CAG Audit Report of GST Department reveals shocking results.

Highlights of the Report
of
(CAG Audit - 08.08.2022)

1. The Department identified 50,000 high value transitional credit cases for verification by CBIC field formations. CAG Audit selected pan-India sample of 8,514 cases for detailed audit. In spite of requisitions and follow up, the CBIC departmental formations did not produce records of 954 claims. As a result, approx. 11% of sample size representing Rs. 6,849.68 crore of transitional credit claimed could not be audited.

Further, in another 2,209 cases representing Rs.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. Audit observed irregularities in 1,132 cases out of 6,999 cases verified by the Department.

2. CAG Audit analysed the data of PFMS relating to GST refunds for the period from July 2017 - Sep 2019 and observed 410 cases of double payments owing to lack of reconciliation and monitoring by the Department. Even after four years of implementation of GST, a proper system of review and post audit of refunds had not been effectively institutionalized so that the Department may rectify mistakes in time.

3. CAG Audit examined compliance to the provisions of the CGST Act & Rules with respect to a risk-based sample of 12,283 refund cases processed by the Central tax authorities. CAG Audit noticed 522 cases where excess/inadmissible refund of Rs. 185.28 crores was sanctioned due to various reasons such as

- incorrect computation of Adjusted Total Turnover,

- consideration of ineligible accumulated ITC,

- claims which were time-barred etc.

4. CAG 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 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.

5. CAG 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 Rs. 977.54 crores, constituting a deviation rate of 22%. Irregularities noticed were relatively higher in four categories viz;

a) ineligible credit of duty paid goods in stock without documents,

b) irregular claim on un-availed credit on capital goods,

c) ineligible credit on inputs or input services in transit, and

d) irregular claim on closing balances.

6. Considering that the Department had verified 79% 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 Rs. 735.69 crores.

7. Audit observed that there exists a mechanism to match ITC availed by a taxpayer with the GSTR-1 returns filed by the suppliers and to identify fraudulent cases through data analytics after the amount has been paid. However, adequate systems were not in place to prevent and mitigate refund related frauds by using real time/near real time data analytics so as to alert the tax officials before sanction of refunds.

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