Some time ago, the Finance Ministry had said that the Income Tax Department is now transforming itself from being a mere Income Tax Act enforcement body to a department for improving tax payment services. Moving in this direction, the number of Income Tax Returns selected for scrutiny has come down drastically during the last few years.
The government has prepared new parameters of scrutiny. Due to which, to a large extent, the accountability has fallen on the taxpayer.
All modern tax departments, including direct and indirect, rely on the taxpayer to pay the tax after assessing his tax liability on his own. The emphasis has always been on trusting the taxpayer. After saying the trust of the taxpayers, the tax administration will have to be made aware of the fact of discharging the correct tax liability.
Registration of every legal entity that participates in any taxable activity is mandatory. After registering itself, a legal entity has to file a return. Returns are actually honest declarations made by the taxpayer, detailing how his tax has been prepared. This description describes how the liability is being discharged.
An important decision is to audit the returns to be filed by the taxpayer. In systems like the Goods and Services Tax (GST), the importance of returns increases even more if there is no liability anywhere else on the tax paid.
This is the USP of GST – hence less revenue for the government as far as credit is availed. It may also happen that the benefit of the credit has been taken with the intention of defrauding the exchequer.
We should not forget that the value added tax system is a tax system for which the government not only needs to collect enough money, but also the majority of the money collected is given to the same people as credit. I have to give back. A return with an invoice provides a system for the government to verify the details of the supply to whom and at what price the goods or services have been supplied. Thus in all these cases returns is the main document.
One return and one invoice are claims on the public fund hence it is GST law. Because the return is provided as a method of verifying that the claims made are true.
In the Union Budget, 2022-23, clause 106 of the CGST Act, section 42, 43 and 43A of the Act has been removed, thereby eliminating the two-way communication process in return filing. The GST law (Section 61 of the CGST Act) provides for scrutiny of returns and other details furnished by a registered person.
Thus, the current drive to check returns is a welcome measure. It is being said that the rampant theft is a cause for serious concern as evidenced by the cases unearthed by the department. CNBC-TV18’s Timcy Jaipuria has estimated that such fraud cases can be traced back to the region of Rs 52,000 crore. Investigation is the first step to prevent such theft.
(The author Najeeb Shah is former chairman of the Central Board of Indirect Taxes and Customs.)