The issue of circular trading could be taken up by the Goods and Services Tax (GST) Council in its upcoming meeting. The council is also expected to discuss a report on decriminalisation of offences under the GST law.
Circular trading refers to fraudulently availing input tax credit by traders by issuing of invoices without availing any real goods or service. The issue has been a a bone of contention and while the Central Board of Indirect Taxes and Customs had earlier this year issued a clarification, there continue to be pending court cases.
Recently, the Bombay High Court had also issued a show cause notice to the Maharashtra GST department for arresting a person for alleged circular trading.
Tax experts believe that there is need to provide clarity on the issue of arrests for circular trading.“The CBIC has already issued a circular that circular trading is not a case of tax evasion and so arrests should not be made. However, detention in these cases continue,” said Abhishek A Rastogi, founder of Rastogi Chambers.
The GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet via video-conferencing on December 17. Additionally, the GST Council is also expected to consider raising the threshold for launching of prosecution to Rs 20 crore from the current threshold of Rs 5 crore. The property of offenders below this threshold will also not be attached. Experts believe this could potentially lower harassment of taxpayers.
Karan Sachdev, Partner, Lakshmikumaran & Sridharan Attorneys noted that in practice, arrest provisions are generally not invoked for tax evasions unless there is an element of collusion, fraud or a scheme designed to evade tax.
“However, the power to arrest exists even for tax evasions not involving such activities. This has sometimes been used as a tool to force assesses to pay tax at the investigation stage itself, even in issues involving interpretation of law,” he said.
The GST Council may recommend adding certain safeguards or amending the law, to strike a better balance between the assessee and the taxman, he further said.