AUGUST 10, 2022

By Vijay Kumar

THE CAG recently presented its Report No.5 of 2022 on GST and was tabled in Parliament on Monday 08 Aug, 2022.

The GST Department: CAG noted that the Department of Revenue (DoR) of Ministry of Finance (MoF) functions under the overall direction and control of the Secretary (Revenue) and co-ordinates matters relating to all the Direct and Indirect Union Taxes through two statutory Boards namely, the Central Board of Indirect Taxes and Customs (CBIC), and the Central Board of Direct Taxes (CBDT) constituted under the Central Board of Revenue Act, 1963. Matters relating to the levy and collection of GST are looked after by the CBIC.

Indirect Tax laws are administered by the CBIC through its field offices. CBIC has 21 Zones of GST headed by the Principal Chief Commissioner/Chief Commissioner. Under these 21 Zones, there are 107 GST Taxpayer Services Commissionerates headed by the Principal Commissioner/Commissioner. Divisions and Ranges are the subsequent formations, headed by Deputy/Assistant Commissioner and Superintendents, respectively. Apart from these Commissionerates, there are49 GST Appeal Commissionerates, 48 GST Audit Commissionerates and22 Directorates dealing with specific functions such as DG (Systems) for management of Information Technology projects and DG, National Academy of Customs, Indirect Taxes & Narcotics (NACIN)for training needs. Administratively, each Commissionerate is a 3-tier set-up with its Headquarters at the helm, four to six Divisions at the second level and on an average four to seven Ranges undereach Division at the third and final level. The Range, headed by a Superintendent, is the first office of contact between the trade and the Department.

Secret Data: CBIC constituted the Directorate General of Analytics and Risk Management (DGARM) with the aim to study, interpret and analyse indirect tax data and share the outputs with various stakeholders. The DGARM is an attached office of the Central Board of Indirect Taxes and Customs and reports to Chairman, CBIC through Member (Investigation). The Directorate General analyses data relating to Goods and Services Tax.

DGARM identifies high risk taxpayers through use of extensive data analytics on the GST returns data received from GSTN and DG Systems, and Income Tax return (ITR) data received from CBDT. The list of high-risk taxpayers is shared with the CBIC field formations through various analytical reports on the Directorate of Data Management (DDM) portal for action.

On completion of action, CBIC field formations upload feedback on the respective DGARM reports incorporating details regarding detection and recoveries from the identified high-risk taxpayers.

And the CAG wanted to see the Data analysis methodology/parameters in respect of the reports uploaded on the DDM portal. The Department did not provide the same and intimated that the instructions were confidentially shared with the field formations in PDF format. As a result, Audit could not examine the risk parameters and methodology used by DGARM.

It is not very clear whether CBIC did not want to share the data with CAG, because it is confidential or because it is in PDF. Can the government hide information from CAG because it is confidential. CAG is as much government, if not more, as CBIC. Perhaps, this information has to be given to anyone who asks for it under RTI. But anyway, CBIC feels it is dangerous to part with such information to nosy institutions like CAG.

The Ministry informed Audit that these reports are in effect intelligence reports for targeted enforcement by the field formations against identified taxpayers and therefore, are confidential in nature and cannot be shared. CANNOT BE SHARED EVEN WITH THE CAG! It is CAG of India, not Pakistan.

The Ministry's reply was not acceptable to CAG. CAG officers feel that they have some exclusive constitutional powers and stature which other government officers do not have. The CAG report states, "Non-production of data analysis methodology/parameters impedes CAG's Constitutional and statutory responsibility under section 16 of the CAG's DPC Act, 1971 to examine whether rules and procedures are designed to secure effective check on the assessment and collection of revenue. In particular in respect of cases where the feedback is reported on the DDM portal and action is completed, detailed granular data must be shared with Audit, and cannot be withheld on grounds of confidentiality ".

The CAG is not an enemy and need not be treated as an adversary. CAG is equally interested in correct collection of taxes as the CBIC is.

In its Report No. 11/2019 on GST, the CAG observed, "The issues that remain, and that have been pointed out in the report, should not therefore be seen by the stakeholders as a fault-finding exercise. The gaps / shortcomings have been pointed out in the spirit of constructive suggestions to realise the full potential of this major reform."

An inquisitive CAG is not exactly a welcome guest in government offices. Even in this mission of finding as to what is wrong or right with GST, the CAG has to surmount the mighty powers that be, the CBIC and GSTN to get information.

In its latest report, the CAG further observed, "Though the DGARM reports and the action taken by the field formations on these reports are being uploaded on the DDM portal, detailed action taken by the field formations on these reports like correspondence with the taxpayer to explain the nature of discrepancy noted and to take taxpayers' response on the same is still being done manually/offline".

CAG recommended that the entire set of activities should be end-to-end automated as part of the CBIC-GST platform to facilitate transparency and effective real-time monitoring.

Shortage of staff: In this top-heavy department, there is acute shortage of staff. Ministry informed the CAG that there was shortage of officers in the Audit Commissionerates, especially in the grade of inspectors whose working strength was less than 50 per cent of the sanctioned strength in most of the Audit Commissionerates. Is the CAG also at fault for the shortage of staff in the Commissionerates? When there is no shortage of Chief Commissioners, why should there be shortage of Inspectors?

CAG recommended that suitable administrative measures should be taken to address the shortage of staff in Audit Commissionerates. Till the time man-power shortage is addressed, the Department may take into account the available staff strength for planning the number of units for internal audit with focus on high-risk taxpayers. Maybe that's all that the CAG can do - recommend.

Non-intrusive e-tax system - still elusive: CAG observed that even after more than four years of implementation of GST, the originally envisaged non-intrusive e-tax system, based on preventive checks is yet to be fully implemented. The Department needs to take adequate steps to achieve a non-intrusive e-tax system and system-verified flow of ITC. Audit further noted that an effective system of scrutiny of returns with statutory backing based on detailed instructions/standard operating procedure/manual is yet to be implemented. Audit also examined the monitoring and feedback mechanism of DGARM reports and observed that use of manual/semi-automated mechanism put in place by the Department in respect of high risk taxpayers, identified in DGARM reports, is sub-optimal and fails to properly leverage the full potential of IT and thus, there is a need that the entire set of activities should be end-to-end automated as part of the CBICGST platform.

Inconsistent GSTN Data: The concerned CAG observed lack of post-facto data analytics to identify cases of data inconsistencies and lack of a system to review and address such cases.

GSTN stated (in February 2022) that many validations were not implemented since it was a new system with a lot of technical challenges and was in the phase of getting stabilised and matured. Building more validations would have complicated the system, which would have negatively affected efficiency, resulting in poor return-filing of taxpayers and consequent revenue collection of the government.

Even a politician could not have given a better answer.

The reply of the GSTN was not acceptable as Audit suggested a combination of systems controls and post-facto data analytics to address the issue of data inconsistencies. Audit further observed "GSTN's system has gone past the phase of getting stabilised, if this is a justification for not implementing validations. Data inconsistencies and lack of reliable data, if not addressed in time, may lead to sub-optimal compliance functions and possible wastage of tax administration resources."

CGST is not equal to SGST: The rates of CGST and SGST, levied on goods or services, are equal. Therefore, the amount of tax, declared under both CGST and SGST, by a taxpayer in the return, has to be equal. However, in the course of data analysis, Audit noticed that there were significant differences between the declarations of these two categories of taxes. On verification of about 11,000 records, Audit found a difference of Rs.3,84,777.58 crores between CGST and SGST. Mind boggling?

GSTN stated (in February 2022) that the check for entering same CGST and SGST amount was not incorporated, as during the initial phase of GST, taxpayers had to issue Notes (Credit or Debit) pertaining to the earlier tax-regime, wherein, either a CGST component or only a SGST component was required. GSTN further stated that such validations can be built in GSTR-1 and GSTR-9 subject to the directions from the Government/GST Council.

Audit was not impressed and is of the view that matching of CGST and SGST components is a basic validation control and falls under the purview of GSTN. Do they require the approval of the GST Council to declare that 2 plus 2 could be 4? CAG commented perhaps in despair. "Due to the lack of appropriate hard and soft controls, or lack of adequate post facto analysis at important data points, the data captured was unreliable in several cases. These inconsistencies are liable to increase the complexity and the resources needed for compliance functions that are required to be discharged by the tax administration".

Strange Input Tax data: Audit noticed inconsistencies in 26,478 records, amounting to Rs. 5,071 crore, in the field 6A of GSTR-9 (Total amount of input tax credit availed through GSTR-3B), which was supposed to be auto-populated and non-editable.GSTN admitted (February 2022) that there should not have been any difference in the above mentioned fields. GSTN stated that they would examine the issue in detail.

Maybe, the machine is a little weak in 'additions'.

Neither here, nor there ! We are agitated about the dual control of the Central and State Tax authorities on the poor GST assessee.

The GST Council devised a formula for the division of taxpayers between the Centre and the States. The taxpayers are to be administered by either the Centre, or by the States. CAG's Data analysis revealed that 49,077 taxpayers were allocated to neither the Centre, nor to any of the States. Audit fears that there is a possibility that those taxpayers who have not been allocated to any authority, are not being monitored by any tax administration. Lucky ones!

Until Next week