You might have often come across instances of the Directorate General of GST Intelligence (DGGI), issuing notices and alleging tax evasion. You may have even asked yourself what this organisation is all about? How does it function? How does it uncover instances of tax evasion?
The DGGI is primarily concerned with curbing the evasion of GST. Before the introduction of GST in 2017, the organisation was known as the Directorate General of Central Excise Intelligence (DGCEI). It is the apex intelligence organisation functioning under the CBIC, entrusted with the task of collecting intelligence relating to the evasion of GST.
The charter of DGGI focuses on the collection, collation and dissemination of intelligence on all matters relating to GST, Central Excise (CE) & Service Tax (ST) which have all India repercussions, to unearth modus operandi and alert field formations, alert other law enforcement agencies about the trends of evasion and investigate offences involving evasion of GST, CE or ST which have multi-commissionerate ramifications, and also suggest policy changes.
The DGGI has its headquarters in New Delhi, with four sub-national units (North at Delhi, South at Bengaluru, East at Kolkata, and West at Mumbai) headed by Director-Generals, 26 zonal units, and 40 regional units. It is a relatively slim organisation with a working strength of about 1500.
The process of collecting intelligence is complex. It involves the analysis of data using the latest data analytical tools, of revenue, of the performance of sectors or industries, of specific companies in those sectors or industries, and of differences or mismatches in submissions made by a company to different statutory authorities—all of these are from various open sources. There is also close interaction with the state GST enforcement wings for the sharing of intelligence and modus operandi. It also involves the collection of intelligence/information from individuals who could be disgruntled employees or any public-spirited individual.
Yes. There is a robust reward scheme to encourage such informers. Informers are eligible for rewards of up to 20% of the net sale proceeds of the contraband goods seized and/or the amount of duties or service tax evaded, along with the amount of penalty levied and recovered. A similar reward scheme is available to the officers who have detected the case, including handling the investigation to its successful and logical conclusion when the case has achieved finality.
Having collected the intelligence, it is examined to confirm its veracity. And if found actionable, action is initiated. An investigation can commence with a simple letter seeking data from the entity concerned, invoking the provisions of the GST law. Section 70 of the CGST Act provides for summoning evidence or a person who the DGGI believes has the documents concerned. An enquiry initiated under summons is deemed to be a judicial proceeding under sections 193 and 228 of the IPC. The summons has to be honoured unless sufficient reasons are given for not honouring it.
Actionable intelligence can also lead to inspection, search and seizure. Section 67 of the CGST Act emphasises that where the Joint Commissioner has reason to believe that a taxable person has suppressed any transaction relating to the supply of goods or services or both, or has claimed input credit not due, or indulged in contravention of the law, he can authorise an officer to inspect, search premises, and seize documents. The provisions of the CrPC would apply to such searches and seizures. The critical element here is ‘ reason to believe’. The courts have emphasised that the reason to believe cannot be a whim, has to be recorded in writing and the evidence has to be such leading to the officer concluding that the only way forward in the investigation is to search the premises.
Having conducted a search or obtained documents, the DGGI can thereafter summon all persons concerned to explain the issue. Statements are recorded under Section 70 of the CGST Act. Where the Commissioner has reason to believe that the evidence collected suggests that the person has committed any offence that is linked with supplying goods without an invoice, issuing an invoice without the supply of goods, availing input tax credit incorrectly, collecting tax but not paying it to the government, falsifying documents, obstructing officers in the discharge of their duties, or tampering with evidence, then such a person can be arrested. Section 69 has given such powers of arrest-reason to believe is again a critical element. The provisions of CrPC will govern the procedure to be adopted-meaning thereby that the grounds of arrest have to be informed and the person has to be produced before a magistrate within 24 hours of the arrest.
After all evidence has been collected, a charge of evasion of GST in the form of a Show Cause Notice (SCN) is formulated. The SCN has to give the details of the alleged evasion, the evidence relied upon in arriving at this conclusion, and the quantum of such evasion. The party is given time, typically 30 days, extendable on request, to furnish their defence against the allegations. An opportunity for a personal hearing is granted as well as for cross-examining by the investigating officers. The case is adjudicated by the authority concerned; an opportunity for appeal is available both for the department and the party.
Companies should realise that, thanks to advanced analytics and the huge availability of data in the public domain, any attempt at evasion will be detected; they must adhere to the requirements of the law. Evasion does not pay–either in the short run or the long run. They should engage competent compliance officers, get a robust audit of their processes done by competent auditors, keep themselves abreast of legal developments, engage closely with the department whenever the local office holds interaction sessions with the industry. They should aim to steadfastly comply with the law and where they believe that the law is unreasonable engage with the CBIC through industry forums.
There was a need to issue the recent SOP by the CBIC; this would suggest that on occasions the DGGI has been over-enthusiastic. Investigative agencies should avoid cases based on the interpretation of law/intent. That should be left to the policymakers. Such matters should be referred to CBIC so that an all-India call can be taken. The CGST field formations should actively engage with industry and address concerns that everybody wants to deliberately evade the law.
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