Page 55 - GSTL_26th March 2020_Vol 34_Part 4

2020 ] NEWS DESK J151
payer. Importantly, this amount comprises the Input Tax Credit (ITC) that the
taxpayer has the right to claim back.
Form 3 is the GST return (tax return for GST). The columns show the tax
liability, which is the value of tax collected on sales minus value of tax paid on
purchases (ITC). Additional columns show how much of the tax is paid in the
form of cash, and how much through Accumulated Credit (AC). AC is shown in
an electronic ledger tracking how much tax is paid using cash and how much
using ITC.
If output value is higher than input value as should usually be the case,
one may expect that tax paid on inputs would be lower than the tax paid on out-
put. But that is not always the case. It is not rare for ITC to get accumulated since
the GST rate on output could be lower than on input, or ITC could be statutorily
given over a period of years, or upon proof of documents - such as for exports -
to the satisfaction of the administrator, or ITC could be held up reflecting a lack
of clarity in the determination of correct classification of an imported input, or
for various other reasons. Therefore, it is quite possible to pay GST in year two
with both AC from year one and the remainder with cash available in year two.
The major continuing lacuna is that forms 1, 2 and 3 were intended to be
electronically linked but are not. Form 3 should have been automatically (elec-
tronically) populated as soon as the GST number of a taxpayer entered form 1 or
2. There should ideally be no requirement or possibility for a taxpayer to enter
information into the three forms separately. But that is what is occurring even
though the public-private partnership, that is managing information technology
aspects currently, was supposed to have designed the electronic inter-
connectivity of the forms. The introduction of GST without this basic linked-
framework is now rearing its head in tax evasion.
Essentially, GST without the innovation of linkages yielded by auto-
population means that it is not fundamentally different from India’s earlier indi-
rect tax structures. Similar modes of evasion continue under GST. One method of
evasion is claiming huge amounts of tax payment through AC. Without field in-
vestigation there is no way to find if the AC used to pay tax reflects the true pic-
ture. As a Latin American Finance Minister once confessed to me in frustration,
“Doctor, in my country, there are a lot of elephants hiding among the mice”. In-
deed, many large corporations appear to be building up AC through which tax is
being paid. Some of it may certainly be legitimate, reflecting GST’s structural
deficiencies or delay in processing. But that cannot be the entire story.
Another method is to show large and false turnover and, together with
it, large input costs. This serves a triple purpose of satisfying shareholders, satis-
fying lenders for seeking bigger loans, as well as building up AC on paper, even
though actual purchases (and sales) could be much lower. False AC limits GST
revenue collection in cash, in turn constraining Government expenditure dis-
bursements and increasing the pressure on tax collectors to increase collection
willy-nilly, in turn limiting legitimate ITC claimed by honest taxpayers.
Fake invoices also have been used by brokers who are used by company
executives in particular sectors. Unbeknownst to the executives, such brokers are
the ones who make illicit profit through exploiting such businesses that they are
supposed to serve. The Bankruptcy Code has not helped. It allows taxpayers to
hide behind Section 13 on Non-Performing Assets (NPAs). Once allowed, then
tax liability under GST is set aside.

GST LAW TIMES  26th March 2020  151