New Delhi: Signalling strong enforcement action under the goods and services tax (GST) regime, the Mumbai division of the central government’s indirect tax arm said on Wednesday it has made the first arrests under the Central GST Act for alleged fraud.
Two people were arrested by the Mumbai commissionerate of the Central Board of Excise and Customs (soon to be renamed the Central Board of Indirect Taxes and Customs) for allegedly exchanging paper invoices without any movement of goods and claiming false input tax credit.
The arrests are significant as they indicate stricter enforcement by the government under the new tax regime that came into force on 1 July last year.
The two accused are Sanjiv Pravin Mehta, director of Shah Brothers Ispat Pvt. Ltd, and Vinay Kumar Arya, director of V.N. Industries Pvt. Ltd, said a statement.
While the input tax credit claimed by Mehta amounted to Rs5.2 crore, it was Rs2.03 crore in the case of Arya.
As per the provisions of the CGST law, issuance of an invoice or bill without a corresponding supply of goods and wrongful availment or utilization of input tax credit can lead to arrest.
Evasion of over Rs5 crore in tax is a non-bailable offence under the CGST law.
Emails and phone calls to Shah Brothers Ispat remained unanswered at the time of going to press. Emails sent to V.N Industries also drew no response.
The centre and state governments suspect massive tax evasion under GST due to the lax implementation. A delay in the implementation of the e-way bill system and the invoice matching system has worsened the situation.
Invoice matching is key to checking fraud as the law is framed in a manner wherein relevant input tax credit for purchase of goods will only be available if the details of inward supply by the buyer in the tax return form matches the details of outward supplies in the return filed by the supplier.
Implementation of the e-way bill system—an electronic documentation system tracking the movement of goods and preventing underreporting and evasion of taxes—will be rolled out from 1 April after technological glitches forced the GST Council to defer the roll out initially scheduled for 1 February.
“Eight months have passed since GST was introduced. A lot of outreach programmes have been held. It is now time to take enforcement action to improve compliance,” said a person with knowledge of the thinking in the GST Council who did not wish to be identified. This person said anti-evasion measures will be taken by both central and state-level officers.
Finance minister Arun Jaitley had on Tuesday lamented the non-compliance levels in industry saying that the next round of rationalisation in the GST structure, involving the merger of the two standard rates of 12% and 18%, will have to wait until compliance improves.