CA Nitin Bansal
GST brought a large relief to tax collecting citizens of the country. Earlier, if someone had to collect the tax from the customer but somehow had some intention to keep with himself, he had to manage whole bunch of people. Excise had havoc due to its managing officers as managing them was part and parcel of the regime. People tried to stop their production beyond 1.49 crores or just left marking the sale beyond the limit to avoid the exemption limit. Though the GST is called Gabbar singh Tax, I have seen Central Excise an object of aversion. Every segment of manufacturing had its own share for different people depending on how much they keep up from customer. Metaphor is just the Dogma that both the parties used to call other a culprit.
When GST came into effect, the visiting power of officers suddenly halted. Earlier after registration, the officer had to make the PV review report and that visit made officer to assess that how much one has the limit. From there only the conversation started and new relations used to bud up. But now in GST the physical verification has been done away with making a new system stolid and a good business man could have anything in his premises and no one can know. Barring extreme cases, officer does not dare to visit the premises of the Registered Person in recent times. People are really happy like those teenagers living away from their hometown making believe their parents that they are heavily trying their best to become an IAS officer but the fact being that whole of the time they are trying something else. This whole regime has come to similar state without a check when we are filing GSTR 3B and GSTR 1 to make the government believe that we are a faithful tax collecting citizen and are abiding as always we were. The current period of Filing of GSTR 9C is making us believe that how fair the transactions have been done.
Section 67 has bounded the officer to take permission from the officer not below the rank of Joint Commissioner before conducting the Inspection, Search or Seizure in the premises of the Registered Person. In addition, the officer providing the order must have proper “Reason to believe” about the collusion in some fishiness of the asessee and that makes it more typical as the term is very narrow and very far from “Reason to suspect”. But the question is whether these boundaries provide ultimate immunity to the Registered Person from the Inspection, search or survey. Means suppose a bunch of officers suddenly comes to the Premises of the Registered Person without proper order of the Joint Commissioner or an order without proper reason to believe. While the law provides for seizure of goods liable to confiscation, documents, books and things where the officer has reason to believe that the same have been secreted in a place, the law does not impose the officer to explain to the person from whom the same are seized, as to why the proper officer believes so. This is something undue hardship to the Registered Person. Now if Registered Person could ask the officer to show the proper order or he has the dare to do so or how many would know that section 67 has some limitation. It’s natural that first thing the Registered Person would do is a call to his consultant. Now when ball is in consultant’s court, would he dare to ask the officer for the proper order Per se which will vary from consultant to consultant. It would be his choice that whether he could be at loggerheads with the officer or would stick with the smooth relation. Let’s move with the second option and now when officer is in the premises, he must be getting all the required documents as soon as they are being asked. Somewhere officer also knows the limits that have been enshrined upon them but the confidence is the key. Once the Registered Person embarks his signature on the “Panchnama” prepared by the officer, he himself has granted officer the reason to believe. Now the officer can resurrect the proceeding under Section 73 or 74 and depending upon tenacity of the situation certain penalties could also be levied.
In the prima facie inspection, though legal or illegal, following circumstances are very common for a Registered Person to face with:
“Age old problem” Something which is very common in every regime. The very first step after the visit is stock verification as the officer knows that in almost every case there would be one mismatch, minute or big, but there has to be. In the regime of Central Excise, RG 1 (Daily stock account) was very much compulsory to maintain. Whenever any officer visited the premises of the Registered Person, he would first ask for the RG 1 and then would verify the physical stock present in the premises. We have so many case laws regarding the issues in the Excise regime but the case of UNIWORTH TEXTILES LIMITED VS COMMISSIONER OF CENTRAL EXCISE, RAIPUR (2007(210) ELT 0537) decided by Hon’ Chhattisgarh High Court Bench is worth reading and notable. In every case of mismatch, the first proceedings starts on the basis of “Clandestine Removal of Goods” and could be said that the whole case resides upon it. Excess or deficiency in stock clearly states the faulty nature of business i.e either the goods sold has not been recorded or goods purchased has gone unrecorded. Suppression of information regarding stock in hand gives clear power under Section 67 of CGST Act as a bona fide tool for “Reason to believe”. Apart from the tax and interest on late deposit on the unidentified stock, the Registered Person would be booked under section 122 for penalty equivalent to the tax evaded or Rupees Ten Thousand, whichever is higher.
In the recent decision of “SANWARIYA SWEETS PVT LTD VS UNION OF INDIA “ , Hon’ Rajasthan High Court quoted that “Reason to believe cannot be scrutinised under Legal microscope with over indulgent eye which sees no evil anywhere within range of its eyesight”. In many cases it has been that officers derive the valuation of stock in a presumptive or intentional mindset of forming an Evasion picturesque. The phrase “reason to believe“ has been interpreted by various courts distinguishing it from “reason to Suspect”. The word believe is a much stronger word than suspect. Reasonable grounds with direct and circumstantial evidence are must for the Reason to be a Reason to believe. If the Registered Person feels that he has been framed on the basis of unjustified Reason to believe, and then aggrieved by the order or proceeding, he must move to appeal. In number of cases, Hon’ court has given decision in favour of Registered Person if the reason to believe was not justified. But if the findings are genuine then Registered Person should care about the findings. As when the findings are genuine then penalty proceeding could be initiated. The plea of the Registered Person that Reasons were not justified will not put any burden on the officer. Section 22 of Central Excise Act prescribed fine on an officer who conducts vexatious search, inspection etc to safeguard the Registered Person against the harassment. But the CGST act does not have such safeguarding provisions.
Suppose officer arrives at your place and start taking the physical verification of stocks at your registered office or premises. But in a bitter position the stocks are present somewhere else and the place was left to be reported while taking registration or may be the case that godown was newly taken by the Registered Person but left unreported. Second situation could be that stock kept at registered office of the Registered Person is a mix of more than one firm operating from same location. Now the situation could be that officer could deny considering the stock present somewhere else as part of legitimate stocks kept by Registered Person or could consider all the stocks of multiple firm and could proceed in the manner stated above as in the case of Clandestine Removal of goods. Second situation could be that he could consider the place but could initiate penalty proceeding under Section 122 (1)(xii) of CGST Act for “ Furnishing any false information with regard to registration particulars, either at the time of applying for registration , or subsequently” with regard to non disclosure of Additional place of business. Third situation could be imposition of residual penalty under Section 125 of the CGST Act which states that “Any person, who contravenes any of the provision of this act or any rules made there under for which no penalty is separately provided for in this act, shall be liable to a penalty which may extend to twenty five thousand Rupees
Now the question stands addressing the presence of circumstances surrounding the instances of non payment of tax for imposition of penalty. There is no efficacious litmus test which would provide for the clear cut guidance for the levy of penalty. The nature and imposition of penalty depends on the terms and language of statute and principles held by courts. If there is no evasion of tax and penalty is imposed for failure to perform a statutory obligation is a matter of discretion exercised judiciously considering relevant circumstances. If the officer goes with the first option then the same could be challenged by the Registered Person on the basis of non involvement of tax evasion. The Ruling by Hon’ Gujrat High Court in case of Radhika Hydraulics vs Principal Commissioner -2016(336)E.L.TA185(GUJ) is notable and very useful in the circumstances of non progressive framing by officer in terms of clandestine removal of goods.
This is something very serious in terms of involvement of the Registered Person in the tax evasion. If the officer visiting is handed over with anything that could be proven unaccounted, it could pose serious problems to the Registered Person. The penalty prosecution could be a combined effect of sections 69, Section 122 and Section 132 of CGST act. That means besides the penalty, depending upon the size of evasion, Registered Person could be arrested and imprisoned. Section 69 vests power to Commissioner with the power to authorise, by any order, any has committed the specified offences under Section 132(1)(a), (b),(c) and (d) or any subsequent conviction on account of the offences specified under Section 132 of the act. Now the case of “supplies without issue of invoices with intention to evade the tax” is covered under Section 132(1) (a) of the act. Therefore beside penalty equivalent to tax evaded, there could be imprisonment up to five years depending upon the amount of tax evaded which shall be at least one crore. While the law provides a threshold limit exceeding which the offence would be considered to be an offence by which a person may be arrested, the law does not specify any time period in respect of the same. Therefore, consider a case where the commissioner has reason to believe that a person has failed to issue tax invoice in respect of supplies effected during a period of 3 years, wherein the tax evaded exceeds Rs 250 lakh. Even in such a case it appears that the commissioner has the powers to arrest such person.
The officer visits the premises of Registered Person assuming to be a big setup on the basis of turnover shown in GSTR 1 or 3B. The time he arrives at the premises he founds a plain ground having bunch of kids playing cricket. This is the plight of current regime granting registration without physical verification. Numbers of cases are coming in light in recent days where the firm is just an invoice issuing support system. Whosoever is deficient of credit could minimise their output liability with the payment of few percentage. Improper checking system has induced the new mechanism and cannot be reluctant to say that it has become a huge business. The department really need to speed up the things until the situation get worse. Recent ruling by Hon’ High Court of Madhya Pradesh in case of Jagdish Kanani vs Commissioner of CGST and Central Excise 2019(23)GSTL 460(MP) , the court denied bail to the appellant who had created a bogus firm to create fake invoices and strictly mentioned it as a heinous act. At the time when government is too keen to see a bullish rise in the tax collection, the hoax is making them down tremendously as the tune of fake credit has been more than 200 crore in each case.
The proceeding of the fake invoices is same as mentioned in the above case i.e combined proceeding under Section 69, Section 122 and Section 132 of the act. Beside this, the person availing the benefit of fake invoices and taking credit on the basis of bogus invoices would also be booked under same proceedings. The whole chain connected whosoever has enriched themselves with the fake credit under the same proceedings.
In the initial era of GST regime, whenever officer visits the premises, in addition to all the exercise he would also verify the figures in books of accounts with that of GSTR 3B. In almost most of the cases, difference is bound to happen either in reporting of outward supply or input credit availed. Other issues such as reverse charge, Not reporting of other income, ineligible credit etc could arise at the same point. Any difference reported would make officer to initiate demand proceeding under section 73 or 74 of the act.
The Registered Person should try to correct all the difference and mismatch with the help of Circular No 26/26/2017 dated 29.12.2017. The circular allows adjusting under/ over reported Outward supply, Outward liability, Input tax credit and other figures of GSTR 3B and GSTR 1 in the subsequent months. So whenever the difference arises, the Registered Person should try to correct it in subsequent months.
There could be more possible situations with different implication but few situations listed above are very common in the cases of Inspection or visit by an officer. One should always know that the proceeding in every case, wherever the short payment or non payment of tax or Erroneous refund or input tax credit wrongly availed is involved, would be carried under Section 73 or 74 of the CGST Act or in more general Section 74 would prevail. The proper validation and process of issuance of DRC under Rule 142 shall be followed. On comparison of section 73(11) with section 122(1)(iii)& (iv) , one finds that while penalty under section 73(9) is applicable if self assessed tax or any amount collected as tax is not paid within 30 days from the due date for payment of such tax, section 122 penalty will be applicable if such tax or amount is not paid within three months from the due date for payment. The same situation would be for Section 74 but as 100% tax is payable after 30 days from the communication of order so the penalty under section 122 shall be applicable after 30 days of communication. Penalty proceedings are apart and separate from assessment proceedings. A person entitled to adduce any evidence, which he had adduced or not in the assessment proceedings and such evidence has to be duly considered by the authorities. The assessee is also entitled in the penalty proceedings to take up new plea, which he had not taken up in the course of assessment proceedings. Non compliance of law under a genuine belief or without a guilty mind should not generally invoke penalties.
CA NITIN BANSAL
PARTNER IN NITIN & ASSOCIATES, MUZAFFARPUR
MEMBER OF ZONAL ADVISORY COMMITTEE OF GST
FACULTY OF GST, ICAI