Category: GST News

An individual, as yet unidentified, has been formally charged with the fraudulent acquisition of a GST registration number, leading to a substantial financial loss of Rs 12.36 crore for the UT Excise and Taxation Department.

Deepak Bhatt, an excise and taxation officer, initiated the complaint, revealing that a business entity by the name of M/s SS Enterprises was nonexistent at the registered address in Sector 37. Bhatt further highlighted the inability to locate the company’s proprietor, Surender, based on the information provided in the documents submitted for GST registration.

This discrepancy strongly suggested fraudulent activity, including potential misuse of the acquired GST registration for unauthorized purposes, such as issuing false invoices without actual movement of goods. Consequently, the department levied a penalty of Rs 12.36 crore against the company. However, both the company and its proprietor remained untraceable. As a result, a formal case has been registered with the Cybercrime police station.

In a significant development that provides clarity to businesses engaging in promotional schemes for expansion, the Karnataka Authority for Advance Ruling (AAR) has issued a ruling regarding the eligibility of input tax credit (ITC) for performance-based promotional schemes.

The ruling distinguishes goods provided free of charge to distributors or retailers upon meeting specific sales purchase targets from conventional gifts. It states that such goods remain eligible for input tax credit under the Goods and Services Tax (GST) framework. However, it is important to note that these giveaways are classified as ‘supply’ under GST regulations and are subject to taxation, even when transferred without any monetary consideration.

This dual nature of promotional item treatment, where ITC can be claimed but GST must be paid upon their transfer, highlights the need for further clarification in light of previous conflicting rulings, as mentioned by Ajinkya G. Mishra, a partner at S&R Associates.

The case under consideration revolved around a promotional initiative by Orient Cement Ltd., which rewarded its distributors with gold coins or other goods based on their purchase volumes over a specified period. The central issue was whether ITC should be allowed for these items distributed at no cost or if they should be considered as gifts, thus blocking ITC under existing tax laws.

According to GST laws, ITC is claimable only for goods used in the course of business operations, with an exception for goods distributed as free samples or gifts.

Orient Cement argued that ITC should be permitted for these items since they were an integral part of the company’s marketing strategy and directly contributed to business advancement. Furthermore, Orient contended that these items should not be labeled as gifts, as they were distributed under specific contractual conditions. As gifts cannot have conditions attached, these items should not be categorized as such, the company asserted.

The AAR recognized the merit in Orient’s argument and allowed the company to claim ITC. The ruling clarified that Orient issued these gold coins and white goods as incentives based on a contractual agreement with recipients, which included specific conditions and stipulations. Since a gift, by definition, lacks such conditions or stipulations, these items do not fall within the category of gifts.

This ruling offers a favorable outcome for businesses seeking to claim ITC for goods used in promotional activities. However, given the existence of opposing rulings that deny ITC for promotional items, Abhishek Jain, a partner and the national head of indirect tax at KPMG India, called for further clarification from the GST department on this matter.

Notably, previous cases involving Biostadt India Ltd. and Moksh Agarbatti Co. have resulted in the denial of ITC for goods distributed through promotional schemes.

Niraj Bagri, a partner at Dhruva Advisors, shares a similar perspective, emphasizing that promotional items should be viewed within the context of sales promotion schemes. Consequently, any expenses incurred have already been factored into the cost of goods supplied and have already borne GST. Thus, these expenses should qualify for ITC as they are akin to marketing campaign costs.

However, it’s worth noting that the ruling also deems such distributions, even without a financial exchange, as falling under the scope of supply as per GST laws, making them subject to taxation. Rahul Dhanuka, a partner at Khaitan and Co., expressed reservations about this aspect of the ruling, arguing that it may lead to disputes, particularly if the interpretation is expanded to include any goods with ITC that are disposed of without consideration.

Gunjan Prabhakaran, a partner at BDO, concurs with this perspective, contending that items like gold coins and white goods should be considered part of the original supply. Since GST has already been paid on the entire value of the original supply, imposing additional GST on the value of such items provided later as part of a sales promotion scheme appears contradictory to the department’s own circular on the matter.

GST revenue reached Rs 1.59 lakh crore in August, marking an 11% increase compared to the same period last year. This growth can be attributed to enhanced compliance and a decrease in tax evasion, as stated by Revenue Secretary Sanjay Malhotra. In August 2022, the GST collection amounted to Rs 1,43,612 crore.

Breaking down the August figures, CGST contributed Rs 28,328 crore, SGST accounted for Rs 35,794 crore, IGST reached Rs 83,251 crore (including Rs 43,550 crore from imports), and cess added up to Rs 11,695 crore (including Rs 1,016 crore from imports).

The Finance Ministry affirmed, “The revenues for August 2023 have surged by 11% compared to the same month last year. Import revenue experienced a 3% boost, and domestic transactions, including import of services, recorded a remarkable 14% increase compared to the corresponding period last year.”

However, it’s worth noting that while GST collections demonstrated year-on-year growth, there was a decline when compared to the collections in June and July.

In July 2023, the combined GST revenue for the central and state governments amounted to Rs 1.65 lakh crore, reflecting an 11% increase from the previous year. In June 2023, the total GST collection stood at Rs 1.61 lakh crore.

It’s essential to emphasize that the government has set an ambitious target of collecting over Rs 9.50 lakh crore through GST in the current financial year, ending in March 2024.

The Commercial Taxes Department, Government of Karnataka, has taken a decisive stand against a network of counterfeit GST bill operators in the southern zone of Bengaluru. This illicit syndicate facilitated companies within the service sector, particularly those dealing with manpower and labor supplies, to illicitly claim fake Input Tax Credit (ITC) and artificially boost their reported turnover.

In an official announcement, it is highlighted that this marks a groundbreaking operation, as it is the first instance of exposing a false invoicing scheme within the service industry.

Investigations by the Enforcement Wing brought to light that nearly 30 fictitious entities were established, utilizing the identities of family members, acquaintances, and associates. While scrutinizing the transactions, it was revealed that a staggering ₹525 crore was involved in this fraudulent activity. The enforcement team estimates a substantial revenue loss of approximately ₹90 crore suffered by the government due to this deception.

The Enforcement Wing swiftly took action and apprehended two individuals believed to be the masterminds behind this operation – Guru Prakash H.M. and Manjunathiah H.M. The operation is anticipated to lead to more arrests, as stated in the official release.

The Department of Commercial Taxes of Karnataka is adopting a robust approach in tackling the menace of fabricated invoicing and tax evasion. It is underscored that participation in such deceitful practices can result in severe consequences, including arrest, legal prosecution, and imprisonment. Additionally, fines, penalties, confiscation of assets, and the provisional seizure of properties and bank accounts may be imposed, reinforcing the government’s determination to root out such illicit activities.

The GSTN released an Advisory on August 28, 2023, concerning applicants who have chosen Biometric-based Aadhaar Authentication for their GST Registration application.

A change has been introduced to Rule 8 of CGST Rules. This change specifies that applicants who have indicated their preference for Aadhaar number authentication and have been identified through data analysis and risk assessment on the common portal will now undergo biometric-based Aadhaar authentication. Additionally, photographs of the applicants will be taken as part of this process.

The implementation of this change has reached its pilot phase, and the necessary functionality is prepared for launch on the GSTN portal. This new feature will first be introduced in Puducherry, starting from August 30, 2023. Here’s how the process will work: Once an application in Form GST REG-01 is submitted, but before the Application Reference Number (ARN) is generated, the applicant will receive either a message to visit a GST Suvidha Kendra (GSK) or a link on their declared Mobile and Email ID, as applicable at the Temporary Reference Number (TRN) stage. This step depends on the identification made by the common portal, facilitating a streamlined registration process.

For applicants who receive a link on their Mobile & Email ID for Aadhaar Authentication, they can proceed as per the current implementation to complete their application.

On the other hand, applicants who receive a message to visit GSK will need to go to the designated GSK location as communicated through Mobile/Email. Here, they will undergo biometric authentication for all necessary individuals according to the GST Application Form REG-01. It’s important to note that these applicants should visit the GSK before the TRN expiry date, as specified in the Email outlining the Biometric-based Aadhaar Authentication process. In such cases, the Application Reference Number (ARN) will only be generated after the successful completion of the Biometric-based Aadhaar Authentication process.

The operational days of the GSK will be determined by the state administration’s guidance.

You can find the complete details in the Advisory available at this link: Advisory Link.

On August 25, the Supreme Court took a significant step by issuing notice in two closely related writ petitions that were presented under Article 32 of the Indian Constitution. These petitions challenge the legality of certain aspects within the Central Goods and Services Tax Act of 2017 (CGST Act), most notably Section 69 (the power to make arrests) and Section 70(1) (the authority to summon individuals for testimony and document presentation). Remarkably, the Court has also taken the proactive measure of halting any forceful actions against the individuals who lodged these petitions. The judicial panel presiding over these matters consisted of Justices Sanjay Kishan Kaul and Sudhanshu Dhulia.

In the heart of these petitions lies the assertion that Sections 69 and 70 of the CGST Act hold an unconstitutional character due to their criminal nature. According to the petitioners, these provisions couldn’t have been established under the framework of Article 246A of the 1950 Indian Constitution. This argument stems from the idea that the power to detain and prosecute should not be viewed as secondary to the authority to impose and gather taxes on goods and services.

The petitioners clarified this viewpoint by referencing Entry 93 of List 1 within the Seventh Schedule of the Indian Constitution. This entry, they emphasize, grants jurisdiction to the Parliament to create criminal laws exclusively for matters outlined in List 1, not for matters related to CGST. Consequently, Sections 69 and 70 of the CGST Act are deemed to fall outside the legislative competence of the Parliament.

Furthermore, it was argued that despite endowing CGST officers with police officer and civil court powers during investigations, the proceedings are labeled as ‘inquiries’, and those summoned are not categorized as ‘accused’ individuals. This categorization, the petitioners believe, is inconsistent, as these officers do not possess the status of actual police officers and consequently, those summoned lack the protections afforded by Article 20(3) of the Indian Constitution. This discrepancy, the petitioners contend, places them at a distinct disadvantage.

The petitions also highlight ongoing legal matters before the Apex Court that concern the obligatory adherence to the procedures outlined in the Code of Criminal Procedure of 1973 (CrPC) when investigating offenses under the CGST Act of 2017.

In the context of these specific petitions, the situation involves the initiation of an investigation by the office of Respondent No. 2 pertaining to allegations of GST evasion or non-payment.

Given these circumstances, the petitioners initiated these legal actions, fearing potential coercive measures by the respondents. Their primary objective is to have the ongoing proceedings against them under the CGST Act, in connection to an alleged non-cognizable offense, quashed. They maintain that the current proceedings lack adherence to established legal procedures, as specified in Chapter-XII of the CrPC, particularly Sections 154 to 157 and Section 172.

Case Title: Gagandeep Singh v. Union of India, W.P. (Crl) No. 339/2023, Gagan Kakkar v. Union of India, W.P. (Crl) No. 357/2023

Petroleum dealers are assertively advocating for a shift to a unified tax system like the Goods and Service Tax (GST) across India. This call gains momentum in the wake of a recent peaceful protest held in Delhi by a faction of dealers from specific Northern states. The essence of their demand is to establish a consistent tax structure that spans across state boundaries. This initiative aims to eliminate the need for consumers residing near state borders to cross into neighboring states solely to purchase fuel, thereby nullifying the impact of fluctuating Value Added Tax rates. This reform would not only benefit customers but also prove advantageous for dealers located near these borders.

Elucidating this standpoint, K. P. Murali, the President of the Tamil Nadu Petroleum Dealers Association, underscores the practicality of uniform taxes. Murali emphasizes that the existing divergent tax rates create price disparities, making it inconvenient for consumers. Furthermore, the disparities can potentially hinder dealers’ operations, particularly those in close proximity to state borders.

Another persistent demand from these dealers is the enhancement of their profit margins. The Apoorva Chandra Committee’s 2016 report stressed that dealers need to sell 170 kilo litres per month to merely break even. This threshold would enable them to earn a remuneration of ₹27,500 monthly, coupled with an additional 5 paise per litre on diesel and 7 paise per litre on petrol, which translates to approximately ₹6,377 each month.

However, the practicality of this margin is disputed. Dealers contend that the operating cost of 34 paise per litre allotted to them fails to cover essential expenses such as internet charges, local government taxes, point of sale machine expenditures, fire fighting equipment, and other incidentals. This shortfall in support is particularly evident for dealers who transact lower volumes, with some reporting sales below 110 kilo litres per month.

A dealer with limited volume sales illustrates the challenge he faces. Despite the Apoorva Chandra Committee’s periodic recommendations to increase margins, he laments that his profit margin remains stagnant. The proliferation of retail outlets, numbering around 86,000 across India, has intensified competition. The situation is exacerbated by the establishment of new outlets in close proximity to his own. In light of these difficulties, he remains skeptical about the prospects of his business flourishing.

Tamil Nadu alone houses approximately 6,500 retail outlets that distribute fuel supplied by state-run oil marketing companies. The plight of these dealers reflects broader industry dynamics, underscoring the urgency for reforms that would not only ensure dealers’ viability but also benefit consumers by simplifying the fuel purchase process.

Get ready to seize a remarkable opportunity! Commencing on September 1, the government / GST Council is gearing up to unveil the ‘Mera Bill Mera Adhikar’ incentive scheme, designed to encourage patrons to demand invoices for their purchases. Through this initiative, consumers are presented with an enticing chance to pocket cash rewards varying from Rs 10,000 to a whopping Rs 1 crore. These attractive prizes will be distributed through monthly and quarterly draws.

Pioneered by the Central Board of Indirect Taxes and Customs (CBIC), this pioneering endeavor will make its debut across six States and Union Territories: Assam, Gujarat, Haryana, Puducherry, Daman & Diu, and Dadra & Nagar Haveli.

Beyond the allure of potential rewards, this scheme endeavors to foster a culture of responsible consumption. By offering individuals incentives to demand legitimate invoices, this initiative takes a significant step towards curtailing tax evasion, nurturing accountability, and bolstering the formal economy’s expansion. In line with the government’s aspirations to refine GST procedures and enhance revenue collection, this digitally-driven campaign is in perfect alignment.

Curious about how to take part in the ‘Mera Bill Mera Adhikar’ initiative? The process is simple. Individuals need to upload invoices issued by suppliers registered under the Goods and Services Tax (GST) on the dedicated ‘Mera Bill Mera Adhikar’ mobile application. Remember, for eligibility in the lucky draw, the minimum value of the invoice should be Rs 200. Additionally, participants can upload a maximum of 25 invoices per month. The user-friendly app will be accessible on both iOS and Android platforms, ensuring easy participation for all users. The invoices you upload should encompass essential details such as the seller’s GSTIN, invoice number, payment amount, and tax particulars. Don’t miss out on this chance to both potentially win big and contribute to a more transparent and accountable economy.

Infosys’ technology support contract for Goods and Services Tax (GST) is set to conclude in September 2024. In response, GST Network (GSTN) has initiated a search for a consultancy firm. This firm’s primary task will be to create a bid document for the selection of a new technology service provider and to outline a strategic path for elevating the system’s capabilities to what is referred to as GST 2.0. The chosen consultancy must ensure a competitive bidding process and a seamless transition of GSTN’s IT service infrastructure to the new technology provider. This provider will be responsible for furnishing the requisite software and hardware for GST systems over the ensuing seven years, commencing from October 1, 2024.

The scope of responsibilities for the consultancy firm encompasses crafting a request for proposal (RFP) document through an evaluation of the existing system. This assessment will draw upon insights from the past seven years of GST technology. The firm is also tasked with plotting a trajectory for system enhancement and operations during the upcoming contractual term.

India introduced the GST, a pivotal indirect tax reform, on July 1, 2017.

Back in September 2015, prior to the GST’s launch, Infosys had secured a Rs 1,320-crore contract to construct the technological foundation for GST Network. This victory marked a win over competing giants like TCS, Wipro, Tech Mahindra, and Microsoft. The contract entailed establishing a database for the novel tax framework, facilitating enrollment, registration, full automation, and even creating a mechanism for claims and refunds.

Infosys has since played a pivotal role in offering IT infrastructure support for GST-related activities, including business registration, return submissions, tax payments, and tax officer audits.

As the tenure of the present Managed Service Provider (MSP) comes to a close, GSTN is actively pursuing a competitive bidding process to secure a new MSP. This entity will oversee the development, enhancement, and operation of the GST System for the next seven-year period, beginning October 1, 2024.

An outreach to Infosys for comments on this matter yielded no response.

The consulting firm chosen by GSTN will facilitate the competitive bid process for selecting the MSP, in addition to facilitating the transition from the incumbent MSP. The eligibility criteria for the consulting firm necessitates an average annual turnover of Rs 30 crore over the last three years from IT consulting services or IT application development for direct or indirect tax systems or financial systems in India.

Interested parties must submit their bids by September 5.

As a precursor to appointing an MSP, the consulting firm will formulate the detailed RFP, manage the MSP selection procedure on behalf of GSTN, and facilitate the handover of the GST System to the chosen MSP.

The impending MSP’s mandate will extend beyond a mere migration of the current GST System; it will encompass substantial enhancements to system capabilities and the establishment of an efficient monitoring framework.

“The consulting agency will evaluate the recommendations of the technical review committee and identify emerging technical trends to be incorporated into the RFP for the GST System. These requirements can be conceptualized as GST 2.0 in terms of system capabilities,” explains GSTN.

The consulting agency will factor in the existing structure, historical growth patterns, modifications to the GST System beyond its original scope, and the evolving government roadmap—encompassing proposed changes by the GST Council, Law Committee, and others. This assessment will determine the required capacity sizing for operating and improving the GST System over the contractual term.

“While provisioning sufficient capacity to ensure operational readiness for the next seven years and considering various growth parameters, the consulting agency should also include a provision for the potential MSP to phase in infrastructure enhancements throughout the project’s duration,” adds GSTN.

Presently, there are 128 million registered taxpayers under GST. Since its inception in 2017, more than 1.25 billion invoices have been processed through GST systems, and over 670 million returns have been filed.