GST Council Suggests 2-Pronged Strategy to Control Fake Invoices

The Law Committee of the GST Council has suggested a two-pronged strategy to tackle the issue of fake invoices, sources said.

According to people in the know, the panel has recommended that new or fresh registrations in GST may adopt an 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 (GSK), just like the Passport Seva Kendras or the Aadhaar Seva Kendras. The GSKs can work on the pattern of the Passport Seva Kendras to provide new registration facilities with required checks on fake registration.

According to sources, the Law Committee has suggested that a fresh registrant must go for compulsory physical verification and personal identification in case he or she opts for non-Aadhaar authentication-based registration process and does not have income tax return supported adequate financial capability.

In such a case, he or she 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 or dealer falls in "trustworthy" category, then he or she can be given registration within seven working days.

If he or she 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 dealers would be required to pay certain portion of their liability in cash instead of paying 100 per cent tax through ITC.

According to sources in the Department of Revenue, to weed out existing fake dealers from the GST system, the panel proposed full application of the 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 terms of ITC availment, tax payment for catching fake dealer and taking appropriate action, including enforcement.

It 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 per cent tax is paid through ITC. There were about 35,000 such dealers who were given registration in 2018-19 and 2019-20, having GST liability of more than Rs 50 lakh (yearly), and more than 99 per cent 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 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 urgent need to work out certain modifications in the GST Rules is evident from the fact that 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 three chartered accountants, and have booked 648 cases besides identifying 2,385 entities, said people in the know.