In an elaborate scheme to sidestep Goods and Services Tax (GST) regulations, a Western Uttar Pradesh-based chewing tobacco manufacturer has been exposed for employing decoy e-way bills. The strategic evasion, amounting to nearly ₹500 crore, highlights the vulnerabilities within the current tax enforcement framework.
Tobacco products, including chewing tobacco, are subject to a substantial GST rate of 28 percent and an additional cess of 0.56 times the retail sales price, making them prime targets for tax evasion. Despite new measures to combat such fraud, this manufacturer innovatively distributed its products to bypass the hefty tax obligations.
Sanjay Kumar Agarwal, Chairman of the Central Board of Indirect Taxes and Customs (CBIC), revealed that officers from the Directorate General of GST Intelligence (DGGI) launched an investigation following specific intelligence. The investigation focused on a clandestine manufacturing unit in Western Uttar Pradesh, suspected of illicitly clearing chewing tobacco.
Surveillance operations at the manufacturing site tracked multiple vehicles using misleading e-way bills for other commodities. These vehicles deviated from their declared routes to discreetly unload untaxed chewing tobacco at various warehouses in the Delhi NCR region. This sophisticated maneuvering was designed to evade detection and avoid the significant GST and cess.
The subsequent comprehensive search operations at the manufacturing unit, warehouses, and associated business and residential premises uncovered detailed records and unaccounted cash. The operation unveiled a massive duty evasion totaling nearly ₹480 crore. This case, according to CBIC officials, is one among numerous instances of tax evasion that have surfaced in recent years.
In response to the pervasive tax evasion within the tobacco industry, the Government, acting on the GST Council’s recommendations, issued a notification in January mandating additional compliance measures for taxpayers dealing in products like pan masala and tobacco. This includes two new forms – GST SRM-I and GST SRM-II – which cover registration and disposal of machinery, and monthly input-output information respectively. Initially slated for April 1, the implementation of these forms was deferred to May 15.
The Finance Act 2024 further tightened the regulatory framework, stipulating penalties up to ₹1 lakh for manufacturers of pan masala, gutka, and similar tobacco products who fail to register their packing machinery with the GST authorities. Although the penalty provisions have not yet been notified, this amendment underscores the government’s resolve to curb tax evasion.
Under the new procedures, manufacturers of specified tobacco products are required to report their packing machines within 30 days of the new regulations taking effect on May 15, 2024. Any additional machines installed must be reported within 24 hours. Furthermore, monthly statements detailing packing activities must be submitted by the tenth day of the following month, ensuring continuous oversight and compliance.
This rigorous approach aims to close loopholes and enforce stringent accountability among tobacco product manufacturers, mitigating the rampant evasion and ensuring equitable tax collection.