Govt improving GST evasion detection but recovery a problem: CAG report

Authorities were good at recovering amounts from medium firms but failed to pin down large and small ones.

A report tabled by India’s Comptroller and Auditor General (CAG) before Parliament on Wednesday admonished the government for being slow in implementing technology and simplified filing process for Goods and Services Tax (GST) as it said detecting evasion has improved.

Report No 1 of 2021 on “Indirect Taxes - Goods and Services Tax, Central Excise and Service Tax” said the amount of cases detected via anti-evasion activities had improved 72% between FY18 and FY19 from Rs 38,686 crore to Rs 66,507 crore; and 49% between Financial Year (FY) 2016-2017 and FY2017-2018.

“The Ministry attributed the significant increase in the number and amount of cases detected through anti-evasion activities to increase in the tax base owing to GST implementation; issuance of fake invoices for passing on a substantial amount of Input Tax credit by unscrupulous taxpayers; and setting up of Directorate General of Analytics and Risk Management (DGARM), which is entrusted with the functions of analysing big data, the outcomes of which were intermittently shared with the DGGI,” said the report.

While instances of voluntary payment had also increased by 8 per cent in FY19, data shows that as a percentage of amount detected via anti-evasion activities, the ratio had declined for Directorate General of Goods and Service Tax Intelligence (DGGI) and GST commissionerate for cases of service tax and GST. 

In the case of services tax, voluntary payment was received in 13.5 per cent of the total amount, a decline from 14.8 per cent in FY18 and 42.2 per cent in FY15. On the other hand, for GST, which was introduced in FY17, voluntary payments as a proportion of the total amount detected had declined from 94.1 per cent to 56.2 per cent. For FY20, where data was only available for September 2019, there was a further decline to 54 per cent. 

However, the real concerns are the recovery rates and the pace of audits by the department. For instance, in the case of GST, only 1.6% of the planned Internal Audits were completed by the authorities. The recovery rate (as a percentage of total detection) was a lower 20 per cent. 

While the authorities did a good job in recovering amounts from medium firms--the rate was 53 per cent--in terms of large (14 per cent) and small units (13 per cent), the performance was dismal.

An internal audit by the department in central excise and service tax indicated an even poorer showing with only 12 per cent recovery in FY20, down from 32 per cent in FY19. In terms of large units, the department could only make a 6 per cent recovery. 

The report also highlights the woeful performance in terms of disposal of show-cause notices. Not only was the percentage of disposal falling in the case of both central excise and service taxes—these are mostly legacy cases as most of the rates have been subsumed under GST—the amount under review by the department had increased by nearly 50 per cent between FY17 and FY19 from Rs 89,415 crore to Rs 1.32 lakh crore.

The CAG recommend simplified filing and more technology adoption for a smoother process.

The report said “1,177 SCNs (17 per cent) pertaining to Central excise and 5,926 SCNs (19 per cent) pertaining to Service Tax were pending for adjudication for more than one year as against the prescribed time limit of six months in normal cases and one year in extended period of time.”