Companies that Claimed Over 95% Input Tax Credit Under Radar

Highlights:

  • Tax authorities have dropped emails looking for answers from companies which paid over 95% of their tax liability by claiming Input Tax Credit.
  • The questions have arisen due to a big change in turnover reported by the companies, the decline in growth of central GST liability.
  • The Institute of Chartered Accountants of India (ICAI) western regional council has written and questioned the tax authorities practice in dealing with such cases.

Companies that used Input Tax Credit for paying most of its Goods and Services Tax (GST) liability or the companies that reported a drastic change in the turnover are being questioned by the tax officials.

Tax authorities have dropped emails looking for answers from companies which paid over 95% of their tax liability by claiming Input Tax Credit. Tax officials want to ascertain the crucial aspects responsible for such low amount of GST collections.

The questions have raised due to the big change in turnover reported by the companies, decline in growth of central GST liability and a huge gap in Input Tax Credit between GSTR 2A and GSTR 3B. In some places, companies have been asked to furnish tax payment challans. GSTR 2A and GSTR 3B are tax return forms.

GSTR 2A is a tax return related to purchases and is automatically generated by the GST portal. It includes all the information on goods and services purchased from the seller. GSTR 3B is a simple tax return introduced by the Central Board of Excise and Customs, it has to be filed by everyone who is registered under GST.

“It will be good if the government looks into this issue and comes up with clear guidelines in terms of information which should be sought from businesses and the manner in which it would be used,” said Pratik Jain, National Leader, Indirect Taxes, PwC.

The estimated revised budget for FY 2019, the government fixed GST revenue at INR 6.43 lakh crore, INR 1 lakh crore fewer than it was projected first. GST secured a collection of INR 92,427 crore in February. The collection of February month is much lower due to lesser days, however, it seems to increase in March.

Companies are feeling pressure due to tax authorities not giving them enough time to reply to the queries, tax officials are also sending frequent emails for seeking information to the queries.

“There is an increasing trend by the department to conduct such inquiries over an email, more so with revenue pressures at the end of the financial year,” said Bipin Sapra, partner, EY. “This needs to be avoided as there are proper mechanisms in law like annual returns and GST audit reports which are yet to be filed and which will provide the complete details being sought by the department.”

The Institute of Chartered Accountants of India (ICAI) western regional council has written and questioned the tax authorities practice in dealing with such cases. The tax officials have been dependent on various sources to verify information and make sure whether there’s any intent to cut down the tax payments illegally. There are several cases of companies intending to fend-off payments by producing fabricated invoices to avail Input Tax Credit.

The substantial utilization of Information Technology and focus on ensuring accounts are fairly settled, making sure Input Tax Credit claims were legal had been expected to lower down the tax evasion and improve compliance. However, an increasing number of suspected evasion cases have surprised the tax authorities.

Important Link:

  1. Companies with high input tax claims under lens

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