2017, sales volumes of consumer goods makers have grown for six straight quarters. The GST Council, the apex decision-making body under the new law, in November 2017 reduced the number of fast-moving consumer goods attracting the highest 28 percent tax rate from 224 to 50.

That brought a host of products including shampoos, soaps and detergents, and deodorants and perfumes in the 18 percent tax bracket. The companies were supposed to pass on the benefit to consumers by lowering prices, not by offering more weight in the same pack.

“If prices come down, people tend to consume more and we have seen a consumption trend in the last one or two years after GST implementation,” Sunil Duggal, chief executive officer at Dabur India Ltd., told BloombergQuint. The consumption has been fairly robust after the instability caused by demonetisation and in the run-up to GST, he said. “We’ve seen around one year of good growth.”

“I don’t think there has been an underlying consumption boom, but the fact that people have to spend less to buy the same product has accelerated consumption.”
Sunil Duggal, CEO, Dabur India

Mayank Shah, category head at Parle Products Pvt Ltd., said lower taxes increased demand for its products by an additional 4-5 percent. Customers have largely been loyal to existing products such as namkeen and rusks, he said.

Distributors See No Such Trend

But distributors and retailers said lower prices didn’t create additional demand. The volumes jumped more on a lower base as the demand had slowed first because of demonetisation and then GST, four distributors and three retailers told BloombergQuint—none wanted to be identified out of business concerns.

A retailer in Maharashtra said consumption has grown organically and not because of rate cuts. A distributor from Mumbai said 2018 was a year of growth, which can’t be attributed to rate cuts. His counterpart from southern India said demand was growing at its historic pace. According to a distributor in Gujarat, prices of goods were down only in the first six months, and now they are higher by 5 percent on average following multiple hikes by companies.

Moreover, distributors said, some consumer goods makers increased grammage instead of lowering prices. Market leader Hindustan Unilever Ltd. and Nestle India Ltd. face anti-profiteering penalty for not lowering prices. While HUL got a stay from the Delhi High Court and voluntarily deposited Rs 90 crore, Nestle said it provisionally deposited the amount that it had set aside.

Premiumisation Vs Formalisation?

A distributor in Punjab told BloombergQuint some consumers upgraded to premium products. If a person typically bought four bars of soap, his consumption will not go up, he said, adding that the rate cut made him to buy a more premium brand. But he agreed with his counterparts in other regions that there hasn’t been an overall uptick in consumption because of GST.

A retailer from Nagpur said there are instances of customers buying higher-priced items after GST rate cut. But, he added, fast-moving consumer goods makers have also been pushing premium products in smaller packs.

Dabur’s Duggal agreed that there was a higher demand for smaller packs, citing the example of shampoo sachets selling at Re 1 each. “It is deeper penetration and a higher level of consumption (driving demand),” he said. “I don’t see any premiumisation.”

Instead, there’s a shift from products like tea and biscuits sold loose to packed, branded items, he said. Smaller packs account for 20-30 percent of consumption, and in some categories, lower GST rates has made that formalisation possible. Even in the larger packs, deep discounting after GST rate cuts has improved offtake. “In oral, skin and hair care, it has been quite positive.”

Saugata Gupta, chief executive officer at Marico Ltd., pointed to a similar trend in an investor call. Formalisation of the economy after GST would help increase demand for branded soaps, detergents, household cleaning products, and coconut oil, he said. “Companies will need to ensure direct distribution to compete with smaller regional players.”

Suresh Narayanan, chairman and managing director of Nestle India Ltd., also doesn’t see premiumisation because it’s more a brand strategy. But he has a more nuanced view on volume growth—it can be attributed to a mix of everything.

“The overall sectoral growth of FMCG has been fairly encouraging,” he said. “The momentum in the market was good in 2018. Not that GST alone pushed it, he said, but it aided that.

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Source: Bloomberg Quint
Government extends IGST, compensation cess exemption under various export promotion plans

Government extends IGST, compensation cess exemption under various export promotion plans

Giving relief to exporters, the government has extended IGST (Integrated Goods and Service Tax) and compensation cess exemptions for goods procurement under certain export promotion schemes till March 2020.

These exemptions have been extended for exporters buying inputs domestically or importing for export purposes under export oriented unit (EOU) scheme, Export Promotion Capital Goods (EPCG) scheme and advance authorization.

EPCG is an export promotion scheme under which an exporter can import a certain amount of capital goods at zero duty for upgrading technology related to exports.

On the other hand, advance authorization is issued to allow duty-free import of inputs, which is physically incorporated in the export product.

The move was aimed at giving relief to exporters as they do not have to pay IGST at the initial point itself. In the GST regime, they have to pay the indirect tax and then seek a refund, which is a cumbersome process.

In a notification, the Directorate General of Foreign Trade (DGFT) has said that exemption from integrated GST and compensation cess under advance authorisation scheme, EOU, and EPCG scheme of foreign trade policy 2015-20 “is extended up to March 31, 2020”.

During April-February of the current fiscal year, exports grew 8.85 percent to USD 298.47 billion, while imports rose by 9.75 percent to USD 464 billion.

The trade deficit has widened to USD 165.52 billion during the 11 months of the current fiscal from USD 148.55 billion compared to the year-ago period.

XaTTaX: Cloud and On-Premises Based GST Filing Software For India

Source: Economic Times

GST appellate body clears air on tax credit for sweet shop vs restaurant

GST appellate body clears air on tax credit for sweet shop vs restaurant

An owner of a restaurant and sweet shop who runs both set-ups from the same premises will be eligible for an input tax credit (ITC) for his sweet shop under the GST regime, as long as the accounts of the two businesses are maintained separately, at least in Uttarakhand.

The appellate authority for an advance ruling (AAAR) of the state set aside AAR ruling in this matter.

Explaining the case, Harpreet Singh, Partner, Indirect tax, KPMG, said AAR had ruled that the sweet shop will be regarded as an extension of a restaurant. As such, GST at the rate of five percent would be imposed on the condition that input tax charged on goods and services used has not been set off. This would be applicable to all items, including takeaways, sold from the sweet shop.

Restaurants draw five percent GST, but ITC is not given.

The shop owner appealed to AAAR against the order, contending that items sold from the sweet shop and restaurant cannot be taken as composite supply.

AAAR set aside AAR order. It ruled that items sold from the sweet shop would draw applicable GST rates and ITC would be given. On the other hand, items sold at the restaurant would draw five percent GST without ITC.

This, however, is subject to the provision that the owner of the two businesses maintains separate records for each with respect to input and output and billings, along with other accounting records, AAAR ruled.

The ruling may have repercussions for many other different scenarios, such as an outlet selling eatables in a mall.

Singh said there is a thin line of difference between restaurants and food takeaway joints, kiosks or tuck shops and hence there is ambiguity surrounding classification under GST. The classification becomes blurred as supplying snacks such as chat, dhokla, and lassi from shops or kiosks also involves some amount of service, he said.

“This ruling is likely to provide much-needed clarity on the classification principle to be adopted in all such cases,” he said.

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Source: Business-Standard.
Telangana State GST collections soar

Telangana State GST collections soar

Telangana continues to register impressive growth in the collection of Goods and Services Tax (GST) in the current year, maintaining more than 20 per cent growth till the end of February. Interestingly, the State collected a whopping Rs 1,040 crore of State GST (SGST) in February when the national level GST collections were Rs 97,246 crore, down from Rs 1.02 lakh crore collected in January.

In GST era, February 2019 has been the best month for the Commercial Taxes Department of Telangana government. The officials collected Rs 1,040 crore of SGST in last month, beating previous best of Rs 1,021 crore collected in April last year. The officials could achieve the targets and collect nearly Rs 3,000 crore of GST including SGST, Central GST (CGST) and Integrated GST (IGST) in February.

“Despite a nation-wide drop in GST collections, we could achieve the growth due to consistent pursual of pending cases of GST arrears. We hope to beat the February collections during March as the financial year comes to an end,” said an official in the Commercial Taxes department, which issued notices to traders who failed to pay their arrears.

The State’s growth in tax collection has been one of the highest in the country. The State collected Rs 904 crore State Goods and Services Tax (SGST) in March 2018, a record of sorts after the implementation of GST from July 2017. The State registered nearly Rs 22,700 crore GST collection between April 2018 and February this year. Except for July when the collections were down by over Rs 250 crore, the State’s GST collection has been consistently above the previous year’s monthly collection.

Meanwhile, the nation-wide GST collections have reduced over the past few months and GST revenues of the Central government stood at Rs 97,246 crore in February against Rs 1.02 crore collected in January this year. In all, the Central GST collections were Rs 17,626 crore, while the State GST collections were Rs 24,192 crore and integrated GST collections were at Rs 46,953 crore in February. Another Rs 8,476 crore was collected as cess under various accounts. During the corresponding period last year, the GST collections were Rs 85,962 crore which is 13.12 percent less than this year. As on February 28, the GST collections were Rs 10.7 lakh crore across the nation. The number is likely to increase by at least Rs 1 lakh crore.

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Source: Telangana Today
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.

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

Source: The Hindu Business Line
Arun Jaitley favours GST council-like structure for healthcare, agriculture

Arun Jaitley favours GST council-like structure for healthcare, agriculture

Finance minister Arun Jaitley argued a case for setting up GST Council-like federal institutions to promote healthcare, rural development and agriculture sectors to allow the Centre and states to supplement each other’s efforts instead of competing.

In the 10th and concluding part of his ‘Agenda 2019’ series titled ‘Why Agriculture, Rural Development and Healthcare Require a GST Council-Type Structure?’ Jaitley urges pooling of resources to avoid overlap and duplication.

“The question, thus, is why can’t this experiment be replicated elsewhere?” Jaitley asked as he flagged these areas where GST Council-type of cooperation was possible.

“The GST Council has become India’s first federal institution. Its working is a role model in other areas where federal institutions are needed in India,” Jaitley said, pointing out that it displays the maturity of India’s democracy and politics.

The GST Council is an “excellent federal institution”, which in its 34 meetings has decided thousands of issues with consensus leading to benefits to traders and people and developing ‘New India’, he said. The GST Council is chaired by the finance minister and comprises finance ministers of all states.

“When larger national interest requires, decision-makers can rise to the occasion. It negates the popular impression that politicians of different shades of opinions will always be divided on party lines,” he said, making a case for the model to be used elsewhere as well.

“Agriculture, rural development and healthcare are areas where, in the larger national interest, the GST Council experience needs to be replicated,” he said, adding that in these areas both central and state governments are spending a lot of money.

“Should they not be pooling their resources and ensure that no overlap or duplication takes place and that the interest of the largest number is protected and enhanced?” he said, questioning why elected governments must compete.

He pointed to the case of West Bengal, Delhi, and Odisha, which have refused to implement Ayushman Bharat where every poor family gets up to Rs 5 lakh of hospitalisation support annually. Similarly, Rajasthan, Madhya Pradesh, Delhi, Karnataka and West Bengal are non-cooperative in PM Kisan scheme where small and marginal farmers get Rs 6,000 income support annually.

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Source: Economic Times
Small biz pays the price for ambiguity over GST norm

Small biz pays the price for ambiguity over GST norm

Enhanced threshold limit for registration under Goods and Services Tax (GTS) to Rs 40 lakh from Rs 20 lakh to provide relief to small local business has led to ambiguity hitting return filings as dealers into supply services are excluded from the benefit.

The amended threshold limit that comes into effect from new financial year starting April 1 is applicable only for sales of goods. For service providers limit continues to be Rs 20 lakh.

Experts said over 60 percent dealers involved in small business have some kind of income from services in which case question of eligibility arises. The dependency of small business on tax experts have grown due to lack of clarity.

According to tax experts and consultants, lack of clarity in the amended threshold limit has escalated troubles for small businesses, the majority of which are into both supplies of goods and services.

Chartered accountant Kirti Joshi said, “The amendment was brought to give relief to small business, especially those who are operating at local levels. However, this benefit is given only on the supply of goods, not services due to which a large share of beneficiaries is left out which is around 70 percent.”

Dealers and experts demanded that clarity should be brought in the matter for smooth functioning and utilization of benefits.

Joshi said if a person, who is engaged in the supply of goods is having a small amount of rental income, commission income or any job work income then he is liable to get registered in GST and will not be able to avail the benefit of the increased threshold.

Rameshwar Agrawal who runs a Kirana shop in Patnipura and gets rental income from job work said, “I am very confused on whether and how to avail the benefits. I am not even clear on my eligibility. I will have to take assistance from a tax consultant.”

Experts said that the law is not clear whether the limit of Rs 20 lakh or Rs 40 lakh will apply on a person, who is selling goods and has even small service income like rent or product placements at his shop.

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Source: Times of India
GST Council meet: Realtors get two options to tax under construction house

GST Council meet: Realtors get two options to tax under construction house

Real estate developers with unsold housing inventories can now choose either the old rate or the new one if the project is still under construction on March 31. This option was given on Tuesday at the Goods and Services Tax Council meeting.

The decision also cleared the air on possible loss in input-tax credit for projects that are underway if realtors choose the new rate structure. The Council approved a formula, based on four parameters, which will determine the extent to which tax credit can be claimed on purchases for constructions.

The Council also decided to term a project with up to 15 percent commercial space as a residential property for the purpose of the new rate structure.

“Developers will get about 15 days to a month to decide on the option, but the exact time would be decided over the next few days in consultation with states. This is precisely to solve the problem of unsold inventory. Realtors can now weigh the option that benefits the market the most,” said Revenue Secretary Ajay Bhushan Pandey on Tuesday.

The four factors would be: Extent of completion of the project, extent of booking of apartments by buyers in the project, the extent of invoicing of purchases for that project, and the proportion of residential space in the project.

Using the formula, input-tax credit would be reversed or be usable on a proportionate basis, said Pandey.

If the input-tax credit derived from the formula exceeds what is claimed till March 31, the developer would be eligible to claim the difference. If the derived value is less, the developer would need to reverse a part of the credit.

No amount of the input tax credit will lapse if this formula is used, officials said. Experts welcomed the decision, albeit with a rider of uncertainty about cost escalation.

M S Mani, a partner at Deloitte, said: “The pragmatic move to segregate under construction projects from new projects would provide relief to builders who were worried about the loss of input tax credit.” “Providing such option would be beneficial for those developers who had already factored the entire input credits of the project while arriving at the sale price and in many cases, these benefits may already have been passed on to customers,” said Pratik Jain, partner, indirect tax, PwC India. Developers would need to do the required math to arrive at the right decision on the option. Many of them welcomed the decision.

“This is a developer-centric decision, which will help the real estate market. Realtors are likely to retain the old rate structure for projects nearing completion, while opt the new one for projects just begun,” said Parth Mehta of Mumbai-based Paradigm Realty.

For projects that begin work after April 1, the new rate structure would apply without any relaxation, with a mandate to purchase at least 80 percent of inputs from registered dealers.

The new rate structure reduces the rate on affordable housing from 8 percent with input-tax credit to 1 percent without input-tax credit, and for other houses from 12 percent with input-tax credit to 5 percent without input-tax credit.

Houses costing less than Rs 45 lakh, with space of 60 square meters in metros and 90 square meters in non-metro locations, would be termed affordable, the Council decided in a meeting in February.

“Buyers would expect an overall reduction in prices and may want to understand the basis of revised pricing. The industry would need to be cautious of anti-profiteering provisions and do a detailed analysis for the ongoing projects,” PwC’s Jain added.

Builders would need to calculate and assess both the options on a project by project basis to decide what suits better. A single developer building multiple projects have been allowed to avail of different rate structures for different projects.

For those under construction project owners who opt the old rate structure, the input-tax credit can be set off against tax liability in the normal sense.


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Source: Business-Standard