Undervaluation of Goods In Transit, is it the new market trend?
Since the inception of GST in India, several measures were taken to prevent tax evasion. The Union Finance Minister Nirmala Sitaraman once stated for the link of a specialized directorate with the Central Board of Indirect taxes and Customs (CBIC) for capturing of GST evaders through data analytics and risk management techniques.
Several cases were put to notice, where the department found the intention of tax evasion with fake invoices and undervaluation of goods. Due to the absence of an absolute measure for valuation, evasion possibilities in the name of lower GST rates (with variance in HSN Codes) and underpricing of goods are increasing day by day.
In this post, you will get to know all about the key provisions provided by the GST Act, applicable to interception/confiscation of goods in transit if found undervalued intentionally or unintentionally.
Valuation of Goods as Per GST (Section 15)
To avoid miscalculations, the Goods and Services Tax Act provides some standard provisions on the basis of which value of goods chargeable to GST will be calculated.
As per the GST Act, the supply of goods will be determined on the basis of the value of the transaction taking place.
(Transaction value here means the actual price paid or payable for the supply of goods or services between two unrelated parties).
- Value of supply receivable wholly in currency notes should be inclusive of :
- Any taxes, duties, cess, incidental charges(packaging, commission), fees or any additional charges.
- The amount which the supplier is liable to pay and incurred by the recipient.
- Subsidies availed other than government subsidies and applicable interest, late fee or penalty if any.
- Discounts allowed before or at the time of supply.
Exclusions: Discounts provided after supply (for example discounts for prompt payment)
- Value of supply when received in kind :
- The open market value of supply
- The money value of supply
- Value of like kind and quality product
- Value-based on the cost incurred
- Value determined by reasonable means with consistent principles of GST provisions.
In short, the price of the product will be the sole consideration for the calculation of the final supply value under GST.
Undervaluation of Goods in GST
Undervaluation of goods in GST might happen in the following case where:
- The supplier charges a lower GST rate on goods using a different HSN Code than applicable.
- The supplier charges GST on a lowered price than the actual MRP.
Inspection of Goods in Transit
Rule 138 of the Central GST Rules,2017 states for mandatory inclusion of E-way bill along with the invoice and other necessary documents during movement of goods of value exceeding Rs 50,000.
During movement, if any proper officer (authorized by the Centre or State) intercepts or inspects any vehicle carrying goods (if not inspected previously in any other state or place) violating GST provisions or intending to evade tax can stop the movement of such goods in transit and can ask for specific information from the person carrying the goods.
Seizure of Goods
For discrepancies found in the valuation of goods, charging of tax or any other provision of GST, the proper officer may issue a detention notice to the transporter agent and the supplier of goods, notifying the additional tax or penalty payable against the motive of evasion of tax.
In severe cases, the proper officer might detain or seize the goods to his custody till the payment of the penalty is done.
No confiscation of the vehicle would be done in case the vehicle owner proves that the transaction was being done out of his prior knowledge.
Penalties against Confiscation of Undervalued Goods in Transit
Goods those found in transit with the motive of tax evasion will be confiscated with the proper officer and will only be released on payment of :
- Fine imposed by the proper officer on the owner of goods which can be:
- Minimum of 100% tax – if the owner is identified or 50% value of goods before tax if the owner is not identified.
- Maximum of the total market value of goods before tax.
A penalty imposed by the proper officer on the vehicle owner equal to the tax payable on goods.
Depending on the preservation capacity of goods, the fines and penalties imposed by the proper officer shall have to be paid in the minimum time by the supplier and the vehicle owner in case of confiscation of goods.
Thus, to stop intentional undervaluation and imposition of lower GST rates on goods, the GST Act has empowered the proper officer to exercise his powers and confiscate goods and charge huge penalties on the involved parties.
Need advisory on GST Arbitrations?
Email us your concern at firstname.lastname@example.org