Even as alcohol for human consumption is outside the Goods and Services Tax (GST) purview, the bottles used to sell ‘liquid courage’ have been found to be at the centre of an unfolding investigation into tax evasion. After the first case in Rajasthan was discovered late last year, GST authorities have alerted all zones, saying this modus operandi could have been adopted by other tax payers as well, officials familiar with the case said.
The case detected involved a taxpayer who runs a firm engaged in procuring empty beer bottles and selling them onward to breweries. Taxation on transaction of ‘second-hand’ products like empty bottles are governed by the ‘margin scheme’, which mandates that GST be levied on the amount that is the difference between sale and purchase price. However, the taxpayer had been declaring a higher purchase price in the returns to narrow the base on which tax is calculated, thus evading over Rs 90 lakh between July 2017 and March 2019.
Margin scheme is employed in such transactions to avoid double taxation, as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain. For regular transactions, GST is charged on the transaction value of the goods.
Empty beer bottles start their journey back to the breweries after being collected from homes, restaurants and bars by multiple scrap dealers and eventually reach the aggregators, like the taxpayer in this case. They are sold to breweries at a price which is almost always fixed for a specific buyer for a certain period under a contract.
While it is harder to manipulate sale price agreed between breweries and aggregators, the invoice for purchase price can be tampered with, given the scrap dealers don’t always insist on proper bills, as they might not be registered taxpayers and there is no provision for availing input tax credit.
Officials familiar with the case said while the online architecture of GST was instrumental in many frauds coming to light, this specific case was detected primarily on conventional intelligence gathering by field officials. During subsequent search operations, the taxman found that the taxpayer’s ‘stock register’ revealed the purchase prices were different in purchase invoices and sales invoices.
After agreeing with the evasion charges, the taxpayer has so far paid back nearly Rs 60 lakh of the appropriated Rs 90 lakh, a GST official said.