Goods and Services Tax (GST) since its introduction in 2017-18 has been hit by tax evasion by traders and businessmen across the country. According to data released by the Union Finance Ministry, a total of ₹2,68,537 crore worth evasion of GST has been found between 2020-21 and 2022-23 (up to May).

Out of ₹2.69 lakh crore, only ₹76,333 crore has been recovered with the arrest of 1,020 persons, shows the data released by the ministry.

According to the senior officials of the finance ministry, the main issue with GST is the use of input tax credit (ITC).

In many cases the traders cheat the GST Commissionerate by using the ITC. Recently, the Central GST Commissionerate, Chennai region arrested two persons, considered to be the kingpin in the evasion of ₹33 crore.

"A former vice-president of a private bank and another person were involved in enabling a well organised racket with their contacts in the banking sector and trading communities," says CGST joint commissioner J Ilango.

Probe into the case revealed that at least 20 firms were created by the gang and fake GST invoices were sold to 315 existing and fake firms to the tune of ₹182 crore.

"The fake input tax credit generated in this manner is to the extent of ₹33 crore causing a loss to GST revenue. The final figure of GST evasion is likely to be higher as more investigation is going on," says Ilango.

"We were monitoring the trends and patterns in GST invoices and e-way bills issued during the Covid lockdown during which we came to know about a criminal gang," says Ilango.

Union finance ministry officials said that similar cases have been found across the country with regard to GST. Steps have been taken to prevent use of ITC to evade GST.

"Using robust data analytics and artificial intelligence to identify and track risky taxpayers and detect tax evasion; carrying out special all India drive to weed out fake/bogus registrations; Insertion of sub-rule (4A) in rule 8 of CGST Rules, 2017 to provide for biometric-based Aadhaar authentication of registration applicants who appear to be risky based on data analytics," says a finance ministry official.

The ministry has also amended Rule 9 of CGST Rules, 2017 to provide for physical verification in high-risk cases, even when Aadhaar has been authenticated. Rule 10 has also been amended to provide for requirement of bank account furnished as a part of registration process to be in the name of the registered person and obtained on PAN of the registered person and also linked with Aadhaar in case of a proprietorship firm, says the official.

In the GST Council's 50th meeting it has been recommended further amendment in rule 10A to provide that the details of bank account will be required to be furnished within 30 days of grant of registration or before filing of GSTR-1, whichever is earlier, the official says.

Restriction on availing of ITC to invoices and debit notes furnished by the supplier in their statement of outward supplies and sharing of data with partner law enforcement agencies for more targeted interventions has been included, the official said.

Other steps included reduction in threshold limit for issue of e-invoice for B2B transactions from ₹10 crore to ₹5 crore, restriction on generation of e-way bills by non- compliant taxpayers and making the beneficial owner liable for penal action and prosecution similar to that of actual supplier/recipient, in cases where a supply has been made without the issuance of an invoice, or invoice has been issued without supply, or excess ITC has been availed/distributed.

Under the Income Tax, the finance ministry released data for 5 years from 2018-19 to 2022-23. "A total of 3946 searches were conducted in the last 5 financial years and ₹6,662.52 crore worth assets (movable and immovable) as well as cash have been seized. The Income Tax department has filed 5,493 cases and 250 have been convicted in the last 5 years," says the official.

The I-T department has also conducted surveys of various accounts in companies as well as individuals. In the last five years, a total of 30,846 surveys were conducted. "It is only based on the surveys' reports, decisions are taken to search a premises or not. Though media uses the word raid for searches conducted by the department, there is no mention of the word raid in the Income Tax Act," says the official.

"With the availability of information in electronic form, the Income Tax department has developed a wide range of non-intrusive methods for detecting tax evasion. Some of the important measures include-Computer Assisted Scrutiny Selection (CASS) for selection of cases for scrutiny; Non-Filers Monitoring System (NMS) to prioritise action on non-filers; Income Tax Business Application (ITBA) to help in curbing tax evasion through putting in place end to end processes for all verticals of the department," says the official.

The department is also involved in extensive use of information technology and data analytics tools also helps in identification of high-risk cases, expeditious e-verification of suspect cases and enforcement actions in appropriate cases.

The department collects information on Specified Financial Transactions (SFT), above-notified thresholds, relating to cash deposits, credit card payments, purchase and sale of properties, purchase of shares and mutual funds etc. Such information is collected, collated and analysed for computer-aided scrutiny and risk profiling of taxpayers, identification of non-filers and stop filers etc.

Enactment of the Benami Transactions (Prohibition) Amendment Act, 2016 to amend the Benami Transactions (Prohibition) Act, 1988 with a view to enable confiscation of benami property and prosecution of benamidar and the beneficial owner.

"The government has brought in a large number of legislative provisions in the Income Tax Act, 1961 to effectively tackle the menace of black money by restricting cash transaction of ₹2 lakh or more, no deduction under Section 80G allowed if cash donation exceeds ₹2,000, and restriction imposed on donations of ₹2,000/- or more to political parties otherwise than by a bank account or through electoral bonds," says the official.

Under Customs Duty, the Central Board of Indirect Taxes and Customs (CBIC) has filed outright smuggling cases to the extent of 42,754 in the last four years from 2020-21 to 2023-24 (up to May). The total value is smuggling is ₹45,965 crore.

With regard to cases of commercial fraud, a total of 12,259 cases have been filed in the same period the total value is ₹82,989 crore and duty evasion to the extent of ₹21,224 crore.

The Central Board of Indirect Taxes and Customs (CBIC) through its customs field formations, along with DRI, is actively engaged in detecting and curbing import-export related commercial frauds.

"Data analysis-based risk management and intelligence development along with human intelligence are being employed by said formations to gather actionable intelligence, which has resulted in substantial detections of tax evasion in recent years," says the official.

On the basis of investigations conducted, alerts and modus operandi circulars are being issued from time to time to sensitise other customs field formations and risk management teams about potential risk parameters so that necessary vigil and safeguards may be put in place in a timely manner, he said.

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