Comptroller and Auditor General (CAG) has recommended completing verification of transitional credit allowed under the GST mechanism. This and other recommendations are part of a report tabled in the Parliament on Monday.

This recommendation is critical as Supreme Court recently directed GSTN portal to open common portal for all assesses to claim transitional credit for two months. After the introduction of GST, special provision was made for credit accumulated under VAT, excise duty or service tax to be transited to GST which is called transitional credit. Barring registered dealers opting for the composition scheme, all other assesses were given the opportunity to avail  transitional credit.

Verification not complete

C&AG said that though the Central Board of Indirect Taxes and Customs (CBIC) in 2018-19 had identified top 50,000 cases which claimed maximum transitional credit for verification, the exercise was not yet complete, and the department was yet to verify 8,849 cases.

“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,” it  said.

Discrepancies higher in four categories

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.

The audit recommends “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”.

Data inconsistencies

The CAG audit also found significant data inconsistencies between the taxable value and declared tax liability. Inconsistencies were also noticed between the CGST and SGST components of GST, and between ITC figures captured in GSTR-3B and GSTR-9 returns.

“Due to significant inconsistencies in the GST data, audit could not establish the reliability of data, for the purpose of finding audit insights and trends in GST revenue, and assessing high risk areas such as tax liability and ITC mismatch at the pan-India level,” the CAG said. 

Using data analytics

The report mentioned that CBIC constituted (July 2017) the Directorate General of Analytics and Risk Management (DGARM) with the aim to study, interpret and analyse indirect tax data and share the outputs with various stakeholders.

DGARM identifies high-risk taxpayers through the use of extensive data analytics on the GST returns data received from GSTN and DG Systems and Income Tax return (ITR) data received from CBDT.

“Audit examined the monitoring and feedback mechanism of DGARM reports and observed that use of manual/semi-automated mechanism for monitoring action by the department in respect of high risk taxpayers, identified in DGARM reports, issub-optimal and fails to properly leverage the full power of IT and thus, there is a need to ensure that the entire set of activities should be end-to-end automated as part of the CBIC-GST platform,” it said.