Nationwide Campaign to Combat Fraudulent GST Registrations

There have been numerous instances of individuals misusing others' identities to obtain fraudulent registrations under the Goods and Services Tax (GST) law. These illicit registrations are typically acquired with the intent to defraud the government by issuing invoices to unlawfully pass on input tax credit (ITC) without any actual supply of goods or services. Such fake GST registrations, often secured through forged documents and identity theft, have led to significant revenue losses for the government. To counteract this issue, authorities have initiated a two-month nationwide campaign targeting fake GST registrations, and taxpayers should be aware of its details. This article outlines key aspects of this special drive.

Understanding the Nationwide Drive Against Bogus GST Registrations

The Central Board of Indirect Taxes and Customs (CBIC) issued instructions in May 2023 for a special pan-India drive aimed at identifying fraudulently obtained GST registrations. While existing system-based and policy measures have addressed parts of this problem, a systematic and coordinated effort between central and state authorities was previously lacking. Consequently, this new nationwide campaign has been launched to detect suspicious or fake registrations and conduct necessary verifications. This proactive approach is expected to facilitate timely remedial actions, thereby preventing further government revenue losses.

Methods for Identifying False GSTINs

The Goods and Services Tax Network (GSTN) will utilize advanced data analytics and risk parameters to pinpoint fraudulent GSTINs. Subsequently, the GSTN will transmit details of these identified suspicious GSTINs, categorized by jurisdiction, to the respective Central or state tax administration authorities. This information will enable these authorities to commence a verification drive and take appropriate action.

In addition to GSTN's efforts, field formations will enhance this list by employing various analytical tools, including Business Intelligence and Fraud Analytics (BIFA), Advanced Analytics in Indirect Taxation (ADVAIT) as well as NIC Prime and e-way analytics. Human intelligence, the Aadhaar database, and insights from local operational methods will also contribute to identification. The GSTN may separately provide field formations with guidance on utilizing available BIFA tools during this campaign.

Drive Timeline

The special all-India drive will be executed by both Central and state tax administrations over a two-month period, commencing on May 16, 2023, and concluding on July 15, 2023.

Information Exchange Protocol

Successful implementation of this special drive necessitates close coordination between Central and state tax administrations. To ensure this, each CGST zone and state will appoint a nodal officer. These officers will be responsible for ensuring seamless data flow and coordination with the GSTN, the Directorate General of Analytics and Risk Management (DGARM), and other tax administrations.

Within three days, the name, designation, mobile number, and email ID of these appointed nodal officers from CGST zones and states must be shared with the GST Council Secretariat. The secretariat will then compile this list and promptly make it accessible to all tax administrations, the GSTN, and the DGARM. Nodal officers are also tasked with ensuring that data received from GSTN, DGARM, or other tax administrations is delivered to the relevant jurisdictional formation within two days, and that prompt cooperation is secured from other jurisdictions under their purview.

Actions by GST Officers on Detecting Fake GSTINs

Upon receiving data from GSTN/DGARM or through the Nodal Officer, the concerned jurisdictional tax officer will conduct a swift GSTIN verification exercise. If the taxpayer is confirmed to be fictitious and non-existent post-verification, the tax officer may immediately initiate one or more of the following actions:

• Begin the suspension and subsequent cancellation of the taxpayer's GST registration, as stipulated by Section 29 of the CGST Act.
• Assess whether the input tax credit in the electronic credit ledger should be blocked, in accordance with the provisions of Rule 86A of the CGST Rules.
• Identify the recipients who have received input tax credit from the non-existent taxpayer, using details furnished in the said taxpayer's GSTR-1.
• Take appropriate action for the demand and recovery of unlawfully availed input tax credit if the recipient GSTIN falls within the jurisdiction of the same tax authority. In other scenarios, case details and relevant evidence may be forwarded to the appropriate tax authority through the Nodal Officer using a specified format.
• Identify the key individuals or beneficiaries behind such fraudulent GSTINs and take further necessary actions, including initiating recovery proceedings such as provisional attachment of property and bank accounts, as per Section 83 of the CGST Act.
• Implement suitable measures if a linked suspicious GSTIN is detected during the investigation or verification process.

Each state and CGST zone must submit an “action taken” report to the GST Council Secretariat weekly, on the first working day following the week's completion. Any innovative fraud methods identified during the verification or investigation should also be detailed in this report. After the drive concludes, field formations will provide GSTIN-specific feedback on the verification results of suspicious GSTINs to GSTN/DGARM.

Essential Forms for Communication and Reporting

The CBIC has introduced three new annexures for communications and reporting pertinent to this special verification drive. When a recipient GSTIN falls under a different tax jurisdiction, the Nodal Officer will transmit case details and relevant evidence to the concerned tax authority using Annexure-B.

Both each state and CGST zone are required to send a weekly “action taken” report to the GST Council Secretariat via Annexure-A, on the first working day of the week. Furthermore, if any novel operational methods are uncovered during verification or investigation, these should also be highlighted in the action taken report.

Upon the drive’s completion, field formations must provide GSTIN-specific feedback on the verification outcomes of suspicious GSTINs to GSTN/DGARM using Annexure-C.

Function of the National Coordination Committee

A National Coordination Committee will be established to monitor the ongoing progress of this special drive, convening periodically for this purpose. The GST Council Secretariat will serve as the secretariat for this National Coordination Committee. The Committee will receive assistance from GSTN and the Principal Commissioner, GST Policy Wing, CBIC.

The GST Council Secretariat will compile all reports received from various formations and promptly furnish them to the National Coordination Committee. Unique operational methods discovered during this special drive will be consolidated by the GST Council Secretariat and presented to the National Coordination Committee. This information will subsequently be disseminated to central and state tax administrations across India.