The Comptroller and Auditor General (CAG) of India has found that the goods and services tax (GST) system is prone to input tax credit (ITC) frauds due to complexity in the compliance system.
“The originally envisaged system validated ITC through ‘invoice matching’ had not been implemented. The complexity of return mechanism and technical glitches had resulted in roll-back of key GST returns, rendering the system prone to ITC frauds,” CAG said in its report submitted in Parliament on Wednesday.
The GST returns system is still a work in progress despite more than three years of roll-out, it said. “In the absence of a stable and simplified return mechanism, one of the main objectives of GST rollout simplified tax compliance system is yet to be achieved,” the report said.
CAG recommended fixing a definite time frame for rollout simplified returns forms as frequent deferments are resulting in a delay in its stabilisation and continued uncertainty in the GST ecosystem. During October 2018 to March 2020, CAG examined records relating to 4,736 of 23,106 refunds in 33 Central GST (CGST) commissionerates. It noticed non-adherence to extant provisions in processing refunds in 280 claims (6 percent) involving an amount of Rs 16.16 crore.
“We observed instances of irregular grant of refund due to non-consideration of minimum balance in electronic credit ledger, irregular sanction of refund of input tax credit availed of on capital goods, etc,” the report said.