Background:
The Central Board of Indirect Taxes and Customs (CBIC) recently issued guidelines on Special All-India Drive against fake registrations vide Instruction No. 01/2023-GST, dated May 04, 2023 (Instructions).
As per these Instructions, a special all-India drive will be launched by all Central and State Tax administrations between May 16 to July 15, 2023 to detect suspicious / fake GSTINs and to conduct requisite verification and take remedial action to weed out fake billers from GST eco-system as well as to safeguard government revenue. The guidelines provide that jurisdictional officers are required to take time-bound action for verification of suspicious GSTIN. On verification, if an officer finds that a taxpayer is non-existence and fictitious, they may act as per the guidance in the instruction [i.e., initiate suspension and cancellation of GST registration of the taxpayer in accordance with Central Goods and Services Tax Act, 2017 (CGST Act), read with rules thereof].
We understand that while targeting fake registrations is necessary, it is also crucial to implement the drive in a way that minimises adverse effects on legitimate taxpayers including small and medium sellers. Further, it is also essential to consider unique circumstances of small sellers supplying goods and services through E-Commerce Operators (ECOs), particularly when ECOs in a way act as outsourced service providers to these sellers.
Issues:
In this regard, we have made a submission to GST policy wing on May 17, 3023 to highlighting the following issues:
- Generally, on filing of refund of excess balance in electronic cash ledger, sellers are subjected to verification of place of business to ascertain the genuineness of the taxpayer.
- With the special drive being conducted, due importance should be given to the legal provisions including Aadhaar authentication, bank account validation, clarifications and rulings: In the recent past and basis our regular interactions with your office, there is a trend to suspend/ cancel GST registration of genuine small sellers due to expectation of traditional office setup, insistence on physical records, presence of directors/ employees, shared/ co-working spaces not accepted as place of business, or no specific demarcation for goods in the warehouse for each seller.
The actions at ground level are taken despite there being clear GST provisions around electronic records, circulars, instruction, FAQs, and various jurisprudence.
It is important that tax officers at ground level should be made cognizant of the above provisions, circulars, FAQs, judicial precedents etc. during this special drive to make it a successful and hassle-free process.
By implementing these measures, the government can strike a balance between cracking down on fake registrations and safeguarding the interests of genuine taxpayers and small sellers. Collaboration between tax authorities and stakeholders can help address the issue of fraudulent activities while minimizing the negative impact on the legitimate business community.
Recommendations
We have requested to government to take the following actions:
- Training and awareness of existing provisions, circulars, FAQs, etc.- This would equip them with the necessary understanding to effectively implement the drive against fake registrations while minimising any unintended impact on genuine taxpayers including small sellers. Specifically, Tax officers at the ground level should be made aware of the business models of ecommerce sellers. This will help the government to strike a balance between cracking down on fake registrations and safeguarding the interests of genuine taxpayers and MSMEs.
- Fair and transparent investigation:If a taxpayer or MSME is flagged during the drive, there should be a fair and transparent investigation process in place to ascertain their legitimacy. This would help prevent undue harassment and allow genuine entities to present their case and provide necessary documentation.
- Timely resolution: It is crucial to expedite the resolution of cases related to genuine taxpayers including MSMEs. Delays in resolving such cases will have severe financial implications, affecting their operations and growth. Thus, a redressal mechanism should be available so that remediation is fast tracked and the issue, if any, does not become a widespread one.
We hope you will find the above update useful. Let us know in case you are facing during the Special All-India Drive against fake GST registrations.
