Most fiscal statutes follow the usual rigmarole of incorporating elaborate provisions relating to civil and criminal liability through demand and recovery of interest, duty and penalty, prosecution, etc, after conducting scrutiny, audit, searches, investigations, etc. GST laws as enacted, however, have certain special regulatory provisions to provide further teeth to the enforcement framework. The provision of an e-way bill is unique in the Indian context and virtually ensures a physical control through an eye in the sky, on goods being transported through digital medium. It is more effective than the intrusive inspector raj under the physical control system.
It also blocks the possibilities of human compromises, as contraventions can be detected anywhere when flagged by the system. The GSTN is to be informed of movement of any good valued more than Rs 50,000 by any registered dealer or a transporter to generate an e-way bill number, which will be mentioned in the e-way bill and produced during checks. The transport to be used shall be radio frequency identification device (RFID)-enabled to facilitate tracking.
This requirement even extends to transporters who may carry more than one consignment or may shift part or whole to another vehicle. At the time of shifting goods, another e-way bill will be required to be generated. The system needs to be followed even for imported consignments before being moved out from the port of import. There is a number of stipulated days in which goods must reach the destination depending upon the distance involved for transportation.
The manpower for enforcement will not only be provided by the states and the staff under CGST, but the Directorate General of Goods and Service Tax Intelligence will also be required to have a much greater sleuth presence—up from about 700 at present in the Directorate General of Central Excise Intelligence (DGCEI) to about 6,000 in the rechristened outfit. Other officers of the Union and the state, as empowered, shall be required to provide assistance.
The onus to explain unexplained supplies has been shifted to the other side, as the department only needs to issue show-cause notice to the supplier and receiver of supplies, for any mismatch noticed by the GSTN. It is not without reason that the government is pitching for July 1, 2017, roll-out. There are bound to be certain palpable benefits of the same. First, the rates will go up for most imports, with the standard rate being more than the existing rate of central excise currently incorporated in customs duties as countervailing duty (CVD).
Second, the movement of goods from the port on the e-way bill will be checked at the exit point and will create a visible record. Thereafter, any missing trail of stock will alert audit, which, through periodic checks, can verify available stock position or sales of the recipient to check leakages, in the medium term.
This can dent consumer goods imports, which often escaped attention of most state VAT authorities due to non-availability of import details. Now, enforcement will be done by GST and customs officers with much easier access to details. It is also a well-known fact that imports of consumer goods are at their peak from China and other countries during the period from Diwali to December. Therefore, smugglers may find it difficult to connive and import goods like consumer items and crackers, as the risk of facing information transit checks will be much higher. There shall always exist a backward trail of such goods being sold even in retail in the market.
The only possibilities that may remain for the operating smugglers, therefore, will be to either resort to undervaluation or use the usual ‘conceal and clear’ method in the container. Even the days for that may be numbered, as customs is directing most ICDs, including the private ones, to provide X-ray scanners for containers and store and save the scanned images for every container for customs to check anytime. The examination halls of customs may be fitted with video cameras. All this is bound to bring down smuggling to new lows.
The bar-coded invoices will reduce the possibility of different value and description been given to customs at both ends. This cooperation can be sought not only under customs conventions, but also between member states under the Financial Action Task Force, where customs misdeclaration is a money-laundering offence.
Another bonanza for the revenue that may accrue on the appointed day—i.e. the date on which provisions of CGST Act come into force that may even effectively make it a voluntary stock disclosure scheme during transition—will be disclosure in returns of stock without invoice found by supplier’s raw materials for evasion-prone industries like iron and steel, copper, plastics, etc.
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Disclosure may become the only option for such suppliers (other than a manufacturer or supplier of services) under the first proviso to Section 140(3), as they become entitled to have credit even without invoice, subject to the condition, inter alia, that such person shall pass the benefit of such credit to the recipient by way of reduced prices. This virtually allows an open window to scrap sellers or other small suppliers who were hitherto not covered under central excise, or even for SSI units to declare their stock positions liberally, to bring them into the GST stream.
Therefore, the GST will be particularly beneficial to those taxpayers who were—even under earlier tax systems—discharging their tax duties properly.
It may also allow those fence-sitters to survive with reasonable profits who will join the bandwagon and start paying their taxes properly and regularly. While for those, in whose case the old habits of evasion die hard, a much higher level of inventiveness will be required to beat the system, but higher risk of being caught will reduce it to a wager, and growth beyond a point in business may not be easy to come through.
Author is an Advocate (Amicus Rarus) and former additional director general, DGCEI.