In a bid to plug leakages under the GST regime, the government has decided to follow a two-pronged strategy.
Devised after detailed deliberations of GST Council nominated -- Law Committee, sources say that "on one hand 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, would ensure not to impact the Ease of Doing Business provided by the GST’s liberal registration and refund regime, and simple self-compliance system with little checks."
Sources added that " the Law Committee while suggesting systemic tightening, some modification in the registration process, use of Aadhaar and Aadhaar like registration modus opus, etc., faced the biggest challenge to working out solutions which would not be impacting Ease of Doing Business although would effectively control the menace of fake firms and fly-by-night operators. The Law Committee has come out with the measures which are taken on precise identification of potentially riskier taxpayers based on very well defined parameters run on the automated environment, thus would not be impacting Ease of Doing Business for genuine taxpayers, businesses entities and traders."
The need to plug gaps to ensure the menace of fake invoices has risen due to the recent investigations of Directorate general of GST investigation (DGGI).
According to sources, 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 booked 648 cases besides identifying 2385 entities.
"The Law Committee of GST Council has suggested two-pronged strategy- one, for the fresh or new registration applicants and other, for weeding out of existing fake dealers from the systems. Law Committee has also suggested discussing these measures with States and other stakeholders before putting it formally to GST Council for further necessary action," sources added.
"Law Committee in its considered view 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," sources said.
"Law Committee has suggested that 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 a 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, and 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 a certain portion of their liability in cash instead of paying 100% tax through ITC," sources added.
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 % of their tax dues, instead of being allowed for 100% 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 Cr business needs to pay on an average a tax of Rs. 18 Cr then s/he may be required to pay a sum of Rs. 3.6 lakh through bank guarantee instead of 100% payment through ITC.
Sources say that the Law Committee is of the view that to be categorised under ‘trustworthy’ category, a registrant/dealer must have good income tax credential, no previous cancellation of GST registration on the same PAN for any violation of law and would need to undergo Aadhaar authentication as is required in case of an individual, proprietorship, partners, etc. The Committee is of the views that if an applicant may approach the jurisdictional officer, if feels aggrieved by any of the imposed condition/s, and may seek a waiver of such condition/s with all relevant documents to support her/his bonafide. A jurisdictional officer, satisfied with the credentials verification, would waive some or all the restriction. Also, a certain class of applicant (who appear riskier) shall be required to undergo in-person verification at GST Seva Kendras.
According to revenue department sources, "to weed out existing fake dealers from the GST system, the Law Committee 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."
Law Committee suggested that suspension of the 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% tax is paid through ITC. There were about 35000 such dealers who were given registration in 2018-19 and 2019-20, having GST liability of more than 50 lakh (yearly), more than 99% tax paid through ITC and have no credential in income tax (did not pay income tax even of Rs 1 lakh in last three years), sources said.
"The Law Committee’s opinion, once a dealer is suspended, he has to explain the discrepancy within the prescribed time limit for revocation of suspension. Also, measures shall be taken to build a full system-based workflow for suspension of risky dealers besides system integrated income tax credential verification and bank data verification for the credibility of the taxpayer (like done by CIBIL), cross verification of documents submitted, etc. Also, sequential filing of returns and statements may be made compulsory to all new applicants from 1.4.2021. The Law Committee also endorses a full system enabled input tax credit flow (e-invoice, auto-populated input tax credit, auto-filled ITC in return), etc," sources added.