Business Desk, ETV Bharat: In order to curb the growing misuse of fake GST invoices to fraudulently claim the input tax credit under the GST, the law committee of the GST Council has recommended a two-pronged strategy.
It involves use of biometric identity such as Aadhaar and live photo for GST registration, which will filter out bogus firms at the initial stage itself, while the second leg involves weeding out of existing fake dealers by matching their income tax returns and other credentials by using sophisticated data analytics tools, ETV Bharat has learnt.
According to the sources in the department of revenue, ministry of finance, the arrest of 48 persons, including three chartered accounts, in the last two weeks in a nationwide drive against the fake GST bill frauds, requires systematic overhaul of the GST tax system.
The nationwide drive launched by the Directorate General of GST Investigations (DGGI), which started on November 9, and resumed after Deepawali recess, resulted in filing of 648 cases and identification of nearly 2,400 suspicious entities.
The law committee of all powerful GST Council, which has officers both from the Centre and States, deliberated the issue over two days with the twin objective: how to ensure ease of doing business while curbing the menace of fake GST bills.
Aadhaar based GST registration
Under the first leg of this strategy, the expert panel suggested that for the fresh GST registration, an applicant will have to provide biometric data like Aadhaar and this biometric authentication based registration can be done with live photo and verification of supporting documents.
Officials said such facilities can be provided at banks, post offices, and GST Seva Kendras (GSKs) just like Passport Seva Kendras or Aadhaar Seva Kendras.
Stricter norms for non-Aadhaar based GST registration
According to officials, if an applicant opts for Aadhaar based GST registration then GST number will be assigned in a week's time. However, if applicants do not opt for biometric registration then they will have to wait for up to 60 days in addition to going through a compulsory physical verification of the premise and documents, and personal identification. Even in such cases, only conditional registration will be given.
If applicants don't have adequate financial capability supported by income tax return then they will be required to submit recommendation letters by two taxpayers considered reliable by the authorities.
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In case of the second category of applicants who will not use Aadhaar based GST registration, input tax credit to the buyers of such businesses will only be allowed when these businesses file their GST return and pay a certain amount of tax in cash instead of paying 100 per cent tax through ITC.
These newly registered dealers may be required to pay up to 2% of their tax liabilities via a bank guarantee instead of 100% payment through ITC.
"These new registrants must have some convincing income tax footprint to avail ITC based payments," an official told ETV Bharat.
How to qualify as a trustworthy taxpayer
According to sources, in order to qualify under the 'trustworthy' category, a dealer must have a good income tax credential, no previous cancellation of GST registration on the same PAN for violation of any law. And they would also need to undergo Aadhaar authentication as is required in case of an individual, proprietorship and partnership applicants.
A jurisdictional officer, satisfied with the credentials verification, would waive some or all the restriction. Also, a certain class of applicant, who appear risky to authorities, shall be required to undergo in-person verification at GST Seva Kendras.
Challenge of weeding out existing fake GST dealers
According to sources in the department of revenue, the Law Committee proposed full use of Business Intelligence and Fraud Analytics (BIFA) tools for precise identification of risky dealers.
These tools will look at risky or bogus inward and outward supply chains, abnormal taxpayer behaviour of availing the input tax credit and suggest ways for enforcement.
What will constitute risky behaviour?
Officials said if a dealer is availing input tax credit in a big way but does not have commensurate income tax return then it may qualify as a risky GST dealer.
They underline that there are six lakh dormant registrations under the GST, which pose risk to the system due to potential misuse. Officials point out that there were about 35,000 such dealers who were given registration in FY 2018-19 and 2019-20. These dealers had annual GST liability of more than Rs 50 lakh annually and more than 99% tax was paid through ITC.
"These dealers have no income tax credentials, they did not pay income tax of Rs 1 lakh in the last three years," said an official while highlighting the apparent mismatch between their GST and Income Tax profiles.
The law panel of the GST Council recommended suspension of such GST dealers, including those who don't file GST returns for a period of six months.
How to revoke a suspension
Sources said that in 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.
The law panel also advised building a system based workflow for suspension of such risky dealers, integrated income tax credential verification, bank data verification for credibility of taxpayers as is done by rating agencies such as CIBIL, cross verification of documents submitted by them.
The panel also recommended compulsory filing of GST returns and statements for all new applicants from April 2021.
Officials said these recommendations will be presented to the GST Council headed by finance minister Nirmala Sitharaman.
(Article by Krishnanand Tripathi)
