AUGUST 12, 2024

By TIOL Edit Team

COMPTROLLER and Auditor General's (CAG's) latest report on Goods and Services Tax (GST) should serve as yet another reminder to Union Government to not delay further the resolution of persisting issues in this domain.

Four key issues emerge from the Report: 1) Plugging lingering loopholes & inefficiencies, including acute manpower shortage, in revenue collection, etc. 2) Restoring the sanctity of GST as a cooperative federalism impost 3) Allowing CAG to audit all records to help harness GST as harbinger of abundant resources for robust, inclusive economic growth and 4) Improving framework for GST to make it a really good and simple tax.

First issue first. The Finance Ministry has told CAG that there is 50% shortage of Inspectors in most of the audit Commissionerates. The ministry has attributed this as one of the reasons for substantial failure in attaining annual, internal audit targets year after year.

Manpower shortage is also the reason for mega shortfall in recovery of unpaid GST- short levy of tax detected via internal audit.

According to CAG report on indirect taxes-GST presented to Parliament on 8th August 2024, recovery of short levy of tax declined to 17% of the total (Rs 10,246 crore) detected under-recovery in 2021-22 from 21% of corresponding total short-levy in 2020-21. The total enterprises examined by internal audit, however, increased to 48% of the total 41,026 units planned for scrutiny from 26% during the same period.

As 52% of enterprises in planned sample in 2021-22 were not subjected to internal audit, the amount of short levy of GST that went undetected can be anybody's guess. One can safely believe the amount to be good enough for setting set up few thousand primary health centres in rural areas.

The Ministry has also attributed pendency of appeals to "vacancies in CESTAT and some benches of tribunal ." It identified this as one of the major reasons for pendency of 8781 appeals cases involving revenue of Rs 13,475 crore as on 31st March 2022.

No constraint on the earth should checkmate Bharat from staffing adequately revenue administration, revenue tribunals and revenue benches in the courts.

As for operational deficiencies, The Report says:"Audit observed persistent data inconsistencies such as inconsistency between " Input Tax Credit (ITC) in monthly returns and declarations in annual return. It also noticed persistency in inconsistencies between the CGST and SGST component of GST and between taxable values, rate and declared tax liability.

Consider now 2nd issue of safeguarding the sanctity of GST as flag bearer of co-operative fiscal federalism. The Ministry didn't reply to CAG's query as to whether it acted on relevant, statutory stipulation for dividing equally between the Centre and the States the year-end balances of Integrated GST (IGST) for 4 financial years (FYs) ending 2021-22.

CAG also flagged the issue of non-submission of GST Compensation Cess Fund (GCCF)'s accounts beginning 2017-18 -an issue that it raised in its earlier reports. In September 2021, the Ministry's Controller General of Accounts (CGA) told CAG that there was apparently no need for separate account for GCCF transactions & their submission to CAG for audit.

CAG responded by suggesting preparation of a note to GCCF accounts, indicating compensation due to each State, how much paid to each State and balance, if any. CAG "was stilling awaiting " from CGA the preparation and submission GCCF accounts in sample format conceived by it, according to the Report.

It bemoans: "Audit is still unable to perform its statutory auditing responsibility "in respect of four FYs ending 31st March 2021.

The problem of opacity in governance of GST system finds echo in the 3rd issue mentioned in the beginning of this editorial.

The report has also elaborated other instances of non-production of records before it for auditing. It is unfortunate to find CAG pleading helplessly year after year for getting access to GST records as its scrutiny can help in unravel GST's hidden problems as well as its potential. (GST vision for New India - through CAG's eyes AUGUST 10, 2022)

CAG has also observed glaring lackadaisical approach towards improving GST receipts, which can serve as propellent for Viksit Bharat mission. (Revamp & Reboot GST Audit as Mooted by CAG & PSC APRIL 20, 2023)

Recalling its recommendations in previous reports for fixing definite time-frame for rolling out simplified return forms, CAG says: "the existing GSTR-3B still had gaps and needed improvement."

CAG could not verify the monitoring mechanism on returns filing in 113 ranges out of a sample of 179 ranges. As put the report, "the monitoring mechanism was deficient as MIS reports related to non-filers/late filers of normal and composition taxpayers were not available to the range officers to take timely action."

As regards the Composition Levy Scheme (CLS) for levying GST on small taxpayers, CAG's data analysis of 8.66 lakh CLS entities for three years ending 2021-22 "revealed significant number of high-risk taxpayers with the risk of crossing the turnover threshold for CLS." The analysis also showed that certain CLS entities continued to operate under the scheme despite not fulfilling statutory eligibility norms.

Anyone committed to Modiji's Vikas vision can read the Report to read more similar issues that are impacting blooming of GST as lotus flower at the Centre and the States.

The glitches, inefficiencies and other problems can also be identified in annual CAG reports on the States' respective State GST.

The persisting taxation issues at the Centre and at the States have ensured that GST gets stunted as ever-lasting work in progress. The ball is, both in the court of GST Council as well as the Centre.