Special Drive to Combat Fake GST Registrations and Safeguard Government Revenue

Introduction

The Indian government has announced a Special All-India Drive to be carried out from 16th May to 15th July 2023, aiming to tackle the growing problem of fake Goods and Services Tax (GST) registrations and the fraudulent passing of input tax credit (ITC). The drive's objective is to identify and take action against fake dealers and billers, eliminate these entities from the GST ecosystem, and protect government revenue by preventing losses caused by fake registrations and ITC fraud.

Growing Concerns over Fake Registrations

The issue of fake GST registrations has become a serious problem in India, with unscrupulous elements misusing the identity of others to obtain fraudulent registrations under GST. These fake registrations are then used to pass on ITC to recipients fraudulently by issuing invoices without any underlying supply of goods or services.

To address this issue, the Special All-India Drive will involve a concerted and coordinated effort by Central and State tax authorities to detect and address suspicious and fake GST registrations. The drive will focus on verifying the authenticity of such registrations and taking appropriate actions against the identified fraudulent entities.

National Coordination Committee

The National Coordination Committee is a committee established to monitor the progress of the Special All-India Drive against fake GST registrations. This committee is responsible for overseeing the coordinated effort to identify and address fraudulent activities related to GST registrations and safeguard government revenue.

The committee is headed by Member [GST], CBIC, and includes Principal Chief Commissioners/Chief Commissioners from Delhi and Bhopal CGST Zones, as well as Chief Commissioners/Commissioners of State Tax from Gujarat, West Bengal, and Telangana. The GST Council Secretariat will act as the secretariat for the National Coordination Committee, and the committee will also be assisted by GSTN and Principal Commissioner, GST Policy Wing, CBIC.

Role of Nodal Officer

The nodal officer appointed by each tax administration will be responsible for the following tasks:

1. Ensuring seamless flow of data and coordination with GSTN/DGARM and other tax administrations.
2. Sharing the name, designation, phone number/mobile number, and email ID with the GST Council Secretariat within three days of issuance of the guidelines.
3. Ensuring that the data received from GSTN/DGARM/other tax administrations is made available to the concerned jurisdictional formation within two days.
4. Promptly providing any cooperation required by other jurisdictions under their control.
5. Facilitating communication between field formations and other tax authorities in cases where the recipient GSTIN pertains to a different tax jurisdiction.

Action by Jurisdictional Tax Officer

Once the nodal officer receives data on suspicious GSTINs from GSTN/DGARM, they will share it with the concerned jurisdictional tax officer(s) for verification. Upon identifying a suspicious entity, the proper officer will undertake the following actions:

1. Verification: The officer will conduct a time-bound exercise to verify the suspicious GSTINs. This process may involve checking the submitted documents, tax returns, and any related transactions.
2. Suspension and Cancellation of Registration: If, after detailed verification, the taxpayer is found to be non-existent or fictitious, the proper officer will initiate action for suspension and cancellation of the registration in accordance with Section 29 of the CGST Act and relevant rules.
3. Blocking Input Tax Credit: The officer may examine the matter for blocking input tax credit in the Electronic Credit Ledger as per the provisions of Rule 86A of CGST Rules without any delay.
4. Identifying Recipients of Fraudulent ITC: The details of recipients who have received input tax credit from the non-existing taxpayer will be identified through the details furnished in FORM GSTR-1 by the said taxpayer.
5. Taking Action Against Recipients: If the recipient GSTIN is under the jurisdiction of the same tax authority, suitable action will be initiated for demand and recovery of input tax credit wrongly availed by the recipient based on invoices issued
6. By the non-existing supplier without underlying supply of goods or services: If the recipient GSTIN is in a different tax jurisdiction, the details of the case, along with relevant documents/evidences, will be sent to the concerned tax authority through the nodal officer for further action.
7. Identifying Masterminds/Beneficiaries: The proper officer will also take action to identify the masterminds or beneficiaries behind the fake GSTIN for further action, recovery of government dues, and/or provisional attachment of property/bank accounts as per the provisions of Section 83 of the CGST Act.
8. The investigation will involve examining the details and documents submitted by the suspicious entity, checking for any irregularities, and identifying the recipients of the fraudulent ITC. The proper officer will follow the provisions of the CGST Act and rules to cancel the registration, block input tax credit, and take necessary actions against the recipients of fraudulent ITC.
9. Linked Suspicious GSTINs: If any linked suspicious GSTIN is detected during the investigation or verification, the officer may initiate similar actions for those entities as well.

Guidelines for the Drive

The government has issued the following guidelines for the Special All-India Drive:

1. The Goods and Services Tax Network (GSTN) will identify fraudulent GSTINs using data analytics and risk parameters and share the information with relevant tax authorities.
2. A nodal officer will be appointed by each tax administration for data sharing and coordination.
3. Field formations will verify suspicious GSTINs and take appropriate actions, including suspension and cancellation of registration, blocking of input tax credit, and recovery of government dues.
4. Weekly reports on the progress of the drive will be submitted by each tax authority in a specified format.
5. A National Coordination Committee, headed by Member [GST], CBIC, will monitor the progress of the drive, with the GST Council Secretariat acting as its secretariat.

Expected Outcomes

While the government has not mentioned a specific revenue target it expects to achieve from this drive, the initiative aims to prevent further revenue loss and ensure better compliance with GST laws. By identifying and taking action against fraudulent entities, the drive will help safeguard government revenue and promote transparency in the GST ecosystem.

Conclusion

In conclusion, the Special All-India Drive against fake GST registrations demonstrates the government's commitment to tackling tax fraud and ensuring the integrity of the GST system. The coordinated effort by Central and State tax authorities will play a crucial role in addressing this menace and protecting the government's revenue. As an Indian Tax Expert I welcome this special drive that is aimed to reduce the menace of fake registrations and fake billings. 

I welcome this drive because it addresses the pressing issue of fraudulent GST registrations and the unlawful passing of input tax credit. By tackling these problems head-on, the initiative not only safeguards government revenue but also promotes a transparent and fair GST ecosystem.

This concerted effort by Central and State tax authorities is a commendable step towards enhancing compliance with GST laws and ensuring that fraudulent entities are held accountable. Furthermore, the drive's emphasis on data analytics and risk parameters to identify suspicious GSTINs demonstrates the government's commitment to leveraging technology in the fight against tax fraud.

I am confident that the Special All-India Drive will effectively curb the menace of fake registrations and restore trust in the GST system. As a responsible citizen, I stand in solidarity with the government's efforts to protect public revenue and maintain the integrity of our nation's tax structure.

Also Read: CBIC issues Guidelines for Special All-India Drive against fake registrations