The arrests of the top executives of Manpasand Beverages has set a precedent and the industry has to be careful about fraud in the goods and services tax (GST), said Pratik Jain, leader - indirect tax at PricewaterhouseCoopers (PwC) India.
Shares of Manpasand Beverages plunged after the company's top executives arrested in a fake invoice goods and services tax (GST) fraud over the weekend.
“In FY19-FY20, the government collection target is more than 20 percent over last year and with a limited room of increasing the tax rate, they are banking on the data that they have already - to check this whole problem of fake invoices. The way it works is that people set up different companies and they issue fake invoices from one company to another and you go ahead and claim the credit of that and you don’t pay your taxes. By the time the government realises, most of these companies have either shut their shop or they are not to be traced,” he said.
Manpasand Beverages GST fraud case: After arrests and resignations only 4 executives remain on the board
“To address this issue of fake invoices – one is estimating around 1-5 percent evasion of the total tax collection due to this issue – the government is also planning to implement e-Invoicing within next 100 days or so which basically means that any large business, which raises an invoice, will have to first get the pre-authentication from the GST before that invoice is raised. Therefore, you cannot as a purchaser claim the credit unless the e-Invoice has that number. The government hopes that they would be able to at least reduce this to a large extent if not eliminate,” he added.
“The government want a real-time authentication and not end of the month or end of the year – that is the crux of the problem,” said Jain.
Jain said an arrest is an extreme measure and the commissioner can order arrest only if there is very tangible evidence to establish that there is indeed such kind of evasion which has taken place.
Speaking about anti-profiteering, he also said, “Anti-profiteering is in a situation where you are not passing on the benefit to the customer and that is typically triggered when the rate is reduced on any particular commodity and there are hundreds of these cases which are pending. If the vendor has not deposited the tax, as a purchaser it is not necessarily a crime on my part because it is a vendor’s compliance, although the law says that if the vendor has not paid tax then you as a purchaser will have to reverse that credit which is there in the law.""However, the real question is can the authorities proceed against the purchaser for the default of the vendor and they can perhaps only do that if there is a fraud, which has been committed, if the seller and purchaser both are colluding and that is what the government believes is this case but otherwise the law only requires me to reverse the taxes, which I have already claimed along with interest. Unless there is clear evidence of collusion, in which case, of course, these arrests can also be made,” he said.