GST - Anti-Profiteering Strikes
SEPTEMBER 12, 2018
By Vijay Kumar
If Price is not reduced when tax is:
WHEN GST was introduced, an assessee told me, "I only hope they never reduce any tax, for it will be impossible to disprove profiteering." In what could be the first case where profiteering was proved, the National Anti Profiteering Authority recently found an assessee had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017. 2018-TIOL-05-NAPA-GST
An application dated 22.11.2017 was filed by the Applicant before the Standing Committee, alleging that the Respondent had not passed on the benefit of reduction in the rate of tax by lowering the price of Vaseline VTM 400 ml., which he had purchased from the respondent, when the Goods and Services Tax (GST) was reduced from 28% to 18% on this product on 15.11.2017. He had also alleged that he had bought the above product from the Respondent @ Rs. 213.63/- per unit vide tax invoice No. GSA25066 on 26.09.2017 which included GST @ 28% and the Respondent had charged the same price when he had purchased the above product vide tax invoice No. GSA37782 on 15.11.2017 when the GST had been reduced to 18%. He had thus claimed that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against him.
The National Anti Profiteering Authority held that the Respondent has indulged in profiteering in violation of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction of tax in respect of the above product to his customers and, therefore, he is liable for action under Rule 133 of the CGST Rules, 2017.
Accordingly, the Anti Profiteering Authority directed the Respondent to reduce the sale price of the product immediately commensurate to the reduction in the rate of tax as was notified on 14.11.2017 and pass on the benefit of reduction in the rate of the tax to his customers.
The Authority also directed the respondent to -
1. Return an amount of Rs. 184/- to the applicant with interest @ 18% w.e.f. 28.11.2017.
2. Deposit an amount of Rs. 5,50,186/ with 18% interest
The Authority has proposed penalty on the respondent for which notice has been issued.
Reduction of tax, after all, may not be all that a good business proposition.
Benami/Bogus Registrations in GST - Kerala Commissioner proposes strict action
The Kerala State GST Commissioner in his Circular No. 19/2018, dated 07.09.2018 states:
For the effective tax administration, the first and foremost effort is to widen the tax net. Therefore, during GST regime transition, initial efforts were taken to ensure migration of VAT dealers to GST from 1st January 2017 onward and later the focus was brought to new registrations from July 2017.
The registration procedure under Goods and Services Tax Act is simplified with the objective of ease of doing business. After online application, the applicant is deemed registered within 3 days. Therefore, since Oct 2017 in every Quarterly Performance Report, it has been specifically instructed to field officers to verify the new registrations in their respective jurisdiction.
Now, the preliminary enquiry reveals that certain unscrupulous suppliers have managed to get benami/bogus registrations, especially for dealing in highly evasion-prone commodities like plywood, veneer, packing materials etc. There are instances in which such dealers have disappeared from the scene after doing business in huge volume, and creating tax liability running into crores of rupees. Taking advantage of this, some unscrupulous suppliers are practicing large scale tax evasion by doing circular trade or bill trading. One such major instance has been investigated by CGST authorities recently in the month of July- August 2018.
Under the circumstances mentioned above, in order to curb such tax evasion practices and leakage of revenue, the following instructions are issued for strict compliance.
1. As the procedure for taking registration under Goods and Services Tax Act is liberalized, the assessing authorities as well as the enforcement wing shall closely monitor the activities of such suppliers.
2. The precautionary measures have to be taken in such cases from the stage of submission of registration application in common portal. In such cases, immediately on receipt of the registration application, the assessing authority shall conduct field visits. Unless timely action is taken in these cases, they might get 'Deemed Registration'. Once GSTIN is assigned, they can do the business. Once registration is obtained, immediately they are doing huge volume of business within a short span of time and disappearing from the scene after creating substantial tax liabilities.
3. In GST scenario, the existing taxpayers under VAT/Service Tax migrated to GST portal and obtained 'Deemed Registration'. There are new registrations for doing business in evasion prone commodities. All such cases pertaining to evasion-prone commodities like plywood, veneer, packing material, need to be closely monitored by the assessing authorities and enforcement wing as a market intelligence activities.
4. Ensuring timely filing of returns is the most important factor. Assessing authorities shall scrutinize such returns with e-Way bill data or other available information.
5. Field visits at the business places to be conducted by the assessing authorities in all new registration cases as well as the cases of return defaulters appropriately, in consultation with the Dy Commisisoner. While conducting the field visits the genuineness of the taxpayer is to be verified. During the field visit the assessing authority shall make sure that the applicant is a native of that District and possesses sufficient area with reference to the nature of business. In case the nativity of the dealer is outside the District, an immediate enquiry should be conducted through Intelligence wing. Assistant Commissioner (Intelligence) shall conduct an enquiry in such cases and furnish an enquiry report on the next working day itself. If any suspicious activities are noticed, then a show cause notice may be issued to the dealer. In such cases, the mode of procuring capital investment details needs to be recorded. In case the financial assistance is provided by an individual other than any Financial Institutions, then a copy of the PAN of such person may be obtained during field visit.
6. Plywood and veneer being an industrial output, it can't be procured from unregistered fellows. If such purchases are disclosed in return, Intelligence wing shall conduct enquiries to locate such unregistered persons and take necessary steps to bring such dealers under the tax net.
7. The enforcement wing shall ensure approval of e-way bill in all such consignments. They shall periodically verify the return status of dealers coming under their jurisdiction. If any sort of irregularities are noticed in any cases, the bank transaction details has to be collected and verified. If they found that benami/bogus registration, was obtained for dealing in highly evasion-prone commodities like plywood, veneer, packing material, immediate steps shall be taken to intimate the fact to the assessing authority and he in turn shall take necessary steps to cancel the registration after complying with the statutory requirements.
8. All officers are advised to take actions as per the law, only after doing detailed desk review, gathering intelligence and discussing with the supervisory officer the Dy Commissioner.
Circular Trade or Bill Trading:
In a recent research paper by the IIT at Hyderabad 'An algorithmic approach to handle circular trading in commercial taxing system', Circular Trade was explained as "Circular trading is a theft of Value Added Tax from the government by a business entity by creating fictitious business firms and diligently organizing with them to manipulate the financial information submitted in their tax return filing." And "Bill trading is another technique used in tax evasion where a dealer sells some goods to another dealer without raising an invoice, but collects the tax from him. The former dealer then issues fake invoice to a third dealer, who uses it to minimize his tax liability." The IIT Research has proposed an algorithm to detect and solve this problem. Maybe the Kerala GST and other GST formations should associate the IITs in their anti evasion work adding a little academic respectability to raids and arrests.
GST improves Linguistics : The Kerala SGST Commissioner's Circular mentions,"Plywood and veneer being an industrial output, it can't be procured from unregistered fellows. "What an improvement in language! Former Prime Minister PV Narasimha Rao once remarked that he would have gone mad if his reading habits did not go beyond the literature produced by IAS officers in government files.
ICICI Bank Launches Over Draft Facility based on GST Returns:
ICICI Bank has announced the launch of a new working capital facility that enables MSMEs (Micro, Small and Medium Enterprise) to get an overdraft (OD) based on the turnover reported in their Good and Services Tax (GST) returns. Christened 'GST Business Loan', the facility is available to any MSME including non-customers of ICICI Bank, upto Rs 1 crore.
This facility brings in the improved convenience of availing quick OD facility, as it does away with the requirement of paper-intensive assessment of financial documents including balance sheets of previous years. This also enhances convenience for MSMEs by enabling the usage of GST returns for assessing their eligibility of working capital limit, thereby simplifying the process for sanction of the OD within two working days. This is in lieu of the traditional/standard industry practice which requires scrutiny into multiple documents that typically takes several days.
Anup Bagchi, Executive Director, ICICI Bank, said, "The Goods & Services Tax (GST) has been a transformational structural reform that has strengthened the economy with the creation of a national market, enhanced ease of doing business, greater productivity & efficiency and improved tax compliance. Since GST takes into account comprehensive business flows, we believe that GST returns will change the lending paradigm for MSMEs with faster and hassle-free access to working capital finance from financial institutions."
Of course, the GST return alone will not get you that loan.You need a mortgage too. The 'GST Business Loan' facility can be availed by an MSME against mortgage of residential, commercial or industrial property. As simple as GST!.
Is the duty-free shop at the International Airport "in" India?
Law is not logic, as this passenger who arrived at the CSI Airport, Mumbai from Colombo on 21.06.2018 learnt the hard way. The detailed examination of his baggage, upon interception by the Customs Officers, resulted in the recovery of 30 packets of Chocolates weighing 500 grams each and one bottle of liquor totally valued at Rs 35,200/- which were in excess of the duty free allowance and had not been declared by the passenger.
The Original Adjudicating Authority ordered confiscation of the impugned goods under the Customs Act, 1962, but allowed redemption of the goods on payment of redemption fine of Rs.7,000/-and imposed penalty of Rs. 7,000/ -
Aggrieved by the said order, the passenger filed an appeal before the Commissioner of Customs (Appeals) on the grounds that since the impugned goods were purchased in India after entering the Indian Territory, the question of payment of duty does not arise; the import duty can be levied only when passenger imports the goods from outside India. He pleaded that since he had already entered the Indian Territory and made purchases from Indian duty free shop, hence, the impugned goods cannot be called imported and no import duty is leviable. Therefore, he pleaded that the order be set aside. The Commissioner of Customs (Appeals) was not impressed and dismissed his appeal.
The perseverant passenger filed a Revision Application with the Government on the ground that the impugned order is contrary to the law and to the facts of the case; the Commissioner (Appeals) has committed a gross error in failing to appreciate that the applicant had not imported the goods and, therefore, not liable to pay Customs duty; the Commissioner (Appeals) erred in brushing aside the relevant fact that once the immigration officer affixes the immigration stamp in the passport of a passenger, it means that the passenger has entered India; duty free shops are inside Indian Territory and since the purchase was made by the Applicant after entering the Indian Territory, the question of payment of import duty does not arise.
He requested for an early hearing as the goods being Chocolates were perishable and if not properly refrigerated would soon perish resulting in a considerable loss to the Applicant.
The Revision Authority chose to consider the following questions:
(1) Whether a Duty Free Shop, situated after the immigration at the arrival terminal of an International Airport, can be said to be within Indian Territory in the context of levy and collection of Customs duties?
(2) Whether the applicant would be liable to pay Customs Duties on the good purchased at the Duty Free Shop, if they exceed the duty free allowance?
The Revision Authority was of the considered opinion that the contentions of the application are based on the erroneous belief and wrong interpretation of the law and settled legal positions.
He observed,"the duty free shops though being physically located in Indian Territory, are specifically treated as being located outside the Customs Territory of India. Duty free shops arelocated in the Customs Area defined under Section 2(11) and it includes any area where the imported goods or export goods are kept before clearance by Customs authorities. Goods sold by Duty free shops are not duty paid good sand such goods are deposited in a customs bonded premises/warehouses,licensed under Section 58A of the Customs Act,1962 Without payment of duty. Section 71 clearly mandates that no goods shall be taken out of a warehouse except clearance for home consumption, exportation or removal to another ware house or as otherwise provided by this Act. It is thus clear that such goods need to suffer Customs duty on being exported by duty free shop sand imported by passenger in terms of Section 77 of the Customs, Act 1962.
The contention of the Applicant that he had entered Indian Territory after immigration formalities and having brought goods Within the confines of Indian Territory and is therefore not liable to pay customs duty is not legally sustainable."
He held:
(i) The transactions effected at the Duty Free Shops at the arrival or departure of the International Airports in India, might have taken place within the geographic territory of India, but for the purposes of levy of Customs Duties or any other taxes, the area of Duty Free Shops shall be deemed to be the area beyond the customs frontiers of India.
(ii) Although, the applicant bought goods from Duty Free shop at CSI Airport Mumbai, the same are deemed to be imported from across the Customs Frontiers of India and customs duty is payable on such goods. Since the applicant crossed the green channel without declarations and without payment of customs duty, the department has rightly proceeded against the Applicant.
(iii) The contention of the Applicant that he has not violated any provisions of the law is, therefore, not legally sustainable.
He upheld the order of the Commissioner (Appeals) and dismissed the Revision Application. See the order here.
The passenger after acquiring the requisite knowledge by experience, asked us to publish this so that the international passengers don't have the same misunderstanding which I had which resulted in my products being confiscated by the Customs Department.
ABC of dealing in taxation is Always Be Careful.
