Introduction:
The government has identified a significant issue with taxpayers misusing other’s identities to obtain fake GST registrations. These fraudulent registrations are used to issue invoices and pass on input tax credits without any actual supply of goods or services, resulting in substantial revenue losses due to the use of forged documents and identity fraud. To combat this, the government is implementing a second two-month All-India drive against fake GST registrations. This second drive builds on the success of a similar drive conducted last year, which proved effective in identifying and removing such fraudulent registrations.
Background:
The Instruction No. 01/2023-GST dated 04.05.2023 outlined guidelines for a special All-India drive to address suspicious and fake GST registrations, which was conducted from 16th May 2023 to 14th August 2023.
A National Coordination Committee, led by the Member (GST), CBIC, and comprising senior officers from various states and the central government, was established to oversee and monitor the progress of this drive.
In terms of the press release issued by the Ministry of Finance dated 07 January 2024, the initiation of the first special drive against fake registrations in mid-May 2023 has led to-
- Detection of total 29,273 bogus firms involved in suspected Input Tax Credit (ITC) evasion of Rs.44,015 crore.
- saving Rs. 4,646 crore of which Rs. 3,802 crore is by blocking of ITC and Rs. 844 crore is by way of recovery.
- and a whopping 121 arrests.
The success of the first drive led the National Coordination Committee, on July 11, 2024, to decide on a second All-India drive to further clean up the tax base and take action against fake registrations and bogus invoices.
Contents:
Through this article, the author wishes to discuss the following important aspects about the second special drive in the detailed manner;
Page Contents
1. Purpose of the Second Special Drive:
The first drive was instrumental in identifying and removing fake GST registrations. Building on this success, the second drive aims to:
- Detect Suspicious or Fake GST Registrations: The drive will focus on identifying and scrutinizing suspicious GSTINs.
- Conduct Verification: Ensure timely verification to eliminate fraudulent billers from the GST ecosystem and prevent further revenue loss.
2. Period of Special Drive:
- Starts from 16th August 2024
- Ends on 15th October 2024
3. On what basis GSTIN’s of Taxpayers are Selected?
I. Goods and Services Tax Network (GSTN):
- In coordination with the Directorate General of Analytics and Risk Management (DGARM), CBIC, GSTN identifies suspicious/high-risk GSTINs.
- This identification is based on detailed data analytics and risk parameters.
- GSTN shares these suspicious GSTINs with the concerned State and Central Tax Authorities, jurisdiction-wise.
- For GSTINs falling under Central Tax jurisdiction, details are shared with Central Tax authorities through DGARM.
II. State & Central Tax Authorities may Supplement the List (I.e., select GSTIN’s of taxpayers) based On:
- Analytical Tools:
- BIFA
- GAIN
- ADVAIT
- NIC Prime
- E-Way Bill Analytics
- Human Intelligence
- Modus Operandi Alerts
- Experience from Previous Detections
- Insights from the First Special All-India Drive
4. Actions to be taken by field formations:
a) Immediate GSTIN Verification and Cancellation:
On receipt of data from GSTN, verification of the suspicious GSTINs shall be undertaken by the concerned jurisdictional tax officer(s). If it is confirmed that a taxpayer is non-existent or fictitious, the officer shall immediately initiate the suspension and cancellation of the GST registration, as per Section 29 of the CGST Act.
b) Blocking of Input Tax Credit (ITC):
Officers may block the input tax credit in the Electronic Credit Ledger under Rule 86A of the CGST Rules if it is found that the non-existent taxpayer has issued invoices without actual supplies.
c) Recovery from Local Recipients:
Initiate Recovery Actions: For recipients within the same jurisdiction who have claimed ITC based on invoices from the non-existent supplier, tax officers will start the process of demanding and recovering the wrongly availed credits.
d) Inter-Jurisdictional Coordination:
If the recipient GSTIN falls under a different jurisdiction, details will be shared with the concerned tax authority. An online functionality, ‘Initiate Enquiry,’ will facilitate this process on the GSTN Back Office portal.
e) Nodal Officers:
Each CGST Zone and State is required to appoint a nodal officer to manage and coordinate these activities. The contact details of these nodal officers must be submitted to the GST Council Secretariat within three days of the issuance of these instructions.
f) Identifying and Action Against Masterminds:
Tax authorities will work to identify and take action against individuals behind fake GSTINs. This includes recovering government dues and, if needed, attaching properties or bank accounts under Section 83 of the CGST Act. Any linked suspicious GSTINs will also be investigated.
5. Reporting and Feedback:
- Reporting: Each State and CGST Zone must submit an action taken report every week using the formats provided in Annexure-A and Annexure-A1 that also Includes the details viz number of GSTINs verified, number of GSTINs found nonexistent, amount of ITC blocked number of GSTINs where the provisional attachment is made, number of arrests being made. Any new modus operandi detected should be reported.
- Feedback: At the end of the drive, GSTIN-wise feedback on the result of verification of the suspicious GSTINs shared by GSTN is to be provided by the field formations through the nodal officer to GSTN.
6. Monitoring:
The Principal Chief Commissioner/ Chief Commissioner of Central GST Zones and the Chief Commissioner/ Commissioner of States/ UTs to monitor the progress of actions taken on the list of suspicious GSTINs received from GSTN and those identified locally.
7. Action Points for Taxpayers:
1) There should be a display board outside the factory/business premises with the name, Address and GSTIN of the entities being run from that place.
2) In the case of multiple entities working on the same premise, ensure that GST numbers, etc are appropriately displayed for all the entities.
3) The GST Certificate should be printed and kept at the reception area/office and preferably displayed prominently.
4) Following ‘Original documents’ shall be kept ready to prove that the documents used to obtain GST registration are not bogus or forged.
-
- PAN
- Aadhar
- Electricity bill
- Rent Agreement
- Municipal Tax Receipts
5) Politely request and check the ID of GST officers – To ensure the right officer from the right jurisdiction has come to conduct the special drive.
6) List of 5 goods dealt: Ensure the list of goods disclosed in GST portal is being actually dealt with by the Organization, and in case of any changes, do modify the list in the GST portal.
7) Inventory matching: Ensure inventory shown in ‘Books of accounts’ is broadly matching with the ‘Physical inventory’ available on the premises.
8) Sample of Invoices:
-
- Ensure a file with sample invoices issued for sales and received for purchases is made available for verification.
- Addresses appearing on Purchase bills and Sales bills are included in GST portal.
9) Bank details: Ensure updated bank details are made available in GST portal
10) Authorized signatory details: Ensure the reported Authorized signatory in GST portal and the actual working Authorized signatory are the same. In case of any changes, please do update in GST portal.
11) All places at which any business activity is being done should be included in the GST Certificate as principal or additional place of business.
12) Check if all mobile, Aadhar numbers, and email IDs are updated on the GST portal. Also see if Aadhar authentication has been done, wherever applicable.
9. Conclusion:
The initial All-India drive was highly successful, exposing over 29,000 fraudulent GST registrations and recovering significant amounts of revenue. With the second drive now underway, starting 16th August 2024, efforts are being intensified to address fake registrations and bogus invoices. This ongoing initiative is vital for maintaining the integrity of the GST system and ensuring a fair tax environment. Businesses are encouraged to stay compliant and transparent to avoid complications.
Also, it is important to note that such special drive is in the nature of verification of the place of business premises only for verification of the genuineness of the taxpayer and not an inspection of the business premises.
Suggestions or feedback can be sent to the author on [email protected]
The author extends special thanks to CA Roopa Nayak [[email protected]] and CA Thulasiram [thulasiram@hnaindia.com] for vetting this article.
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