Dr. Sanjiv Agarwal, FCA, FCS
We all know that GST is a tax law which is largely an e-tax with every-thing from registration to appeals being filed online and every data is online subject to sharing among tax officials as well as business intelligence by the tax authorities. Tax officials could probe the following transactions or may have reason to initiate enquiries.
Following are few illustrative areas which may trigger suspicious business / trade practices in GST regime and raise alert at the revenue authority’s end:
(1) Substantial carry forward of input tax credit on closing stock as on 30.06.2017 (GST applicable w.e.f. 1.7.2017) .
(2) Major changes in incentive or discount policy (Trade discounts/ quantity discounts, turnover incentives/bonus etc).
(3) Changes in accounting policies and accounting treatment to specific transactions.
(4) Sudden exit of suppliers or induction of new suppliers – scrutiny of transaction with them.
(5) Closure of businesses and / or name changes or change of proprietors.
(6) Major accounting policy changes in relation to inventory / procurement / sales etc and valuation thereof.
(7) Stock position may be verified and cross verified with sales to find out cash purchases / cash sales.
(8) Procurement may be verified with e-way bills which is mandatory w.e.f. 1.4.2018 for inter-state movement of goods and w.e.f. 15.04.2018 / 20.04.2018 / later for intra-state movement of goods.
(9) Linking of major purchase bills / sales bills with e-way bills may give leads on fictitious billing.
(10) Any substantially high input tax credit claims should raise doubts. Similarly, input tax credit foregone may also be probed.
(11) Reconciliation of audited financial statements with returns furnished under GST [Rule 80(3)].
(12) Scrutiny of audit reports if the two auditors (financial / GST) are different.
(13) Examination of major changes in business practices / accounting policies post 1.7.2017.
(14) Scrutiny of stock transfers, free of cost supplies and dealings with related parties.
(15) Wrong carry forward of transitional credits (TRAN-1 return).
(16) Input tax credit lapsed due to no duty paying evidence (may be due to cash transactions earlier).
(17) There is an anti-profiteering provision (section 171) in GST. Companies not complying may be probed for hidden benefits.
(18) In GST, compliance ratings are assigned. Any material down grading could be probed (yet to commence).
GST Taxpayers may note that GSTN has commenced sharing of the following taxpayer’s data with Tax Authorities:
The reports of the above, based on BI and analytics, are being shared with Tax Authorities for taking necessary actions.