Taxpayers in general are afraid of assessment. Due to this reason, they fear whenever they receive any communication from Department. I believe when they will receive communication from Department that their Returns have bene picked for Scrutiny, many will panic. This book is written with the objective to reduce their fear and assist them in handling GST Scrutiny. There is a general fear that sharing more information would lead to more observations from Officer. Therefore, the approach of many taxpayers is to withhold information unless officer ask them repeatedly. In my opinion, whatever information taxpayer have, they should share with the department, whenever asked. When you try to hide or delay sharing information, Department believes that you are concealing material facts and this could spoil the whole environment of even assessment or adjudication. Taxpayers should consider this as a routine and regular procedure. Instead of withholding information and being evasive, taxpayers should try and support the Scrutiny proceedings. This cooperation will help them establishing their case as genuine and honest taxpayer which cooperates with the department. I believe and wish that after going through this small handbook you would be well prepared before time and you will provide support to Revenue Authorities by responding to their queries swiftly with relevant information and documents.
In Scrutiny Department's job is to verify the correctness of the Returns filed by the Taxpayer. Department would use data readily available with them like e-way Bill, e-Invoice (it was implemented in later years), TDS & TCS etc for cross checking Return filed. Department would take help of "Advance Analytics in Indirect Taxes" (ADVAIT) &/or "Business Intelligence and Fraud Analysis"(BIFA) for selecting the riskier profiles. The Data Analysis plays crucial role in selecting GSTIN for Scrutiny and for Investigation or Audits too. The Data Analysis helps Department with relevant Information and today's Department is better equipped for detecting any kind of error or missed data in Returns. Artificial Intelligence plays crucial role in selection of cases for Scrutiny. ADVAIT creates reports to aid decision making and ad hoc analysis for investigations. It has Data Science Lab and Predictive Modelling. ADVAIT also supports data-driven tax policy formulation which includes enhancing indirect tax revenues and increasing taxpayer database. Using high-performance data mining, predictive analysis, risk scoring, text mining, forecasting for predicting revenues from Indirect Taxes (GST, Customs, historical data of Service Tax and Central Excise) Department is in a much better position then ever before. With the help of ADVAIT Department is predicting Inputs and Finished Goods by analysing HSN &/or CTH Code description. ADVAIT will also use "Pattern Recognition”. It would check entity clustering based on parameters like tax paid, commodities imported, services provided and goods manufactured. It will also detect shift in dwell time/volume/ value/commodities/Port of Origin / Ratios. Predictive Analysis will also help in predicting that an entity is probable missing/Carousal Trader. Based of analysis of Offence Database and Modus Operandi Circular, Selection of cases for investigation would be done. BIFA on the other hand is aimed for detection of tax evasion, revenue assurance and creation of statistical insights for policymaker. With almost 5 years of GST operations, GSTN has accumulated a large amount of data related to taxpayer's demographics. Now they are using Artificial Intelligence on this data and trying to identify potential fraudulent transactions. With the help of graph algorithms, they are identifying communities of taxpayers involved in fraudulent transactions. My view of writing this paragraph is not to make you afraid but to draw your attention towards how software is assisting Department.
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This book focuses only on the GST Scrutiny aspects. Scrutiny is new topic for GST. This topic has not got due attention that it deserves. But a recent issue of Instructions by CBIC has brought this topic in focus of everyone. GST has always been challenging even before its implementation. Returns of first few months of GST implementation (say for example Jul'17 to Sep'17) have a greater percentage of incorrect data than returns of later period. This was because of confusion and mess in GST implementation. But now it's the time to justify the data that has been punched in GST Returns. Corporates are aware of the reputational and financial risk involved due to default and they must have corrected all errors But what about MSME's and Small Tax Payers? GST Scrutiny is not only about furnishing relevant data to the Department, but it is more about reviewing, yourselves, the data which has been submitted earlier. Issues run deeper than what we assume.
This book is divided into 3 parts
- Part-I is divided into 3 chapters, Assessment, Officers under GST and Demand & Recovery. Chapter-1 Assessment deals about all aspects of the various types of assessment.
- Part-II is divided into two chapters, GST Scrutiny Decoded and Digest of GST Provisions. In GST Scrutiny decoded we have both commentary on Scrutiny and summary of a few selected case laws relevant to the topic.
- Part-III has two chapters, Role of Tax Professionals and GST Scrutiny Dossier.
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This GST Scrutiny Dossier is developed with our decades of experience of dealing with Service Tax Scrutiny/Audit and VAT Assessments/Audits. We have also incorporated best practices we have developed while dealing with GST Audits and Scrutiny. This GST Scrutiny Dossier would also be made available in Excel to anyone who is interested in Excel copy of the same. We have come across cases where Department is enforcing GSTR-2A match with ITC claimed in GSTR-3B. There is a concept of "Lex non cogit impossibilia" i.e., the law cannot compel a person to do anything that is impossible. Asking someone to match the form for July'2017 which was visible in October'2018 is impossible..!! GST Laws, while disallowing ITC, sometimes does not discriminate between honest and dishonest dealers. Few times the Law even wants a Registered Person to step into the shoes of "Enforcement Officer" and ensure the compliance is done at vendor's end. This is next to impossible because a dealer has no authority to ensure so. Various High Courts in their earlier judgements have given favourable judgements to Assesses, few are as follows:
- Quest Merchandising India Pvt. Ltd. vs Government of NCT of Delhi, W.P. (C) 6093 of 2017 , dated 26.10.2017 (Delhi High Court):
- The concerned provision (DVAT) to not include a buyer who has bona fide entered into the purchase transactions with validly registered dealers who have issued the tax invoices against the transaction.
- Sri Vinayaga Agencies v. Assistant Commissioner, W.P. Nos. 2036 to 2038 of 2013, dated 29.01.2013 (Madras High Court): Law does not empower the tax authorities to reverse the ITC availed, on a plea that the selling dealer has not deposited the tax. It can revoke the input credit only if it relates to the incorrect, incomplete or improper claim of such credit.
- Gheru Lal Bal Chand vs State of Haryana, Civil Writ Petition No. 6573 of 2007, dated 23.09.2011 (P&H High Court): The law need to distinguish between honest and dishonest dealers. Law cannot put such onerous responsibility on the assessee otherwise, it would be difficult to hold the law to be valid on the touchstone of Articles 14 and 19 of the Constitution of India. In the absence of any malafide intention, connivance or wrongful association of the assessee with the selling dealer or any dealer earlier thereto, no liability can be imposed on the principle of vicarious liability. Taxpayer cannot be forced to substantiate its truthfulness by running from pillar to post to collect the material for its authenticity.
ITC can also be denied by the Department because of a violation of time limits (Section 16(4)). Many feels that time limit for claim of ITC is a hardship but let me remind you friends, such provisions were also in many State VAT Laws. For example Section 19(11) of Tamil Nadu Value Added Tax Act, 2006 allowed Registered Person to make the claim before the end of the financial year or before ninety days from the date of purchase, whichever is later. This was challenged in Madras High Court (USA Agencies vs The Commercial Tax Officer, W.P.No.902 of 2009, dated 17-Jul-2013) where Court held that Time limit for securing Input Tax Credit under Section 19(11) - HELD - Section 19(11) is a valid piece of legislation, cannot be struck down as being either unreasonable or discriminatory and violative of Article 265 and 360A of the Constitution of India.
There are many challenges or issues which would be dealt with during the scrutiny of GST Returns but we need to do preparation on war footing for this. It would not be easy to explain Department many things merely by quoting the law but it would need establishment of the fact that due to this there is no loss to the exchequer and whatever has happened is minor procedural error that should be dealt with general minor penalties not with iron fist.
As this is the first time of GST Scrutiny and as we all are aware GST is a dynamic law, this book will not be stand alone product. This book comes with other support materials like PPT, Few important case laws, Excel Files, Videos etc. If you buy this book online then these would be shared to you through email and if you Buy this book through Offline Book Seller, then these would be shared to you once you fill the form and share it with us.
This book would not have been completed without the help of Mr. Kshitij Rastogi, Mr. Manish Mishra and Mr. Mukul Mishra who have helped me in various aspects of this.
I would like to dedicate this book to my Mother Smt. Suman who have trusted me and GSTpanacea Publications who agreed to publish this book.
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- ARR
Abhishek Raja "Ram"
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