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Tax Evasion: Catch ’Em if You Can

Tax Evasion: Catch ’Em if You Can
Transporters are most affected by the E-Way Bill System/Photo: Anil Shakya
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Above: Transporters are most affected by the E-Way Bill System/Photo: Anil Shakya

To check tax evasion, several changes have been made in the E-way bill system ranging from auto-calculation of distance for goods’ movement to barring generation of multiple bills based on one invoice

By Sumit Dutt Majumder

The success of any new tax is measured by factors such as its general acceptability by taxpayers, the simplicity of its compliance procedures and the amount of revenue it garners. GST has generally been accepted by the people, except for the hardship caused to small businesses which is being addressed by the GST Council. The Council has also been taking corrective steps to make compliance simpler. But, on account of revenue earnings, the taxmen are worried as it is substantially below the target.

The reasons for this are manifold. The target itself was too ambitious as it placed too many items (more than 270) in the highest slab of 28 percent meant for demerit goods. Within four months of its introduction, most of these items had to be brought down to lower slabs, finally leaving only 28 items in the highest slab. There was a similar lowering of tariffs in the 18 percent and 12 percent slabs.

The other reason was a general slowdown in economic and industrial activity which led to less production and less supply of goods and services. This, in turn, led to less collection of GST revenue. But the most obvious reason was revenue leakage—tax evasion. Naturally, both the centre and states got worried and looked for ways and means to check tax evasion.

One of them was through the introduction of the E-Way Bill (EWB), an idea which was never on the table during the first five years of negotiations on GST and its compliance procedures. In the pre-GST regime, different states had different rates of state VAT, and therefore there was a system of checkposts at inter-state borders for the movement of goods. Coupled with this was a Way Bill system which was basically a receipt issued by the carrier of goods giving details of the shipment (name of consignor, consignee, point of origin, destination of the goods, route, etc).

After GST was introduced, all states and the centre have the same rate of GST for a particular item. So no need was felt to continue with the Way Bill. But well into the implementation stage, when GST revenue was continuously falling short of target, two or three states broached the idea of reintroducing the Way Bill system. Initially, there was lukewarm response; but finally, it caught the imagination of most states. Thus, EWB was introduced from April 1, 2018, nine months after the implementation of GST, for interstate movement of goods. For intra-state movement, it was introduced in phases, and by July 2018, all the states had implemented it.

EWB is basically a compliance mechanism wherein by way of a digital interface, the person causing movement of goods uploads the relevant information prior to the commencement of the movement and generates an EWB on the GST portal. It ensures that the goods being transported comply with GST laws, and is thus an effective tool to track movement of goods and check tax evasion. Rule 138 of CGST Rules, 2017, provides for different elements of the EWB mechanism, including the “who, why and how” of generation of the Bill, its validity, cancellation, consequences of non-compliance, etc.

Rules 138A to 138D deal with enforcement provisions such as documents and devices to be carried by the person incharge of the conveyance, interception of conveyance, verification of documents, examination of conveyance, verification of goods, uploading of information regarding detention of conveyance, etc. The provisions relating to interception of conveyance and examination of documents and goods at highways have been causing concern for trade in general and transporters in particular. There have reportedly been cases of harassment during such interceptions at remote places on highways, notwithstanding a detailed circular regarding the procedure for interception by the Central Board of Indirect Taxes and Customs.

These have raised questions about how many cases of tax evasion and what amounts were detected during these routine checks in comparison to the ones based on prior intelligence. Cases of tax evasion reported in the media suggest that almost all the cases were detected based on prior intelligence either by the Directorate General of GST Intelligence (DGGSTI) or the anti-evasion/enforcement wings of GST Commissionerates.

As trade and industry was debating these issues, the government has planned further strengthening of the EWB system with the increased use of technology for containing GST evasion. In a note on March 25, 2019, the government introduced further changes in the EWB system.

The new EWB system would be enabled to auto-calculate the distance for movement of goods based on the postal PIN codes of source and destination locations. The EWB system will calculate and display the actual distance between the addresses of the supplier and the recipient. The user is allowed to enter the actual distance as per his movement of goods. However, the final distance is calculated by adding 10 percent more than the displayed distance. For example, if the system has displayed the distance between Place A and B based on PIN codes as 655 km, then the user can enter the distance up to 720 km (655 km + 65 km). In case the source PIN and destination PIN are the same, the user can enter up to a maximum of 100 km only. If the PIN entered is incorrect, the system would alert the user about it being invalid. However, he can continue entering the distance. EWBs having invalid PIN codes would be taken up for review by the department.

The new system would also block generation of multiple EWBs based on one invoice. Once an EWB is generated with a particular invoice number, neither the consignor, the consignee or the transporter can generate another EWB with the same invoice number. It has also been decided to extend EWB in the case of goods being in transit—either on the road or in a warehouse. During the period of extension, address of the storage place or the place on the road from where extension is required will have to be uploaded. The new system will also not allow generation of EWB for interstate movement for composition tax payers because GST laws do not allow composition taxpayers to do inter-state transactions.

It is also expected that the government will focus more on the Radio Frequency Identification Devices (RFID)-enabled system for tracking vehicles carrying goods covered by EWBs. The rules already provide for the commissioner to have RFID readers installed at places where the verification of movement of goods is required.

The government plans to gradually integrate EWBs with the newly proposed GST return filing system. It plans to disallow taxpayers from using the EWB website to generate these bills if they do not file GST returns for two successive periods. After using this system for one year, useful data must have been collected about the EWB system. By linking it with the GST portal, useful data analysis can be done to identify non-filers and tax evaders.

Another important technological progress is invoice data transfer from the EWB portal to the GST portal for filing of GSTR-1. For this to work effectively, it is essential that there is proper declaration of GSTIN while generating EWBs. This will allow real-time monitoring of the transactions to check tax evasion.

All these proposed changes in the EWB system and return filing procedures in the GST portal point towards the government’s resolve to check tax evasion through enhanced use of technology. It’s a laudable approach. However, enforcement provisions for interception of conveyances on highways should be reviewed. This power should not be exercised at random merely on suspicion. The use of this authority should be restricted to the officers of the Directorate General of GST Intelligence and those of the enforcement/anti-evasion wings of the GST Commissionerates. For this, the DGGSTI and enforcement wings of Commissionerates will have to be strengthened. GST 2.0 must be totally technology driven and based on risk- and intelligence-based enforcement.

— The author is former chairman, CBEC, and author of GST explained for Common Man

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