Law panel of GST body draws plan to tackle fake invoice menace

The Law Committee of the GST Council has suggested two-pronged measures to tackle the menace of fake invoices and ineligible availment and passing on of input tax credit (ITC) by unscrupulous fraudsters, and on the other, to ensure not to impact the Ease of Doing Business provided by the Goods and Service Tax’s (GST) liberal registration and refund regime, and simple self-compliance system with little checks. The Law Committee’s focus is on the fresh or new registration applicants and also to weed out existing fake dealers from the systems.

The trigger was within ten days of a nationwide drive against the GST fake invoice frauds, the DGGI and CGST Commissionerates have so far arrested 48 persons including one woman and 3 Chartered Accountants and have registered 648 cases besides identifying 2,385 entities.

The Department of Revenue (DoR) sources said that the Law Committee has suggested that new or fresh registration in GST may adopt Aadhaar like registration process under which new registration can be done online with live photo and use of biometrics with due verification of documents. Such facilities can be provided at banks, post offices, and GST Seva Kendras (GSKs) just like Passport Seva Kendras or Aadhaar Seva Kendras. The GSKs can work on the pattern of Passport Seva Kendras to provide new registration facilities with required checks on fake registration.

A fresh registrant must go for compulsory physical verification and personal identification in case s/he opts for non-Aadhaar authentication-based registration process and do not have Income-Tax Return supported adequate financial capability. In such a case, s/he may have to submit recommendation letter by two taxpayers of adequate reliability.

Further, also, if on the basis of document supported credentials, a registrant/dealer falls in ‘trustworthy’ category then s/he can be given registration within 7 working days. If s/he is not in the ‘trustworthy’ category then conditional registration shall be given within 60 working days only after physical verification of the place of business wherein in such cases input tax credit to their buyers shall be allowed only after filing of their return and the dealer/s would be required to pay certain portion of their liability in cash instead of paying 100 percent tax through ITC.

As per suggestions of the Law Committee, the dealer may also be required to deposit a portion of their due taxes through cash or via a bank guarantee of up to 2 percent of their tax dues, instead of being allowed for 100 percent tax payment through ITC. They have to have some convincing Income Tax footprint available to establish their financial credibility to avail ITC based payment.

‘’For example, a dealer, say of, Rs 100 crore business needs to pay on an average a tax of Rs 18 crore, then s/he may be required to pay a sum of Rs 3.6 lakh through bank guarantee instead of 100 percent payment through ITC,’’ sources said.

In order to weed out existing fake dealers from the GST system, the Law Committee has proposed full application of Business Intelligence and Fraud Analytics (BIFA) tool for precise identification of riskier dealers based on the riskier input supply chain and outward supply chain, abnormal taxpayer behaviour (in comparison to general behaviour) in terms of ITC availment, tax payment for catching fake dealer and taking appropriate action, including enforcement.

The Law Committee has suggested suspension of first lot of riskier traders and identification of such taxpayers on the basis of significant criterion including non-filing of return for six months, said sources adding that the committee underlined that fact that there are about 6 lakh dormant registrants in GST. It further proposed that no income tax credential be given if 99 percent tax is paid through ITC.

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