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GST Administration - Need of Comprehensive Approach

AUGUST 17, 2022

By M G Kodandaram, IRS, Assistant Director (Retd), Advocate & Consultant

EVEN after five years of introduction, the GST system has not been able to live up to the reportedlevel of providing ease of doing business due to lack of skill and comprehensive approach by the administration to verify and plug instances of revenue evasion by unscrupulous elements. In implementation of the new regime, the GST Legislation, GST Council as well as the GST Network are making good progress in proper direction, but the Central and State administrations have a lot of grounds to cover, as they are under prepared for the new realm of digital administration. As narrated in the earlier articles Non-uniform Implementation of Unified GST and Use DIN to Reform GST Administration, the present unorganised approach has resulted in causing an obstacle to the registered person in providing timely compliance to the Authorities.One such area of concern is the failure on the part of the administration to: (i)provide proper facility for timely filing of mandated statements by the registered persons, for availing of Input Tax Credit (ITC) for the transitional period; and (ii) to verify on the eligibility of such declared and availed transitional credit within the stipulated period. The compliance issues pertaining to regular ITC credit availment and utilisation are much more and varied than the one-time event like transitional credit, which are expected to gradually ease down a bit due to the introduction of e-invoices in a phased manner.

The GST system aims to consolidate multiple taxes into one levy and, therefore, it is essential to have transitional provisions to ensure that, no Input Tax Credit (ITC) / benefits earned in the existing regime are lost during such changeover to the new regime.With the implementation of GST, which subsumed multiple indirect taxes, there arose a need to clearly spell out the provisions and arrangements to ensure smooth evolution, especially to provide for carry forward of input tax credits (ITC) relating to pre-GST taxes that were available with the taxpayers on the day of roll out of GST.  For businesses,the existing credit should be allowed to be carried forward properly to give them benefit of taxes they had already paid in the pre-GST regime. This provision is indispensable for their survival and to avoid cascading effect on taxes or double taxation. At the same time, the challenge to the administration is to verify on priority such correctness of such transited entries, so that only the admissible and eligible credits are carried forward into GST.The law prescribed that the registered person desirous of availing the transitional credit shall within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1/ GST TRAN-2 electronically, specifying therein, separately, the amount of ITC to which he is entitled. The law also provided for extension of this 90 days period by the Commissioner, on recommendation of the GST Council. However, to facilitate those taxpayers who could not file such forms/details by the due date on account of technical difficulties on the GST portal, the said provisions have been further extended from time to time with final deadline extended to 31 March 2020.

The transitional credits so availed have to be verified for eligibility of the credit, but no such planned comprehensive efforts have been made by most of the administrations. Even wherever such tasks are undertaken, no results of such verification is published so far. However, the Central Board of Indirect taxes and Customs (CBIC) has issued many instructions regarding verification of transitional credits by its field formations during September 2017 to March 2018 regarding verification of transitional credits. As per the recent Report No. 5 of 2022 (Indirect Taxes-Goods and Services Tax) of the Comptroller and Auditor General of India for the year ended March 2021, 10.13 lakh taxpayers had claimed the benefit of transitional credit of Rs. 1,72,584.96 crore under the Act, out of which 3.46 lakh taxpayers constituting 34 per cent of the taxpayers were on the Central side. The transitional credit claims of these 3.46 lakh taxpayers accounted for Rs. 1,34,029.23 crore constituting 78 per cent of the total transitional credit claimed under the Act. The CBIC has undertaken some efforts in this direction,but the results are not encouraging as the cited CAG reports indicate.

The Department identified 50,000 high value transitional credit cases for verification by CBIC field formations; the exercise has not been completed as it is yet to verify 4,079 cases. The irregular ITC detection had gone to Rs. 10,965.91 crore out of which Rs. 3,596.10 crore had been recovered. Cross jurisdictional issues and lack of co-ordination in Central Tax jurisdictions in some zones impeded verification and initiation of recovery actions. In view of the findings recorded in the report, the Audit recommends addressing the issue of inadequate maintenance of verification records in the jurisdictional formations as they are not amenable to review in the present form. It further recommends for initiating remedial measures for the compliance deviations pointed out before the claims become time barred. As the administrations are not at all prepared for making verification of ITC credit, including transitional credit, by use of digital tools in a transparent and accountable manner, the ineligible credit continues to create huge hole in the flow of the revenue to the exchequer.

In the meanwhile, hundreds of writ petitions had been filed by numerous taxpayers who were eligible for the credit but could not file the transitional credit forms by the deadline, owing to technical issues on the GST portal. Various courts gave different reliefs which was difficult to implement and monitor. In some cases, the Hon'ble High courts have directed the Government either to reopen the portal or to allow the manual filing of the forms. Some courts have suggested to the Government to set up a redressal committee. However, in a major relief to taxpayers who could not claim their pre-GST/Transitional credits, the Honourable Supreme Court has directed the authorities to open the GST system enabling the claim transitional credit for two months. The Apex Court in case of M/s Filco Trade Centre Pvt. Ltd. and Anr - 2022-TIOL-57-SC-GST directed the GST network to open a two-month window on GST portal for claiming the transitional credits by way of filing Tran-1 and Tran-2 by all eligible registered persons restoring the right of taxpayers flows to them in forms of pre-GST credit irrespective of whether they were party to any writ or redressal committee or otherwise.

It is a fact that the past Trans-1 and Trans-2 declarations remain unverified even today. There is no digital tool developed in the backend so far for verifying such credits in an accountable manner. The traditional way of conducting verification in an informal way, with no one to be answerable for conduct of verification in a time bound and transparent manner, will continue. History is sure to repeat itself as the administrations never learn from the past mistakes. The Public Revenue continues to suffer due to inadequacies of the systems in place.Is it not possible for making an effective backend tool now to verify Trans-1 and Trans-2 yet to be filed? The GST Council may examine this issue before prescribing appropriate guidelines to the field formations in scrutinizing the claims, in a transparent and reliable manner.

[The views expressed are strictly personal.]
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