The Finance Bill 2020 has proposed several amendments to the Goods and Service Tax Act with a view to impose penalty and prosecution upon persons facilitating and benefiting from fake invoice transactions. The Bill also seeks to make fraudulent availment of Input tax credit into a cognizable and non bailable offense at par with supply without an invoice or fake invoicing provisions. CA Sujay Ajgaonkar has explained the scope of these amendments in a clear and straightforward manner
On the 1st of February 2020, our honorable Finance Minister Shrimati Nirmala Sitharaman had presented the Budget 2020-21 and had proposed various amendments to the Goods and Service -tax Act. One of the highlights of these proposed amendments was to extend penalty and punishment to people facilitating and benefiting from fake invoice transactions. Also, fraudulent availment of Input tax credit has been made cognizable and non bailable at par with supply without an invoice or fake invoicing provisions. These aspects have been explained in detail towards the end of this article.
Brief descriptions of the proposed amendments in the CGST Act, along with the other propositions related to GST made in the Budget 2020 are stated below:
I Proposed amendments to the CGST Act, include:
1. Clause 116: Amendment in Definition of Union Territory – Section 2(114) of CGST Act. (Reorganization of Union Territories): The Union territories of Dadra and Nagar haveli stand merged. Also, Ladakh has been added to the list of Union territories.
2. Clause 117: Amendment of section 10 – Conditions for Opting Composition Scheme (Goods): Section 10 exclusions for opting composition scheme [Section 10 (2) clause (b), (c), (d) ] widened to exclude exempt services, interstate supply of services and services provided through e-commerce operation. Earlier, the above supplies were only to exclude goods from opting the composition scheme.
3. Clause 118: Amendment of section 16(4) – Time Limit for Availing ITC in case of Debit Notes: This proposed amendment makes the debit note issuing date the relevant date for availing input tax credit and ITC is now not restricted to the date of invoice pertaining to such debit note.
4. Clause 119: Amendment of section 29 – Cancellation of Registration. (Related to Voluntary Registration): Initially a person voluntarily registered under the GST legislation could not opt for cancellation of registration. The proposed amendment now empowers the proper officer to cancel the registration even in the case of Voluntary Registration.
5. Clause 120: Amendment of section 30 – Enhanced Time limit for Revocation of Cancellation of Registration: Before the proposed amendment the time limit of revocation of cancellation of registration was 30 days. Now this limit could be extended by 30 days and an addition 30 days by the Joint Commissioner or the Commissioner respectively.
6. Clause 121: Amendment of section 31 – Amendment in Time & Manner of Issue of Tax Invoice for supply of services: It is an enabling provision to empower the government to specify the time and manner in which an invoice is to be issued for a certain category of services.
7. Clause 122: Amendment of section 51 – Tax Deducted at Source: Aims to omit the existing penal provision for failure to furnish TDS certificate.
8. Clause 123: Amendment of section 109 – Constitution of Appellate Tribunal and Benches thereof for Union Territory of Jammu & Kashmir : Aims to get Jammu and Kashmir under the normal CGST tribunal along with other states.
9. Clause 124: Amendment of section 122 – Penalty for certain offences (Related to Fake Invoicing) : Proposed amendment makes the mediator/ beneficiary liable with the same degree of penalty as a taxable person i.e. supplier or transporter etc. when it comes to fake invoicing.
10. Clause 125: Amendment of section 132 – Punishment for certain offences- (Related to Fake Invoicing) : Proposed to extend punishment under this section to a person who causes to commit such offence and also to a person who retains benefit thereto of such offences mentioned under section 132. It further makes the offence of availing ITC without invoice a cognizable and non bailable offence.
11. Clause 126: Amendment of section 140 – Amendment in time of availing Transitional Credit: Proposed retrospective amendment to overcome the effect of judicial judgements allowing transitional credit so as to provide for time limit and manner of claiming transitional credit.
12. Clause 127: Amendment of section 168 – Power to issue instructions or directions by Jurisdictional Commissioners: For Special Audit Fee and Job Work Procedure the jurisdictional commissioner is to exercise powers. No approval of the board like in the past is required now.
13. Clause 128: Amendment of section 172 – Increase in period of issue of Removal of difficulties Order by another 2 years :(From 3 years to 5 years)
14. Clause 129- Retrospective Amendment of Schedule II – Activities or Transactions to be Treated as Supply of Goods or Supply of Services [Clause 4, Transfer of business assets] : Entries at 4(a) and 4(b) in Schedule II of the CGST Act is proposed to be amended retrospectively to make provision for omission of supplies relating to transfer of business assets made without consideration from Schedule II of the said Act.
15. Clause 130: Retrospective exemption from, or levy or collection of, central tax in certain cases : (Supply of Fishmeal, pulley, wheels and other parts). No refund shall be granted of the tax already paid.
16. Clause 131: Retrospective effect to notification issued under section 54(3)(ii) of CGST Act :Made to deny refund of accumulated credit of compensation cess on tobacco products arising out of an inverted duty structure.
II. Other propositions made in the budget were:
a) A simplified GST return filing system which is currently in the state of pilot run is proposed to be introduced from 1st of April 2020 with certain key features like pre-filled returns, SMS based filing of Nil returns etc.
b) There would be an Aadhaar based verification of taxpayers for filtering the dummy and non-existent entities.
c) There would be a dynamic QR- code for consumer invoices and GST parameters would be captured while making payments through the QR-code.
d) Implementation of the e invoicing system would happen in a phased manner. The same would start optionally from the month of February 2020.
e) Using cash rewards as an incentive for customers to seek tax invoice and also use of Artificial intelligence tools and deep data analytics for dealing with frauds related to GST.
Most of the above proposed amendments are specific, procedural and clarificatory in nature. Some seek to increase the scope or impose restrictions to the existing provisions of the Act while others provide clarity on certain provisions which had been disputed in the past.
– FAKE INVOICING AND MANIPULATION OF BOOKS. (BUDGET 2020)
One of the most important aspect of the Budget 2020 was the propositions made under GST and Income Tax to discourage taxpayers to manipulate their books and claim wrong input tax credit.
GST :
Out of the propositions made under GST, the important ones would be of clause 124 & 125 (Penal provisions for Fake Invoicing) related to penalty and punishment for certain offences .
Clause 124) Initially the section 122(1) of the CGST Act provided for levy of penalty for the offences which include issuing an invoice when there is no supply, making a supply without an invoice or on the basis of a false invoice, utilization of input tax credit without actual receipt of goods or services, distribution of input Tax Credit in contravention of the ISD provisions.
With the insertion of subsection (1A) after subsection (1) in section 122, the penalty for the above transactions would extend to beneficiaries in such transactions and to the person at whose instance such transactions are conducted.
Clause 125) An amendment has been proposed in Section 132(1) which extends punishment for fraudulent availment of input tax credit without invoice or bill and also to make any person who retains the benefit of certain transactions (listed in Sec 132(1)) and at whose instance such transactions are conducted liable for punishment.
Fraudulent availment of input tax credit without an invoice would be treated as a cognizable and non bailable offence under sub section (1) of section 69 of the Act.
Income -tax, Act , 1961
Clause 98) (2020) 420 ITR 222(St.)
A new section 271AAD has been proposed to be inserted in the Income Tax Act, to penalise people maintaining books of accounts in case of false entry or omission of entry relevant for computing total income.
Such a person or any other person who causes such a person to commit any of the offences mentioned above would be penalized by way of penalty, a sum equal to aggregate amount of such false and omitted entries.
False entries would include fake invoices, forged or falsified documents etc.
CONCLUSION:
With these proposed amendments related to fake invoicing and false entries, it is clear that the government wants to extend accountability in the hands of a person causing or benefiting from the above mentioned transactions and also penalize and punish any fraudulent activity undertaken in respect of the above transactions. These proposed amendments would give more power to the government related to such cases and would help curb the fraudulent activity of fake invoicing and manipulation of books of accounts.
Also, it would be interesting to see how the GST authorities implement the new proposed GST return filing system which is currently in the pilot run phase and is scheduled to be introduced from the 1st of April 2020. The tax payers are still in the phase of getting well versed with the existing GST return filing system with the Annual Return (GSTR -9) and GST audit (GSTR 9C) already subject to complications and delays. It would be crucial to introduce the proposed new GST return system in a smooth and phased manner to avoid complications and constant change which the GST ecosystem is currently subject to.
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Comparison of penal provision under GST and income tax new provision u/ s 271AAD is very good and useful . Entire amendments are explained in very lucid language .Congratulation
Very good analysis of the GST provisions .