The Goods and Services Tax, GST which was introduced in India on July 1, 2017, was aimed to overhaul the indirect tax structure of the country and replace a complex tangle of multiple taxes levied by both the central and state governments.

Before GST, the Indian tax system was marked by overlapping taxes such as VAT (Value Added Tax), service tax, excise duty, and numerous state-specific levies. The introduction of GST aimed to streamline this by creating a single, unified tax framework.

Taking this leaf out of the GST book, Tax officers have uncovered around 10,700 fake registrations under the GST, leading to tax evasion of ₹10,179 crore in an ongoing nationwide drive against fraudulent companies, according to a senior official.

Shashank Priya, a member of the Central Board of Indirect Taxes and Customs (CBIC), revealed that Aadhaar authentication for GST registration is currently operational in 12 states, with four more joining by October 4. Eventually, 20 states, including Madhya Pradesh, Rajasthan, Assam, Tamil Nadu, Uttar Pradesh, and Haryana, will adopt this authentication process.

Speaking at an Assocham event, Priya mentioned that future restrictions could be placed on new taxpayers based on their risk profile, potentially limiting the number of invoices they can issue monthly.

He expressed concern over the misuse of the GST system and stressed that all available measures would be used to stop such frauds noting that the government is ramping up physical verification as part of its targeted action against fake registrations.

The second nationwide drive against fake registrations began on August 16 and will run until October 15.

As of September 22, authorities have identified 67,970 GST Identification Numbers (GSTINs), with 39,965 of them verified.

Priya noted that 27% of the verified GSTINs were found to be non-existent, a trend similar to the first drive. So far, the ongoing drive has uncovered ₹10,179 crore in evasion, blocked ₹2,994 crore in Input Tax Credit (ITC), and recovered ₹28 crore.

In the first drive, conducted between May 16 and July 15, 2023, tax authorities discovered 21,791 non-existent entities with suspected tax evasion of ₹24,010 crore.

Priya also outlined that data mismatches in the GST system have caused over 1 lakh show-cause notices to be issued in the last fiscal year.

Looking ahead, he states that the government is considering locking GSTR-3B returns, once certain safeguards are in place, to ensure accurate reflection of input tax credits.

The GSTR-1A and Invoice Management System (IMS), which will start on October 1, 2023, will further help taxpayers match their records and invoices with suppliers, ensuring proper ITC claims.

During 2023-24, 1,12,852 show cause notices were issued, with the majority of disputes involving data discrepancies, such as mismatches between GSTR-3B filings and GSTR-1 liabilities, or excess ITC claims.

Only 555 disputes involved classification issues, which Priya said the CBIC is analyzing to provide policy guidance where necessary.

Hinduja’s HGS Arm Caught In The GST Net

The Income Tax Department has accused Hinduja Global Solutions (HGS) of evading approximately ₹2,500 crore in taxes.

The Hinduja Group’s diverse portfolio includes IndusInd Bank, Ashok Leyland, Switch Mobility, Hinduja Leyland Finance, and other prominent ventures.

The allegation stems from an internal report submitted earlier this month, following a nine-month investigation. The report claims that HGS avoided taxes by merging with a loss-making entity after divesting its healthcare business for a profit.

The authorities have invoked the General Anti-Avoidance Rule (GAAR) in their charges, asserting that the merger was intended to dodge tax liabilities.

In response, HGS denied receiving any formal demand notice.

“Regarding the M&A transaction, we addressed queries during last year’s IT survey and provided necessary documents supported by expert legal and tax opinions. We haven’t received any demand notice since,” a company spokesperson said.

HGS maintains that the merger adhered to tax laws and stated that if any notices are issued, they will be contested legally.

HGS had sold its healthcare services business to subsidiaries of Betaine BV, affiliated with Baring Private Equity Asia (BPEA). The tax department claims that the subsequent merger with NXT Digital, a loss-making company, was a strategy to avoid capital gains tax.

According to a senior official, the investigation concluded that the sole purpose of the merger was tax avoidance, leading to a demand of ₹1,500 crore under GAAR and another ₹1,000 crore in capital gains tax.

A detailed notice is expected to be sent to the company soon. The tax department conducted a survey related to this case at HGS’s premises in November 2023.

HGS, part of the Hinduja Group, has indicated that it will update the stock exchanges if any significant developments occur.

More recently, Indian IT giant Infosys received multiple notices over alleged tax evasion of about Rs 32,403 crore from Goods and Services Tax (GST) authorities.

Following this, it was anticipated that Tax authorities may issue notices to some other IT companies for alleged tax evasion related to work done by their overseas offices, according to reports in the media.

GST Structure

GST operates under a four-tier tax structure, with rates ranging from 5%, 12%, 18%, and 28%, depending on the type of goods or services.

Essential items are taxed at lower rates, while luxury goods and sin goods (such as tobacco and alcohol) are taxed at the highest rate.

Since its introduction, GST has been a landmark reform in India’s taxation structure and has contributed significantly to the simplification and modernization of India’s tax regime.