GST evasions and input tax credit (ITC) frauds are rampant and the government seems unable to curb these practices. Although it has tried many ways to keep a check on the GST evasion, tackling ITC claims on fake invoices is being hard.
The GST Network (GSTN), the entity that offers the IT support to the GST system, has now come up with a new way to deal with the rampant ITC fraud.
Under the new return filing system, which is going to be implemented from April 1, 2020, if the supplier doesn't pay taxes for more than two months, the buyer will not be able to avail ITC from the third month. Today, one can claim ITC even if the supplier has not paid taxes for six months.
Prakash Kumar, CEO, GSTN, says: "Today there is no linkage between GSTR-1 and GSTR-3B. A supplier can file GSTR-1, and it would show in the buyers' GSTR-2A. So the buyer can claim input credit by showing his GSTR-2A even if the supplier has not filed GSTR-3B and paid taxes. In the new system, if the supplier has not filed return and paid taxes, it would show in the ANX-2 of the buyer."
In the current system, GSTR-1 return has all the information of the sales made by a supplier, while GSTR-2A has all the purchases made by a buyer. Entries from GSTR-1 of the supplier auto-populate the GSTR-2A of the buyer. GSTR-3B is for monthly returns that every registered GST payer has to file. It contains details of sales and purchases made by a business.
In the new system, GSTR-1 would be replaced by Annexture-1 (ANX-1), GSTR-2A would be replaced by ANX-2 and GSTR-3B would be replaced by Return (Ret) -1/2/3.
However, he says that those who want to defraud the system can still do it for two months. "We are working on how to plug this gap as well. This is a game of cat and mouse, they (those who want to game the system) would find a way out."
He says even in the EU, GST (VAT) refund is a huge problem.
"GST has this (refund fraud) as an intrinsic problem because the buyer can claim refunds based on his purchases. But if the supplier vanishes, what can the buyer do? This is what the buyer in the court tells. Our effort is to keep on informing the buyer that this is what the supplier has done," he explains.