GST Registration – Issues & Challenges

The Goods and Services Tax was brought in force by the Government of India on and from 1^st July, 2017 with so much fancy stories everywhere. The GST has been implemented uniformly throughout the country with All the States and Center agreeing to implement it on the same day. It is indeed a historic moment in the Indian Taxation System, primarily because nowhere in the entire country, there used to be a concurrent taxation system, i.e. either the central government used to collect the tax on particular transaction or the state government used to collect it. But simultaneous powers of both the Union as well as State Governments on a single transaction is something which has happened for the first time in India.

Initially, there were so many hiccups in the GST System, causing trouble to the businessman in general. However, the government has been addressing the technical issues and trying to smoothen the system. The entry point of getting into any tax net is always obtaining a Registration, which, as on today has become a severe headache throughout the country for the businessman, tax consultants, and chartered accountants and for the government as well! In this article, we shall discuss why GST Registration has become a burden and a herculean task in today’s world!

GST Registrations and Bogus Invoicing

The unstoppable scams and the numerous fraudulent transactions does not seem to stop in the GST Regime, which has become a nightmare for the central and state governments. It is very sad that GST Scams has become a routine matter for any newspaper, with every new scam being undertaken with a different modus operandi! Though the GST Collections are continuously rising month on month, but because of these scams, the government is losing a lot of money as well as manpower. Because of these scams and fraudulent transactions, the government has to deploy a large number of skilled and talented people to continuously monitor and identify these type of transactions. A dedicated team called Directorate General of Analytics and Risk Management (DGARM) is primarily assigned with this specific task. This department identifies registered entities who undertake bogus or dummy transactions and a list of such firms is then circulated to field officers across the country. The respective field officers, have also got a special team called Enforcement Division or Preventive Section, who are supposed to visit these entities for spot visit, verify the genuineness or otherwise of these firms and take necessary actions accordingly. Moreover, most of these firms are being Searched or Raided by these departments. Carrying out Searches and Raids also requires deployment of huge manpower. After thorough investigation of these firms, the offender is generally arrested (considering the amount and gravity involved), if he is not absconding. Once the offender is arrested, the legal procedures are carried out through court, which naturally takes time to conclude. Further, in most of the cases, the real offender or culprits are not caught but the poor people are arrested, who do not have any knowledge of all these transactions being taken place through their bank accounts or in their PAN and Aadhar.

Since the real culprits keep on absconding, the government may feel itself to be failing in addressing the real problem and hence, it keeps on tightening the registration procedure. As a result of this, the genuine business owners feel they are unnecessarily being targeted or harassed, while the real culprits keep on indulging in such type of transactions, through unfair and illegal means.

India is at the 10^th number in the Ease of Doing Business Rank. While I am not aware of the basis on which these rankings are given, one thing is certainly sure that situation is quite different when it comes to GST! Today, in order to start any business, GST Registration is the first step, without which doing business is tough or almost impossible. And the irony is that because of the trivial situations as mentioned above, this very first step of obtaining GST Registration itself has become quite difficult! By saying this, I do not intend to criticize government for addressing the burning issue of bogus invoicing. However, the underlying fact is that the real business owners, who genuinely want to do good business, and who can increase the government revenue in the form of taxes, are being made to suffer this situation.

Very recently, an RTI Reply has been circulating on various Social Media platforms, which shows that out of total applications received for registration, more than 50% applications have been rejected by the department! A State wise statistics is also provided in the said reply, and it shows that in some states, this ratio is in excess of 70%! A table showing state wise statistics has been given below.

State wise % of GST Applications Received and Rejected

The above table shows that in Chandigarh, Delhi and Mumbai Commissionerates, out of 100 fresh registration applications, almost 70 applications are being rejected. While the fact is that, if these applications have been approved, it would have certainly given rise in the tax collections for the government.

Having said that, we are aware how much money government is actually loosing because of these bogus transactions. Such incidents can never be accepted. They should be considered fugitive economic offender and should be dealt with the strictest possible actions. Because of such fake transactions, the government is not only loosing resource in monetary terms, but to track, monitor, search, raid and investigate these type of transactions need deployment of huge government manpower and machinery. A lot of man hours are being utilized in these operations, which could have otherwise been utilized for more productive and fruitful actions.

Legal Provisions

The provisions relating to Registration are contained in Section 25 of the CGST Act and Rule 8 of the CGST Rules, 2017. These provisions state that the Application for Registration should be submitted in Form GST REG 01 and it should be accompanied with the requisite documents. The said form also prescribes the list of documents, which are required to be uploaded. The said form also specified that for ownership proof of principle place of business, municipal tax bill or electricity bill is accepted. However, in reality, the officers do not accept them as a valid document to prove ownership.

Further, because of no specific guidelines on the documentation part for registration, almost every day, we come across a huge number of cases of baseless queries being raised by officers, across the country. Some of the queries for example, were like “Do you have any experience of doing this business?!”, or “How can you do this business from home?” These are just examples. In reality, there has been thousands of such queries being raised and the harsh truth is that many of the times, the officers are raising queries, beyond what is stated in the law.

And the icing on the cake is that when such questions are being replied, the officers tend to mostly reject the applications. The taxpayers, have only 2 courses in case their application is rejected. The first one, is obviously to make another application and satisfy the tax officer, which is being done in most of the cases. The second course of action is to challenge the Rejection Order with the Commissioner (Appeals). In either ways, it generally takes at least 1 month to obtain the registration, resulting into prolonged delay in conducting business in the country.

Approach of Officers

The problems related to delay in getting registration is getting serious day by day, so much that I myself have heard so many practitioners who have stopped doing work of GST Registration! What they inform to client is that you apply and obtain Registration on your own, and then come to us! And this is, despite knowing that they are losing the Revenue.

The department has prescribed Turnaround time (TAT) for Registration procedure. The timeline specified is 7 days if the taxpayer has successfully completed Aadhar Authentication. But it is 30 days in case Aadhar Authentication is not successful. The government has made it mandatory to link PAN of every citizen with his / her Aadhar. Not only this, the government has specified so many implications under Income Tax, if the PAN of the taxpayer is not linked with Aadhar. However, even today, a huge number of PAN are still not linked with the respective Aadhar. This is primarily because of the incomplete / inaccurate data or information feeded in either PAN database or Aadhar database. Further, getting either PAN or Aadhar changed is also cumbersome process, because taxpayer is required to submit valid documents in support of the correction. And it takes almost 15 days for the records to be amended, be it PAN or Aadhar.

As said above, the timeline for issue of Notice specified under Rule 9(2) of the CGST Rules, 2017 is 7 days if Aadhar authentication has been completed, otherwise it is 30 days. Further, it is not mandatory to issue Notice in every case. The said sub-rule 2 specifies that notice should be issued only if the application is found to be deficient in terms of any information or documentation. However, it seems that the department has given instructions to their officers not to approve any registration application without issuing a Notice. Because almost in more than 95% cases, notices are invariably being issued, including in cases where the documents are fully complete and proper. The system reflects the due date to the officer who is allotted the task of verification of registration application. But what the officers have a tendency to do is they issue the Notice only on the last date of the due date, and once the notice is issued, the taxpayer gets 7 days to reply to the notice. Even if the taxpayer submits his reply the very next day of receipt of notice, the officer will not take any action before the due date to respond! Further, the officers are always overloaded with their existing assignments. The government has prepared a dedicated Centralized Processing Team to review the Registration Applications. However, considering the inflow of the applications received for registration, it seems that the manpower deployed for verification of the applications as well as physical inspection of the premises fall short of the actual requirement.

Conclusion

To conclude, I would like to give a suggestion that the government should ideally deploy an Officer, such as a Nodal Officer, in every State / District who looks into the grievances relating to registration / amendment of registration of the taxpayers and can direct the respective officers to accordingly take necessary action. Getting Registration is the entry point of entering into any tax net. Therefore, the rather than strengthening the Registration procedure, the government should devise such a mechanism that if any taxpayer is found involved in fraudulent transactions, proper legal action should be initiated immediately against them, so that genuine taxpayers who want to do business and contribute to the growth of the country are not being harassed!