CRACKDOWN ON FAKE GST REGISTRATIONS BEGINS AUGUST 16

Syllabus:

GS-2: Governance, Constitution, Polity, Social Justice

Focus:

The news highlights a new nationwide drive starting August 16 to combat fake GST registrations and invoice fraud, aiming to strengthen tax compliance and prevent revenue loss through rigorous verification.

CRACKDOWN ON FAKE GST REGISTRATIONS BEGINS AUGUST 16source:wordpress

Nationwide Drive Against Fake GST Registrations:

  • Commencement and Duration: The drive starts on 16 August and continues until 15 October.
  • Objective: To identify and address suspicious or fake GST registrations.
  • Verification Process: Conduct thorough checks to validate the authenticity of GST registrations.
  • Action Against Fraud: Immediate suspension and cancellation of GST registrations if entities are found non-existent.
  • Focus Areas: Target entities involved in fake invoicing and misuse of input tax credits.
About the Central Board of Indirect Taxes and Customs (CBIC):

  • Affiliation: Part of the Department of Revenue, Ministry of Finance, Government of India.
  • Function: Administers indirect taxes including Customs, Central Excise, Central Goods & Services Tax (CGST), and Integrated Goods & Services Tax (IGST).

Responsibilities:

  • Formulates policies for tax levy and collection.
  • Prevents smuggling and administers tax matters related to Customs, Excise, CGST, IGST, and Narcotics.
  • Administrative Authority: Oversees subordinate organisations such as Custom Houses, Central Excise and GST Commissionerates, and Central Revenues Control Laboratory.

Tax Administration:

  • Manages customs duty collection at international airports, seaports, Custom Houses, air cargo stations, ICDs, land customs stations, SEZs, and CFSs.

Organisation Structure:

  • Headed: by a Chairman appointed by the Indian Government.
  • Divided into divisions and zones, each led by a Chief Commissioner or Director General.
  • Includes a GST intelligence wing for detecting and preventing tax evasion.

Process to Report Fake GST Registration Access GST Portal:

  • Access GST Portal:
    • Visit the GST portal and navigate to the “Search Taxpayer” tab.
    • Select “Search by PAN” and enter the PAN credentials.
  • Review Registrations:
    • All GST registrations under the entered PAN will be displayed.
    • Check the list for any GSTINs that do not belong to you but are listed.
  • Initiate Complaint:
    • Tick the checkbox next to the suspicious GSTINs and click “Report.”
    • Note: GSTINs not migrated from the old law to GST cannot be reported.
  • Provide Details:
    • A pop-up will auto-populate your legal name as per PAN.
    • Enter your email address, mobile number, date of birth, and address for validation.
  • Verify OTP and Aadhaar:
    • Submit OTP received on your email and mobile number.
    • Complete e-KYC through Aadhaar verification, provide Aadhaar number, and submit OTP for second-level authentication.
  • Confirm Details:
    • Review Aadhaar details displayed on the site.
    • Confirm that all details are correct.
  • Submit Declaration:
    • Declare that the GST registrations are incorrect and not authorised.
    • Choose “Accept” to forward the complaint for investigation or “Reject” to cancel the process.

Understanding the Issues with Fake GST Registrations:

  • Tax Evasion: Fake registrations facilitate tax evasion by exploiting loopholes in the indirect tax system.
  • Invoice Fraud: Entities issue fake invoices to evade taxes and inflate tax credits.
  • Economic Impact: Bogus entities distort the market and undermine fair competition.
  • Regulatory Challenge: Authorities face difficulties in tracking and addressing fraudulent activities.
  • Precedent: Similar issues existed even before the GST regime, continuing to impact the system.

Actions and Consequences:

  • Suspension of Registration: If a taxpayer is found to be fictitious, their GST registration will be suspended.
  • Cancellation of Registration: Persistent issues will lead to the cancellation of GST registration.
  • Blocking of Input Tax Credits: Steps will be taken to prevent the misuse of input tax credits based on fake invoices.
  • Recovery of Credits: Efforts will be made to recover input tax credits wrongly used by businesses.
  • Identification of Recipients: Businesses that received input tax credits from non-existent taxpayers will be identified.

Technological and Analytical Support:

  • Role of Technology: The GST system’s technology-intensive nature aids in detecting and addressing fraud.
  • Data Analytics: Robust data analytics help in identifying discrepancies and fraudulent activities.
  • Inter-Agency Coordination: Collaboration among various agencies enhances the effectiveness of the drive.
  • Economic Formalisation: The formalisation of the economy supports better tracking and regulation.
  • Previous Success: A similar drive in the previous year demonstrated the effectiveness of these measures.

Impact on Businesses:

  • Transparency Requirement: Businesses are encouraged to maintain transparency and compliance with GST regulations.
  • Risk of Unwarranted Attention: Genuine businesses might face scrutiny due to transactions with dubious entities.
  • Due Diligence: Importance of verifying the credibility of entities engaged in transactions.
  • Invoicing Practices: Businesses should avoid issuing invoices without actual supply of goods or services.
  • Proactive Measures: Ensuring compliance can prevent potential issues with tax authorities.
  • Government Commitment: The drive underscores the government’s dedication to a fair and clean tax environment.

Historical Context and Future Directions:

  • Pre-GST Challenges: Fake invoices were a challenge even before the GST regime.
  • Current Strategies: Enhanced data sharing and technological advancements are improving detection.
  • Lessons Learned: Insights from previous drives inform current strategies and highlight areas for improvement.
  • Future Initiatives: Continued efforts and innovative measures will be necessary to address evolving tax evasion tactics.
  • Role of Collaboration: Ongoing cooperation between tax authorities and businesses is key to effective regulation.

Challenges:

  • Detection Difficulties: Identifying fake registrations and fraudulent invoices can be complex due to sophisticated evasion techniques.
  • Resource Constraints: Limited resources and manpower may hinder the thorough verification of all suspicious entities.
  • Data Accuracy: Inaccurate or incomplete data can lead to errors in identifying fraudulent activities.
  • Genuine Business Impact: Honest businesses may face disruptions or penalties due to errors in the detection process.
  • Evolving Tactics: Fraudsters continually adapt their methods, making it challenging for authorities to stay ahead.
  • Inter-Agency Coordination: Effective collaboration among different regulatory bodies can be difficult to achieve.
  • Legal Hurdles: Legal complexities and procedural delays can slow down the enforcement actions against fraudsters.

Way Forward:

  • Enhanced Technology: Invest in advanced technologies and AI to improve fraud detection and prevention capabilities.
  • Increased Resources: Allocate additional resources and manpower for thorough verification and enforcement activities.
  • Improved Data Sharing: Foster better data sharing and integration among regulatory agencies to enhance accuracy and efficiency.
  • Support for Genuine Businesses: Implement measures to minimise the impact on honest businesses during fraud investigations.
  • Ongoing Training: Provide continuous training for tax authorities to keep them updated on evolving fraud tactics.
  • Strengthened Collaboration: Promote better coordination and communication between various regulatory bodies.
  • Legal Reforms: Streamline legal processes and strengthen laws to expedite enforcement actions and penalties.

Conclusion:

The upcoming drive against fake GST registrations represents a critical effort to enhance tax system integrity, protect genuine businesses, and address sophisticated fraud tactics. Its success will depend on effective implementation and coordination among agencies.

Source: MINT

Mains Practice Question:

Discuss the challenges faced in combating fake GST registrations and suggest measures to enhance the effectiveness of such drives. How can technology and inter-agency collaboration improve tax compliance and fraud detection?