CAG for review of integrated GST settlements


The national auditor has flagged the vulnerability of the goods and services tax (GST) system to fraud, citing as example a settlement under which a taxpayer claimed 79% of the total input tax credit in a month and the matter remained undetected for long.

The Comptroller & Auditor General has said these areas in the indirect tax reform need a relook.

“As these have a bearing on the settlement of funds to the Centre and various states, the ministry of finance should undertake a comprehensive review of Integrated GST settlements done so far, duly considering the inaccuracies brought out by audit,” the CAG said in its first report on GST after its roll out on July 1, 2017, citing examples of fraudulent IGST claims by taxpayers.

The CAG report for 2018 said incidents of such claims going undetected by the system exposed the vulnerability of the system to fraudulent input tax credit (ITC) claims.

It also highlighted issues with compliance under the new tax. “One significant area where the full potential of GST rollout has not been achieved is the roll out of the simplified tax compliance regime,” it said.

The auditor pointed out that even two years after the rollout of GST, system validated input tax credit through “invoice matching” is not in place and a non- intrusive e-tax system still remains elusive.

“The complexity of return mechanism and the technical glitches resulted in roll back of invoice-matching, rendering the system prone to ITC frauds,” the CAG said, adding that on the whole, the envisaged GST tax compliance system is “non-functional”.

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“The deficiencies in the GST system also point to a serious lack of coordination between the executive and the developers,” it said, highlighting the issues in the income tax system.

The issues brought out in income tax audit also pointed towards the need for GSTN to re-examine prioritisation of development of various functionalities, strengthening of their root cause analysis and testing process to ensure that critical deficiencies in application are detected and rectified before rollout to the public, it said.

While acknowledging that GST is a completely new system being developed, the CAG said that in view of its magnitude and pan-India impact, it is necessary that due care is taken both in development and in testing of the system before a rollout. “The failure to map business rules correctly and the absence of key validations in the rolled out system points to inadequacies in the functioning of GSTN,” it said.





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