In a report tabled before the Parliament, the Comptroller and Auditor General of India (CAG) has pointed out 1,132 Irregularities out of 6,999 cases verified by the GST department. Also, the report stated that certain compliance deviations has also been noticed by the Audit.
Transitional credit being a one-time flow of input tax credit from the legacy regime into the GST regime, can be availed both by the taxpayers migrating from the previous regime as well as new registrants under GST. A total of 10.13 lakh taxpayers had claimed the benefit of transitional credit of ₹ 1,72,584.96 crore under the GST Acts, out of which 3.46 lakh taxpayers constituting 34 per cent of the taxpayers were under the jurisdiction of CBIC. The transitional credit claims of these taxpayers accounted for ₹1,34,029.23 crore constituting 78 per cent of the total transitional credit claimed under the GST Acts.
The Department identified 50,000 (Antarang6 data set) high value transitional credit cases for verification by CBIC field formations. Audit selected pan-India sample of 8,514 cases for detailed audit based on data analysis of these 50,000 cases. The sample size of 8,514 cases represented a transitional credit of ₹82,754.77 crore and constituted about 62 per cent of the total transitional credit on the Central side.
“In spite of requisitions and follow up, the CBIC departmental formations did not produce records of 954 claims. As a result, 11 per cent of sample size representing ₹6,849.68 crore of transitional credit claimed could not be audited. Further, in another 2,209 cases representing ₹19,660.72 crore of credit claimed, records were partially produced as relevant underlying records determining the eligibility of credit were not produced, which constituted a substantial scope limitation. Out of these records, the Ministry stated that some of the records and verification related records have since been produced to Audit. These would be audited and reported separately. Further, record keeping by the departmental field formations varied widely and maintenance of records for verified cases were inadequate in most of the jurisdictions,” the report said.
“Audit observed irregularities in 1,132 cases out of 6,999 cases verified by the Department,” it added.
Audit observed that though the Department had identified the top 50,000 cases for verification as a priority for 2018-19, the exercise was not yet completed, and the Department was yet to verify 8,849 cases7. The rate of recovery of detected irregularities was low. Cross jurisdictional issues and lack of co-ordination in Central Tax jurisdictions in some zones impeded verification and initiation of recovery actions.
The report further added that “In view of these findings, Audit recommends (i) ensuring production of records for cases for which envisaged detailed audit checks could not be completed. These will be reviewed subsequently by Audit. (ii) addressing the issue of inadequate maintenance of verification records in the jurisdictional formations as they are not amenable to review in the present form.
Audit review disclosed significant irregularities in the transitional credit claims of taxpayers across various categories regulated by the sub sections of Section 140, Section 142(11) as well as Section 50(1) of the CGST Act 2017 pertaining to payment of interest. Audit observed 1,686 compliance deviations in 1,438 cases, out of 7,560 cases examined in detail, amounting to ₹ 977.54 crore, constituting a deviation rate of 22 per cent. Irregularities noticed were relatively higher in four categories viz; ineligible credit of duty paid goods in stock without documents, irregular claim on unavailed credit on capital goods, ineligible credit on inputs or input services in transit, and irregular claim on closing balances. Considering that the Department had verified 79 per cent of these claims, the deviation rate suggested that the verification process carried out by the Department suffered from inadequacies. Out of 1,438 cases, where Audit noticed irregularities, 1,132 cases had been verified by the Department, and the Department did not point out irregularities amounting to ₹735.69 crore.
In view of the compliance findings, the Audit recommended “(i) ensuring verification of the high-risk claims reflected in Table 7aB of Tran 1 (credit on duty paid stock without invoices) and the cases where the transitional credit claim under Table 5a (closing credit balance of legacy returns) was in excess of the closing balance of legacy return. (ii) initiating remedial measures for the compliance deviations pointed out during this audit before the claims become time barred.”
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