Tagged as biggest indirect tax reform of Independent India, GST aims at ease of business doing. Since there is only one tax on supply of services and goods, regulatory environment is expected to be very helpful for starting and operating the business.

Amidst this, companies have to ensure that they do not indulge in any fraudulent activities since GST act deals very harshly with the defaulters. Penalties are high, and can impact the financials of defaulters severely. Along with it, prosecution powers have also been given to the officers, which will directly affect the market goodwill and brand.

Hence, key managerial personnel, and overall management of the company should keep a note of all the frauds under GST, so that they can act accordingly to prevent fraudulent activities inside the company –

Tax rate wrongly charged

GST has to be charged on rates as prescribed by the GST council from time to time. Under no circumstances, business can charge GST at a rate higher than rates prescribed by GST council.

Some of the goods or services have been exempted which means GST shouldn’t be charged on such goods or services, but businesses are charging GST even on those goods or services.

Government has provided list of all goods/ services and GST rates to be charged on each good/ service. Also, ‘GST rate finder’ app launched by government makes it very easy for consumers to verify whether business is charging correct tax rate or not.

Advice for companies – Companies have to ensure that their billing system always picks up the correct tax rate at the time of invoicing. Initially, when tax rates are changing every now and then, billing system has to be updated on the go. Incorrect tax charge can attract high penalties and prosecution.

Charging GST over MRP

A shopkeeper cannot charge GST over and above Maximum Retail Price (MRP) of the product. GST amount must be included in MRP of the product. If any shopkeeper is caught charging GST over MRP, penalty can range from 2000 to 25,000. If the shopkeeper repeats the offence, the amount of penalty will be doubled.

Advice for companies – Companies operating in Fast Moving Consumer Goods (FMCG) industry have to take care that GST must be included in MRP of the product, and all shopkeepers must be directed not to charge any amount in excess of MRP.

GST type to be charged on invoice

In many a cases, companies charge both SGST and CGST as well as IGST on the invoice which is incorrect. Companies must ensure the place of supply, and accordingly charge the GST type.

Advice for companies – Location of the recipient has to be considered, and accordingly place of supply rules must be applied. Companies should take due advice from the consultants to beware of any fraudulent activities.

Charging GST without being registered

Companies cannot charge GST, if they are not registered under GST Act. Many a times, companies after applying for registration, start collecting GST from the consumers. It is counted under fraudulent activities.

Advice for companies – It should be ensured that GST is being charged once GSTIN number has been obtained. Through GST portal, consumer can verify whether GSTIN number is correct or incorrect, hence companies must not mention incorrect GSTIN number on their invoice. Doing this can attract penalties as well as prosecution.

Cognizable offences

Following frauds have been placed into cognizable offences under GST act –

  1. Amount of tax evaded is more than Rs. 5 crores
  2. Amount of input tax credit availed wrongly is more than Rs. 5 crores
  3. Amount of refund wrongly taken is more than Rs. 5 crores.

Cognizable offences are those, where specially empowered officers have a right to arrest without warrant and initiate the investigation without permission of court.

Fraud and damage to goodwill of business

Businesses will have to strengthen their internal controls and re-formulate their policies to do whatever it takes to prevent any of these fraudulent activities. If the business is found indulge in any fraudulent activities, its GST compliance rating may get badly hit, and will severely affect the market goodwill of the business.

Government is taking all the necessary steps to curb any fraudulent activity, and every business is on its radar. Hence businesses need to operate safely and comply with all the provisions.

Avalara is an experienced application service provider (ASP) and partner of authorised GST Suvidha Providers (GSPs). To understand how our cloud-based application Avalara Trust File GST can help you with GST compliance automation, contact us through https://www.avalara.com/in/products/gst-returns-filing.

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Qualification: Graduate
Company: Content Flavour
Location: Jaipur, Rajasthan, IN
Member Since: 31 Oct 2017 | Total Posts: 18
Creating articles on GST, Income Tax, Business Compliances and other related topics for top fintech startups as well as companies in India. View Full Profile

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June 2021