It is a commercial reality today that a supplier liable to pay GST, by obtaining ‘accommodation tax invoices’ (i.e., just get tax invoice without sending goods) from another supplier, will indirectly get refunds of accumulated input tax credits.
The foundation of a modern nation state is an efficient and equitable tax system. Globally, it has been observed that GST is susceptible to tax evasion like raising of fake invoices on which tax credit has been taken or non-invoicing (i.e., transaction of goods without raising any invoice) or under-invoicing. Recently, Central GST Mumbai arrested two businessmen for creating fictitious invoices and availing ineligible credit. Such tax evasion, if left unchecked, will not only widen the tax gap, endangering the roadmap for fiscal consolidation, but also diminish the resources required for crucial sectors like defence, infrastructure, education and health. The government will fail when tax revenues fall. Though GST is a way of formalising the entire chain of transactions, the incentive to evade the tax is greater in GST regime (where tax rate is 28% in some cases) as compared to the earlier indirect tax regime where only VAT (say, 5%) could be misappropriated by the taxpayer. ‘Accommodation entry operators’ are in the illegal business of providing fake entries in financial statement. It is a commercial reality today that a supplier liable to pay GST, by obtaining ‘accommodation tax invoices’ (i.e., just get tax invoice without sending goods) from another supplier, will indirectly get refunds of accumulated input tax credits.
Movement of goods is a crucial element of black market in India. Generation of fake invoices without physical movement of goods leads to substantial revenue leakage as invoice is virtually a bearer cheque written on the Union or state governments. Cases have been reported where the front business is of iron and steel but, actually, the firm is in the business of generating fake bills. Out of under-invoicing and un-invoicing, un-invoicing accounts for a major part of the problem of tax evasion. Un-invoicing can be effectively checked by mandating the issue of electronic way bill (e-way bill) before the commencement of movement of goods. With the audit trail of GST, tightening of the usage of cash and valuation rules in place, e-way bill can serve as a deterrent for under-invoicing also. All these provide the rationale for implementing an anti-avoidance measure like e-way bill, especially when other statutory anti-evasion measures like invoice matching and reverse charge mechanism have been put in abeyance for the time being. For instance, GSTR-2 return, which is required for matching of input tax credit availed, has not yet been made available in the GST Common Portal.
E-way bill is a document creating the contemporaneous trail of physical movement of goods. E-way bill is a deterrent not to have transactions recorded in the books without executing it contemporaneously as it is required before commencement of movement of goods. It is required to be generated only when movement of goods happens and not in cases of constructive delivery where supply is effected without transportation of goods. Even supply of services that also involve movement of goods require e-way bill to be generated. Even if there is no supply but there is movement of goods, e-way bill has to be generated. Primary responsibility for generating e-way bill is on consignor causing movement of goods. Interstate e-way bill is mandatory from April 1, 2018, while those states who have not yet implemented intrastate e-way bill, they need to implement latest by June 1, 2018.
A fair and transparent system of e-way bill has both strategic and tactical benefits. The e-way bill database will have strategic implications, as it will provide statistics about movement of goods within states and amongst states, indicating trade intensity and relative economic growth of regions. This, in turn, will provide data to policy-makers about various dimensions of socio-economic planning; for instance, about transport infrastructure requirements of regions. Preliminary data analysis by CBEC and GSTN has revealed that there is a variance between the integrated tax and compensation cess paid by importers at customs ports and input tax credit of the same claimed in Form GSTR-3B. Significant gaps in data have also been reported between self-declared liability in Form GSTR-1 and Form GSTR-3B. It is also a fact that majority of the taxpayers are compliant and may perceive that e-way bill will inhibit smooth flow of goods across the length and breadth of the country. But the mechanism of e-way bill is a proven mechanism to reward the honest taxpayer while disincentivising and imposing costs on those trying not only to bypass the law but also beat their competitors in the market by evading legitimate taxes.
Unscrupulous business entities that resort to extra booking of expenses to reduce their year-end profits will now need to generate e-way bills to account for the commensurate movement of goods. Thus, the apprehension that the e-way bill mechanism may encourage Inspector Raj without any substantial benefit in terms of revenue mobilisation is unfounded. The 26th GST Council meeting has recommended many measures to facilitate the movement of goods during e-way bill regime, while keeping the interest of honest taxpayers in mind. E-way bill is not required when the value of individual consignment is less than Rs 50,000, even if goods of more than Rs 50,000 value are being transported in a single conveyance. To prevent wanton harassment of transporter or supply chain disruption, no consignment once checked can be verified twice unless credible reasons are recorded for re-verification.
The details given in e-way bill are expected to eventually feed into the GST returns. The e-way bill data can help generate GSTR-1. In fact, 30-40 lakh e-way bills are expected to be generated each day. The recording of various details of goods before commencement of movement of goods has a psychological impact on dishonest taxpayers by instilling fear as they know that there is an audit trail of their transactions. Mapping of IP addresses, invoice number and recipient GSTIN will give a fillip to the predictive data analytics capability of the tax administration and can help in targeted interdiction of suspect consignments. Vehicle interception based on intelligence and an e-way bill mapped to a RFID device embedded on to the conveyance will ensure smooth flow of all types of goods traffic except for those where there are reasons to suspect the genuineness of the movement of goods.
Finally, any law is only as good as its enforcement. So, a planned roll-out in a staggered manner backed by a robust IT infrastructure and necessary handholding of businesses and transporters is the sine qua non for minimising the compliance cost while maximising the comfort level of the taxpayers.
By: Dhananjay Singh
Assistant commissioner of Indian Revenue Service, part-time PhD candidate at IIT Kanpur