NEW DELHI: The government is likely to make fraudulent claims for input tax credit a non-bailable offence in the hands of recipients of goods and services in the February 1 budget by tightening the GST law, as it seeks to plug leakages.
CXOs, directors or employees directly responsible for making such claims can also be penalised as per the proposed changes aimed at tackling evasion.
“Changes are being proposed to the law to plug issues related to fraud input tax credit,” said a government official. The threshold of Rs 5 crore will apply for the offence being treated as bailable; beyond that it will be non-bailable. The provision already applies to suppliers of goods and services.
GST Council has Okayed Changes
The provision is now proposed to be expanded to include recipients found guilty of colluding in such fraud, said the person.
The proposed amendments to Sections 122 and 132 of the GST Act have been endorsed by the law committee and the GST Council, the apex decision-making body for the tax. Current provisions don’t have specific measures to deal with such tax evasion.
“A value-added tax like GST should have explicit penalties to deal with cases where active collusion results in input tax credit frauds,” said MS Mani, partner, Deloitte India. “Such cases by a small community of taxpayers lead to increasing compliance and procedural requirements on all taxpayers.”
Another official said the government has come to the view that beneficiaries of such fraudulent claims, usually made through dummy companies, should be penalised commensurately.
The authorities have registered several cases in which input tax credit has been claimed without supporting invoices or receipt of goods or services. A clear provision in the law will provide a framework for dealing with such cases, the second official said.
An official said the names of daily wage earners such as rickshaw pullers and others are being used to open multiple firms that issue invoices without supply of goods or services to pass on input tax credit. Those who orchestrate such frauds also arrange for actual suppliers of goods or services to whom these invoices will be sold on payment of an agreed amount of money.
These suppliers then utilise this credit to either discharge their GST liability or claim refunds of duty paid on export of overvalued goods, the official said.
The GST Council has also endorsed changes to Section 49 of the GST Act empowering officials to block credit in the case of fraud. This will also be introduced in the budget.
Experts said the changes will need to be elaborated upon to avoid confusion. “While there is a need to have legislative recourse to prevent such instances, it’s important that government issues detailed guidelines as to how and when these provisions have to be invoked so that possibility of misuse can be minimised,” said Pratik Jain, indirect tax leader, PwC.