The first few days after a major scam has been exposed are interesting — facts change, amounts invariably increase, all the regulators want to imprison the same scamsters, and similar scams by others show up furtively.
A similar pattern is playing out in the PNB-Nirav Modi scam as well. Many arrests have been made and the tentacles of regulators are spreading to anyone related to the scam in any manner, including employees and auditors. That said, the one department that hasn’t made much noise about the scam is the Central Board of Indirect Tax and Customs (CBIC), which may have lost quite a substantial amount of GST on the fraudulent LUTs (Letters of Undertaking aka LoU).
As ₹11,300 crore is the most popular number that is doing the rounds, we can calculate GST revenues lost using this number. Assuming LUT fees of 2.5 per cent, the GST revenues lost is in excess of ₹50 crore (18 per cent GST on ₹282 crore, which is 2.5 per cent of ₹11,300 crore). If the inevitable interest and penalties are included, the amount could well exceed ₹100 crore from a single taxpayer — an amount that the CBIC would certainly welcome.
Penalties and more
One of the most frequently used words in the CGST Act are interest and penalty — both have been mentioned around 140 times in an Act with 174 sections. Imprisonment has been mentioned seven times. Without batting an eyelid, the CBIC can invoke Section 132 of the CGST Act on Punjab National Bank and book them for committing the offences of supplying any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder with the intention to evade tax and falsifying or substituting financial records or producing fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act.
Section 132 offers an eclectic variety of imprisonment periods commencing from six months and going up to five years depending on the amount of tax that has been evaded.
However, history teaches us that in scams of such magnitude, the agency that arrests a person first gets to keep him during the investigation period. CBIC would probably be happy to let other agencies do the arresting while they focus on getting their pound of flesh in the form of taxes.
GST laws do not disappoint in terms of provisions for levy of interest, penalty and imprisonment. Unwittingly, the period from July to March is turning out to be a gestation period for the CBIC, which has led them into a situation wherein provisions regarding interest and penalty couldn’t be liberally slapped on the taxpayer.
Taxpayers can expect interest and penalty notices from April 2018 onwards by which time it is expected that most of the glitches in the portal would have been plugged. The news doing the rounds is that yet another simplified monthly return form is being invented and will be implemented from April 2018 along with details of sales and purchases in an annexure — an extremely diluted version of the concept of matching of invoices.
It is to be expected that the form would mandate payment of interest while the penalty can still be negotiated. CBIC should probably think of mandating payment of penalty too online in instances where GST has been evaded by fraudulent means.
The writer is a chartered accountant