The Role Of GST In Curbing Tax Evasion In India - A Critical Analysis
Author: LawSphereX
Category: Taxation
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THE ROLE OF GST IN CURBING TAX EVASION IN INDIA:
A CRITICAL ANALYSIS
Deewanshu Yadav, Manav Rachna University Tanu Tanwar, Manav Rachna University
ABSTRACT
The introduction of GST in India on July 1st, 2017, was a major move under the tax regime primarily intended to address the issue of tax evasion and further enhance tax transparency. Before GST was put in place, the Indian tax system worked under several indirect tax solutions such as VAT, service tax, excise duty, and entry tax which operated at different rates and in different states. Due to the complexity, definite loopholes were there that tax evaders exploited due to practices such as cascading of taxes, fabricating invoices, and causing underreporting in the unorganized sector. The essence of GST was conceived: To consolidate different tax structures so that compliance mechanisms are streamlined and the clear administration of taxes could be practiced, thereby minimizing any possibility of evasion.
Important developments were the Input Tax Credit system via invoice matching, e-way bills to keep movement of goods digitally, and regular data tracking through the GST network, which seemed to have increased tax compliance enormously. Also, the use of data analytics and artificial intelligence (AI) tools has led to the identification of suspicious transactions and fraudulent claims more effectively. Thus, this paper seeks to critically assess the role of GST in preventing tax evasion through its impact, challenges, and the effectiveness of current tax enforcement. GST has been effective in enhancing tax enforcement in practice, whereas computer glitches, compliance burden, and fraud still pose problems for this fulfilment today.
The analysis further reviews the GST success rate with preventing tax evasion and proposes policy suggestions to improve its effectiveness within the tax regime. Keywords: Goods and Services Tax (GST), tax evasion, input tax credit, invoice matching, GST Network (GSTN), e-way bill, digital taxation, compliance.
Research Questions
1. How has the implementation of GST been impacting the tax evasion in comparison with the
pre-GST tax system, in India? 2. What are the major mechanisms of GST such as Input Tax Credit, invoice matching, and eway bills that are formidable movements to restrict tax evasion?
3. What problems emerge in the way of establishing and enforcing GST compliance to
minimum tax evasion by businesses and tax authorities?
4. How effective is GST Network in detecting any possible fraud and how does data analytics
contribute to fighting tax evasion?
1. Introduction
Tax Evasion in India Pre-GST Tax evasion is a constant menace strongly affecting the revenue collection by the Indian government. Before the GST era, the Indian taxation system was complex because of manifold taxes on consumers. 1 Tax rates for VAT, service tax, central sales tax (CST), and entry tax varied between states, making it more difficult to audit supplies to know the genuine value of state revenues. 2 Simultaneously, the operation of various tax agencies under central (CBEC) and state revenue services lessened efforts to efficiently combat tax evasion in the emerging informal market structure. 3 The Essence of GSTs Primary Objectives-Tax Transparency The GST launched on the 1st of July 2017. The core objective of GST is the unification of tax systems and tax transparency, under which the complex system of multiple indirect taxes will be replaced with one tax system.
The main objectives of GST in the fight against tax evasion 1 Suman Bery, Barry P Bosworth and Arvind Panagariya, The India Policy Forum 2004 - Volume 1 (Brookings Institution Press and National Council of Applied Economic Research 2004). 2 Sumit Agarwal, Shashwat Alok, Shiv Dixit and Tejaswi Velayudhan, ‘Impact of the GST on Corporate Tax Evasion: Evidence from Indian Tax Records’ (8 March 2022) https://www. isid. ac. in/~epu/acegd2022/papers/Shiv_Dixit. pdf accessed 3 Joel Slemrod, Why People Pay Taxes: Tax Compliance and Enforcement (University of Michigan Press 1992).
are, i. To avoid tax on tax. ii. To bring in transparency through input tax credit and invoice matching. iii. To bring in e-way bill and reverse charge mechanism stringent compliance mechanisms. iv. Strengthening the digital infrastructure for tax monitoring through the GST Network (GSTN).
Research Objectives The purpose of the study is to critically assess the impact, mechanisms, and challenges of GST on reducing tax evasion, as the critical indicators on tax-evasions espionage, and thereby improving voluntary tax compliance.
2. Understanding Tax Evasion Pre-GST Era4
a] Indirect Tax Scenario Before GST Before GST was introduced, states had entirely different ways of applying their taxes toward supplies. The important indirect tax took the form of Excise Duty (manufacturing tax at the central level), VAT (state-level sales tax and varied from state to state), Service Tax (imposed upon service providers), CST (levelled with every interstate transaction), and Entry Tax (a few states obtained the right to levy and charge taxes on commodities following importation).5 Loops and Tax Evasion Schemes in the Old System Within the indirect tax system prior to GST, a few loopholes triggered situations where tax evasion seemed not only viable but profitable): Cascading Tax Effect: Multiple taxes were imposed at different stages on the same product due
4 ‘Development of Indian Tax System: Pre and Post-Colonial Influences’ (n.d.) ResearchGate
https://www.researchgate.net/publication/369735905_Development_of_Indian_Tax_System_Pre_and_Post- Colonial_Influences accessed 11 March 2025
5 OECD, Study into the Role of Tax Intermediaries (OECD Publishing 2008).
to which the real burden of taxes had to be carried by buyers. This encouraged tax avoidance. Uniformity: Tax rates at every stage were different in all states, leading to differences and room to arbitrage. Fake Invoicing: Brilliant businesses excelled in generating fake invoices to claim undue ITC. Unorganised Sector Dominance: Many operators in the informal economy run in the cloak of non-registration in order to evade tax. The Need for a United Taxation System GST sought to eliminate these inefficiencies by establishing a single tax structure with consistent rates, smooth credit availability, and technology-driven compliance measures.
3. Key GST Mechanisms to Prevent Tax Evasion
a. Input Tax Credit (ITC) and Invoice Matching Insuring Payment of Taxes at Every Stage In the GST framework, businesses can claim ITC on taxes for the inputs used in their production or service. This automatically ensures tax payment at all levels and leaves fewer gaps for evasion. Role of Invoice Matching in Reducing Fraudulent Claims With GST, invoice matching will be a critical compliance obligation; ITC can only be availed if the supplier has filed his returns and paid the tax. This prevents ITC from being availed on fake invoices. Fake Invoicing Cases and Detection Through GSTN Through GSTN invoice data is watched in real-time, while any false invoices are detected by authorities. This has led to a more severe enforcement now. b. E-Way Bills and Digital Tracking
Insuring Monitoring of Goods Movements by E-Way Bills The generation of E-way Bills6 for all goods transfers of more than Rs. 50,000 electronically is being enforced. This ensures that transparency is maintained by adjusting resellers' omissions from the equation. Precluding Under-Invoicing and Non-reporting E-way bills are also effectively stepping down under invoicing by ensuring that all transporters need to procure valid documentation at the time of moving goods, making it impossible to fake documents. c. GST Network (GSTN) and Data Analytics The Role of GSTN in Tracking Suspicious Transactions7 GSTN works as a centralized digital association that supervises all transactions held by businesses. Thus, it allows tax authorities to highlight any inconsistencies in ITC claims, nonfilers, or sales and spot potential non-compliant cases.
Data Analytics and AI-Driven Tax Monitoring Artificial Intelligence (AI)-Driven tax monitoring is currently a key feature in flushing out any changes-of-fortune in tax filings, hereby identifying potential tax evaders contacting the concerned authorities. d. Reverse Charge Mechanism (RCM) How RCM Ensures Tax Compliance for Unregistered Dealers The Reverse Charge Mechanism (RCM) emphasizes that any business that transacts with an unregistered dealer shall have to pay GST himself.
This discourages transactions in the informal sector and at the same time brings a greater number of corporate entities under the tax 6 The Institute of Chartered Accountants of India, E-publication on E-way Bill under GST (New Delhi, ICAI) 7 Vidya V Devan, ‘An Analysis of Goods and Services Network (GSTN) - The Technological Backbone of GST’ (2023) 10(3) Journal of Emerging Technologies and Innovative Research (JETIR)
nets. e. Composition Scheme and Simplification Measures Ensuring Compliance Among Small Businesses8 The Composition Scheme presents small businesses with an option to pay tax at a reduced rate with minimal compliance requirements. This prevents tax evasion by providing reasons for voluntary registration. Preventing Revenue Leakages By simplifying tax compliance, the composition scheme reduces the temptation for small businesses to remain unregistered and evade taxes.
4. The list of challenges curtailed for evading taxes under GST
Tax evasion still remains a major problem despite the introduction of the Goods and Services Tax to streamline the indirect tax system and improve compliance. The following challenges are summarized in a nutshell concerning the prevention of such efforts under GST:
1. ITC Fraud
In the GST context, one of the most popular vehicles for tax evasion is the perpetration of Input Tax Credit (ITC) fraud. To avail ITC, businesses generate fake invoices without the actual movement of such goods or services. This causes casualties of government revenue and the parallel economy.9 The main features of ITC fraud are: Bogus Invoices: Shell companies are set up for invoices issued, often having no credibility in between. Circular Trading: Networking between sets of businesses that create fake invoice claims to each other with not much real supply of a certain alien character. 8 Neelanjit Das, ‘What Is Composition Scheme of GST, Who Is Eligible and How to Opt for It’ Economic Times (19 September 2023) https://m.economictimes.com/wealth/tax/what-is-composition-scheme-of-gst-who-iseligible-and-how-to-opt-it/articleshow/103683334.cms accessed 11 March 2025
9 Mihir Sharma, Restart: The Last Chance for the Indian Economy (Random House India 2016).
Fraudulent Claims of Input Tax Credit: Illegal means chosen by businesses to claim ITC on goods or services that are excluded under the GST Act. Strict measures like invoice-matching, electronic tracking of transaction history, tax audits, and e-invoicing have been undertaken by the government to control this malpractice. Malpractices, however, continued to evolve, thus caving in the frontal system of enforcement.10
2. E-Way Bill Misuse
The e-way bill mechanism has been realized for scrutinizing the movement of goods and preventing tax evasion. In order to evade GST, businesses normally misuse this mechanism, whereby businesses: Splitting invoices: On many occasions, businesses have split up one large consignment of goods into smaller invoices, each under the threshold limit that requires an e-way bill. Wrong Description of Goods and Wrong Quantity: Misclassification of goods and underreporting of quantity in e-way bills reduce the tax liabilities. Diversion of Goods: Goods are transported without proper documentation or routed through unregistered entities in some cases to escape payment of tax.
While higher digital surveillance and more stringent real-time physical surveillance have backed the country in proper implementation, the dynamic business sector has growers sniffing for loopholes while fighting the authorities for compliance as if to alert the enforcement mechanism on an ongoing basis.
3. Burden of high compliance on MSMEs
GST compliance remains a tough nut to crack for MSMEs due to the stringent filing rules, obligatory to remain up-to-date in the process of returns, and stringent reporting frameworks. Challenges faced by these MSME establishments are: Burdensome Filing Returns: The hassle continues because businesses have to abide by these 10 Raktim Dutta, ‘Shell Firm Ecosystem in GST’ (National Institute of Public Finance and Policy, 2022) https://nipfp.org.in/media/medialibrary/2022/12/RD.pdf.pdf accessed 11 March 2025
regulations: multiple returns (GSTR-1, GSTR-3B, annual return) and yearly audits. Inadequate Knowledge and Resources: No ability to hire a management consultant and in practice entails mistakes committed and ignorance of compliance obligations. Working Capital Constraint: The entry of goods/services in the GST&R means compliance lessness with several liquidity consequences of the part of the cost of costs incurred into an
MSME. 11
Possible Penalties: Rules on MSMEs are tough to comply with, leading to penalties and legal issues There exist Composition Schemes reservation and simplified return filings for smaller businesses from the Indian government, but compliance keeps being a major war because of the possibility of avoidable evasion.
4. Unregistered Small Traders and Cash Transactions
A large segment of our economy still remains unregistered to the new tax regime, with GST
being one single tax. This unorganized sector comprises mainly non-formal businesses being followed by certain challenges: Unregistered Small Even though small traders and individual service providers are included in GST, they prefer to operate beyond the purview of the tax net so that they can continue to operate in cash. Underreporting of Sales: On occasion, some registered persons understate their turnover, staying below the requirement for GST registration, while, in fact, withholding payment in cash. Still Having Cash Transaction: It is really hard to track excessive deals and ensure tax compliance while cash transactions are still happening. Many a time, businesses do not issue real invoices, leading to tax evasion. 11 Subramania Nathan, ‘GST Impact on Micro Small and Medium Business’ (Institute of Cost Accountants of India) https://icmai.
in/TaxationPortal/upload/IDT/Article_GST/150_1803_21. pdf accessed 11 March 2025
Although data analytics, AI-based tax monitoring, and conditional digital payments were introduced to monitor the compliance of certain businesses, the informal sector has remained a challenge to tax administration.
5. Delays in the Formation of the GST Tribunal
The irregular establishment of the GST Appellate Tribunal (GSTAT) is another big impediment in the administration of GST. This has led to several unintended enforcement challenges:12 Pending Tax Disputes: Several taxpayers challenge penalties or assessments related to GST cases, triggering long-drawn legal suits. No Timely Redress: That is, deserving compliant concerns that are affected by technical flaws or fallacious interpretation have faced uphill battles to successfully resolve their issues. Weak Enforcements: The absence of the appellate tribunal acts as a deterrent for the authorities to enforce tax demands and penalties, reducing the deterrence effect against tax evasion. Even though GSTAT has been approved for setting up by the government, operational delays hinder the strict enforcement of GST laws.
5. Legal Framework and Judicial Precedents on GST and Tax Evasion
The legal framework for taxing evasion under the Goods and Services Tax (GST) in India is primarily defined by the Central Goods and Services Tax (CGST) Act, 2017, along with state GST laws and integrated GST (IGST) regulations. Various legal provisions define offenses, penalties, and mechanisms for enforcement to curb tax evasion. Judicial precedents also play a significant role in the interpretation and enforcement of GST laws, influencing tax compliance and guiding authorities in times of legal proceedings.13
1. Key Legal Provisions under the CSGT Act, 2017
The CGST Act, 2017, provides a broad and encompassing structure to deal with tax evasion,
12 Md Zakariya Khan, ‘GST Tribunals May Be Delayed by 6 Months as States Yet to Appoint Officials’
(Business Standard, 15 January 2025) https://www.business-standard.com/economy/interviews/gst-appellatetribunal-gstat-delays-2025-setup-125011500605_1.html accessed 11 March 2025 13 Helly Mukesh Maniya and Shobha V, ‘Case Studies on GST Tax Evasion: Patterns, Impacts, and Regulatory Responses in India’ (2024) 20 J Electrical Systems 582.
including through provisions for penalties, offenses, and prosecution. Key provisions under which tax evasion is dealt with are: (i) Section 122: Penalties for Certain Offenses The above section prescribes penalties for a variety of offenses concerning GST evasion, including:14 Supply or sale of goods or services without issuance of a lawful invoice to evade taxation. Issuance of an invoice or bill without the actual supply of goods and services for wrongfully claiming the ITC. Non-compliance with the deposit of collected tax with the government; Acting upon or providing false information, false documentation, etc. , with the intent to evade tax. Late fees for the same in question are prescribed, being greater than the tax deficiency, and not exceeding ₹10,000 or 100 percent of the tax due, whichever is higher.
(ii) Section 132: Punishment for Tax Evasion This section provides for judicial punishments in cases of severe tax deviations. The relevant part reads as follows: Cognizable & Non-Bailable Offenses: Once the tax evasion exceeds ₹5 crore, the offense becomes cognizable and non-bailable. Imprisonment & Fines: • Above ₹5 crore evasion: Up to five years' imprisonment along with a fine. • Above ₹2 crore to ₹5 crore evasion: Up to three years' imprisonment plus a fine.
14 CMA R K Khurana, ‘Offences and Penalties under GST Laws’
https://icmai.in/TaxationPortal/upload/IDT/Article_GST/210.pdf accessed 11 March 2025
Above ₹1 crore to ₹2 crore evasion: Up to one year's imprisonment with a fine. This is widely used in cases where the amount involved in tax evasion is quite substantial and has become a reference in these cases for the start of investigating legal action against the offenders. (iii) Section 67: Power of Inspection, Search, and Seizures This section authorizes tax officers to inspect business premises, search properties, and seize documents and goods when they suspect that these operations might be the handiwork of tax evasion. This includes, among others, circumstances when: • Businesses suppress sales or underreport turnover. • Goods are transported without a GST-compliance paper trail in place. • Fake bills are used to claim undue ITC. (iv) Section 73 & 74: Recovery of Tax Not Paid or Short Paid Sec.
73: Cases of tax not paid due to genuine or by mistaken payment: A show-cause notice is issued, and if the taxpayer pays the tax within 30 days, perhaps penalties will be waived or reduced. Sec. 74: Situations where the tax evaded was due to fraud: This calls for taxes plus penalties and interest but with payment of tax. (v) Section 83: Provisional Attachment to Protect Revenue The above section provides for authorities to attach any money or property at any stage of investigation without notice to suspect tax fraud. (vi) Section 151: Power to Collect and Disseminate Information The above provision bestows powers on officers to collect such information from financial and business activities of the taxpayers or from third parties that can help establish suspicious transactions, so limiting tax evasion.
2. Case Laws on GST Fraud and Enforcement Actions
Many case laws have been decided which help in enforcing GST laws and provide for clarification regarding tax evasion-related disputes. A few examples of crucial cases are: (i) D. Y. Beathel Enterprises v. The State Tax Officer (2021)15 Facts: The taxpayer had faced an accusation of claiming ITC based on fake input tax invoices. Judgment: The Madras High Court has held that before taking a strict step like freezing of accounts or arrest of the taxpayers, the taxing authorities shall follow the principles of natural justice by providing a notice and impracticable chances to the taxpayers to react. Impact: The case urged an impartial and fair investigation process in situations related to tax evasion. (ii) Siddhi Vinayak Enterprises v. Union of India (2020)16 Facts: The petitioner challenged the arbitrary denial of ITC on technical grounds.
Judgment: The Gujarat High Court held that authority cannot mechanically deny claims of ITC. It must examine and scrutinize the facts and merits of each case. Impact: Case emphasized the importance of due process and fair assessment in GST and fraud investigations. (iii) P. V. Ramana Reddy v. Union of India (2019)17 Facts: The petitioner challenged the arrest provisions under Section 69 for alleged GST fraud. Judgment: The Supreme Court upheld the constitutional validity of arrest powers under GST stating that tax evasion involving fraud is a serious economic offense.
15 M/S D Y Beathel Enterprises v State Tax Officer (Data Cell) [2021] Mad HC (Madurai Bench)
16 M/S Siddhi Vinayak Trading Company v Union of India and Others [2021] All HC
17 Vinti Agarwal and Vidushi Gupta, ‘Eye Share: The P.V. Ramana Reddy Judgment - Power to Arrest Under Special Laws vis-a-vis Code of Criminal Procedure’ (18 July 2019) Vidhi Centre for Legal Policy https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3430720 accessed 11 March 2025
Impact: This case supported the government's authority to take the stringent route for offenders against tax enforcement.
3. The Role of Authorities in Combating GST Evasion
Tax evasion and GST law enforcement are overseen by multiple government agencies.
1. Directorate General of GST Intelligence
Directorate General of GST Intelligence (DGGI) is the primary enforcement agency for enquiring and investigating tax evasion cases under GST. Key functions: • Search and seizure operations. • Investigations into fake ITC and invoice fraud. • Operations to identify businesses in non-GST network. • Helping prosecution of defaulters. Major topography: DGGI has ferreted out several multi-crore ITC scams and arrested a number of people perpetrating tax fraud.
2. GST Intelligence Units in the State Tax Departments
State GST departments work jointly with the Central Agencies in: • Conducting local inspections and checking GST filings. • Tracking any suspicious transactions and verification of invoices. • Helping the officials in realisation of the taxes that are being evaded by the defaulters.
3. Central Board of Indirect Taxes and Customs (CBIC)
The CGST is responsible for the effective implementation of the GST laws throughout
the country. • Guidelines and explanations to ensure that the litigation does not arise regarding the tax compliances. • Put a check on the anti-evasion strategy.
4. GST Network (GSTN)
It is based on the IT system software with the real-time statement of accounts and live fraud detection schemes available. • The GSTN will make data analytics and AI tools accessible to tax departments to recognize mismatches in GST returns.
6. Comparative Analysis with Global Anti-Evasion Measures
The tax evasion world over has led to the formulation of some concrete anti-fraudulent schemes to check Goods and services tax (GST) or value-added tax (VAT). With this global interaction, a comparison between India's anti-evasion measures and those of say Canada or Australia would furnish the idea about best practices that could be adjoined to help with the reinforcement of GST. 18 GST/VAT Evasion Control in Canada Canada operates under the VAT mechanism-based system naming Goods and Services Tax (GST) and Harmonized Sales Tax (HST) enforced by the Canada Revenue Agency (CRA). Some significant anti-evasion steps adapted by CRA are: (i) Strict ITC Claim Verification ITC claims at the CRA undergo stringent verification so that refunds on grounds of fraud are thwarted altogether.
18 Richard Eccleston, Taxing Reforms: The Politics of the Consumption Tax in Australia, Canada, Japan and the United States (Edward Elgar Publishing 2007).
A meticulous documentation of ITC claims must be there, and all the receipts will justify your
tax credits. Advanced data analytic tools investigate whether there are any discrepancies in ITC claims. (ii) Real-Time Invoice Matching Countrywide, e-invoice has been implemented, allowing instant matching of invoices by the CRA.
Hence, this provides the check that fake invoices and, therefore, wrong ITC claims can get detected before they get processed. (iii) Harsh Penalties for Non-Compliance Upon conviction, heavy penalties, up to 200% of the evaded tax, along with criminal prosecution, are imposed upon the guilty. Directors of such companies would be made personally liable for inactive GST. (iv) Whistleblower Incentives CRA started the Offshore Tax Informant Program (OITP), encouraging persons to inform about tax evasion for a price. Similar programs help to detect unreported transactions and ensure tax compliance. 19 Prevention of GST/VAT Evasion in Australia Australia operates a VAT-based system known as the Goods and Services Tax (GST). This tax is administered by the Australian Taxation Office (ATO).
(i) AI and Big Data for Fraud Detection The ATO is now using AI-based tools to spot irregular business transactions in real-time.
19 Preston Pugh and Danielle Alvarez, ‘A Focus on Multinationals: Whistleblower Incentives on the
International Stage’ (29 July 2021) Westlaw Today (Thomson Reuters)
The Big Data analytics methodology is engaged to spottily upsurge uncommon transactions requested, which stops tax evasion before its onset. (ii) Taxable Payment Reporting System (TPRS) Businesses that are reputable as being in high-risk sectors have to report all payments made to contractors. This ensures some kind of accountability and decreases the possibility of revenue understatements. (iii) The Black Economy Task Force Australia has set a special task force to keep close watch on the black or underground economy and cash transactions. For one, any business which has failed to register under GST or has underreported sales will expect more tracking through banking data and financial records.
(iv) Ensuring Stricter Punishments and Prosecution for Offense Generally, if not on a retributory note, then criminal penalties, including imprisonment, will be imposed by the GST-crediting ATO on big GST fraud. And as a harsher deterrent, we are to begin to think about confiscations of assets and banning on business activity for repeat offenders. Best Practices for India to Adopt and Propagate India could foster its enforcement of GST by scaling up to drawing lessons for global best practices as:
1. Implemented AI for Tax Monitoring: o implementing AI and data analytics is akin to that of
Australia to track and be on the lookout for suspicious GST transactions in real-time.
2. Introducing Reward System for Whistleblowers:
The establishment of a reward system for whistleblowers, as observed in Canada's OTIP, shall
greatly encourage the spirit of disclosing GST frauds.
3. Mandatory Reporting for High-Risk Sectors:
In an Indian scenario similar to the Australian TPRS, contractor payments and cash transactions have to be reported in sectors with a high risk.
4. Enhanced E-Invoicing and ITC Verification:
Calumba’s model of real-time invoice matching and strict ITC verification processes can be best held as standards for India to diminish fake ITC claims.
5. Further Hike in Penalties for Evaders
The criminal penalties and asset seizures to amplify deterrent for their repetition can be meted for the offenders.
7. The essence of Fortifying GST Compliance
Despite these efforts, evasion of GST remains a strong challenge in the Indian context. Recommendations provided for strengthening enforcement are as follows: Ramp up the AI-Based Surveillance of the GST Evasion Patterns By enveloping AI-based technologies in the Goods and Services Tax Network (GSTN), it would be possible to20 • Detect abnormalities in transaction patterns in GST filings. • Track differences between ITC claims and e-way bills. • Identify suspicious transactions using machine learning techniques. • AI can cross-check supplier and buyer invoices in order to prevent fake ITC claims. 20 ‘Revolutionizing GST Understanding: Experts Launched GSTInsights - An AI-Powered Portal’ (ANI News, 11 March 2025) https://www.aninews.in/news/business/revolutionizing-gst-understanding-experts-launchedgstinsights-an-ai-powered-portal20250311133447/ accessed 11 March 2025
Tougher Penalties and Real-Time Verification of Transactions Increasing penalties for GST fraud can include: • Raising fines for imposition in case of repeat offenders to 300% of the amount evaded. • Introduce a minimum term of imprisonment for fraud in excess of ₹10 crore. • The mentioned system involves real-time invoice matching upon the processing of ITC claims for preventing any kind of fraud. • Criminal liability is to be extended to tax consultants and auditors engaged in fraudulent GST filings. Strengthening GST Audit Mechanisms • Mandatory audit of GST ought to be put on categorically to those businesses, having an annual turnover of over ₹5 crore- • There will be random audits on possible cause for MSMEs and traders which are primarily operating in a cash-heavy environment.
• GSTN has to be integrated with banking data in order to cross-check business turnover and reduce the chances of continuing underreporting. Promoting Voluntary Compliance through Incentives • Tax rebates and compliance rewards for businesses that consistently file accurate GST returns. • Government will gradually bring down GST rates for companies having a clean historical tax record over five years. • Special efforts will be made to introduce simplified compliance procedures for MSMEs to ensure the lowest cases of unintentional defaulting.
8. Conclusion
Summary of Role of GST in Reducing Tax Evasion21 As of its introduction in 2017, GST has minimized tax evasion turned into substantial revenue leak and increased compliance by amalgamating the entire indirect taxes into a perfectly transparent digital tax system. Introduction of E-invoicing, Way bills, and an automatic verification system were of great help in tracking fraudulent transactions. The method of collecting taxes has multiple automated methodologies increasing compliance and thereby reducing revenue loss. Existing Challenges Even though some preventive and other measures have been affected, GST evasion remains a scary demon, mainly due to: As is the case worldwide, fake invoicing and the ITC fraud menace will have their blood-letting consequences in which the government will lose an enormous collection of money from the pockets of the so-called fund-raising entities.
Failure to enforce strong punitive measures, mainly for unregistered small-time traders Uncertainty surrounding legal issues caused by unnecessary delays in tempering GST tribunals in addressing tax disputes. The high burden of compliance-related affairs on MSMEs leads to their great unintentional disregard of filing and abiding by the laws. A preliminary kickstart towards a cohesive anti-evasion tax framework for India; hence there
is a beginning by which India can enforce its GST regime: 21 G Tarun and KS Shoba Jasmin, ‘A Study on Tax Evasion in India’ International Journal of Pure and Applied Mathematics https://acadpubl.eu/hub/2018-119-17/1/21.pdf accessed 5 May 2024.
1. Integration of AI-based fraud detection for live tax monitoring.
2. Enhanced cross-border collaborations to track international tax fraud.
3. Adoption of higher penalties and enforcement, such that acts of tax evasion are adequately
stifled.
4. Allowing whistleblower programs for the purpose of intimation regarding hidden
information.
5. Thorough efforts should be performed to make business houses, especially small-time
businesses, tax-literate, to promote compliance. With these measures and capacity to imbibe the best practices worldwide, the framework of GST in India would certainly become stronger and be an honest revenue-generating mechanism while reducing evasion to an absolute minimum.22 22 International Monetary Fund, Current Challenges in Revenue Mobilization - Improving Tax Compliance (IMF 2015).
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Powered Portal."
ANI
News, March 2025. Available at: https://www.aninews.in/news/business/revolutionizing-gst-understanding-expertslaunched-gstinsights-an-ai-powered-portal20250311133447/. Legal Cases
17. M/S D Y Beathel Enterprises v State Tax Officer (Data Cell) [2021] Mad HC (Madurai
Bench).
18. M/S Siddhi Vinayak Trading Company v Union of India and Others [2021] All HC.
Reports & Working Papers
19. Dutta, Raktim. "Shell Firm Ecosystem in GST." National Institute of Public Finance
and Policy, 2022. Available at: https://nipfp.org.in/media/medialibrary/2022/12/RD.pdf.pdf.
20. "Development of Indian Tax System: Pre and Post-Colonial Influences." ResearchGate.
Available at: https://www.researchgate.net/publication/369735905_Development_of_Indian_Tax_S ystem_Pre_and_Post-Colonial_Influences.
21. Pugh, Preston, and Danielle Alvarez. "A Focus on Multinationals: Whistleblower
Incentives on the International Stage." Westlaw Today (Thomson Reuters), 29 July 2021.
22. Agarwal, Vinti, and Vidushi Gupta. "Eye Share: The P.V. Ramana Reddy Judgment -
Power to Arrest Under Special Laws vis-a-vis Code of Criminal Procedure." Vidhi Centre for Legal Policy, July 2019. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3430720.