Government eyes tech shield against GST Input Tax Credit fraud

The government is considering more intense technology-based advance risk profiling to pre-empt input tax credit (ITC) frauds and block suspected claims until they pass through scrutiny as Goods and Services Tax (GST) evasion worth over ₹4 lakh crore has been detected in just four years with less than 30% recovery, two officials aware of the development said.

The use of artificial intelligence (AI) and data analytics facilitates detection of ITC frauds , but recovery is tardy and replete with time-consuming legal obstacles. Hence, a proposal to pre-empt ITC frauds using technology, detect them early and hold such claims pending physical verification could be considered, the two people added on condition of anonymity.

Fraudsters usurp ITC benefits using bogus invoices of shell companies without actual supplies of goods and services. According to official data, GST evasion of ₹2,54,235 crore was detected in the last three financial years – 2020-21 ( ₹49,384 crore), 2021-22 ( ₹73,238 crore) and 2022-23 ( ₹1,31,613 crore) – but, so far, collectively only 27.7% or ₹70,617 crore has been recovered, and 992 people been arrested.

“The matter was also deliberated in Parliament recently,” one of the people said. On December 20, while participating in a debate on the Central Goods and Services Tax (Second Amendment) Bill, 2023 in Rajya Sabha pertaining to tenure and qualification of GST Appellate Tribunal (GSTAT), Member of Parliament (MP) Sushil Kumar Modi said ₹1.51 lakh crore worth of GST evasions has been detected in the current financial year up to October 2023. He told the house that total GST evasion detected from 2019-20 till date could be about 4.46 lakh crore.

Drawing attention of Union finance minister Nirmala Sitharaman, he said that “fraudulent credit [ITC] claims are causing concerns not only to the government but also to the genuine tax payers whose credit claims are denied because they have accrued from fraudulent sources and the tax payer is unaware of this” and to deal with this “a robust system of risk profiles may be set up to forewarn likely suspects and subjecting such persons to comprehensive and physical scrutiny before granting them registration”.

Responding to the suggestion that the risk profiles can be ascertained before giving input tax credit [ITC] , Sitharaman said: “These are the specific points I would like to assure the Member, on which the GST Council has had elaborate discussions.”

Sitharaman told the house that the Council did take some steps to address the issue of GST evasion in the past and it is seized with the matter. “Risk profiling before input tax credit is given, are all issues on which the discussions have happened in the GST Council. Some steps have been taken to address them, and these are not the issues as if addressed once and never again this topic comes up for discussion. Some topics keep coming as we go along to realise if this can be an opportune time to do if we did not do it earlier. So, risk profiling before giving input tax credit or restricting claims are issues on which the GST Council has been talking,” she said.