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GST Council Recommends Biometric Aadhaar Authentication for GST Registrations to Combat Fraud

editor — Fri, 28 Jun 2024 05:44:21 +0000

The story so far: On June 22, the GST Council recommended introducing biometric-based Aadhaar authentication for GST registrations in a phased manner. During a media interaction after the council meeting, Finance Minister Nirmala Sitharaman stated that the measure aims to combat fraudulent input tax credit (ITC) claims made through fake invoices. She highlighted that the measure was formalized based on positive feedback from pilot projects conducted in Gujarat and Puducherry, as well as a study in Andhra Pradesh. This initiative is expected to be implemented nationwide soon.

What fraud is the measure trying to mitigate? Input tax credit (ITC) claims allow businesses to reduce their tax liability by offsetting the tax already paid on inputs against the tax liability on the output. For instance, if a manufacturer pays Rs 120 as tax on inputs and their total tax liability is Rs 300, they can claim ITC to reduce the net payable tax to Rs 180.

Since the introduction of the GST regime, numerous frauds involving fake invoices have been detected. These frauds involve using fake invoices to fraudulently claim ITC, inflate turnovers, and facilitate money laundering. Fake invoices are generated without any actual supply of goods or services.

In a 2019 office memorandum, the Central Board of Indirect Taxes and Customs (CBIC) identified three main methods of executing these frauds:

Direct Use of Fake Invoices: Invoices are used without receiving any goods or services to show tax payment and avail ITC claims, resulting in a loss to the exchequer.
Diversion of Goods: Invoices are issued to one entity, but goods are diverted to another. The purchaser may not be involved in producing output, yet they avail ITC claims unrelated to the transaction, potentially shifting ITC from exempted to taxable supplies.
Circular Transactions: Invoices are routed through a series of shell companies to transfer ITC in a circular manner, increasing turnover without actual supply. This mix of inadmissible and legitimate credit results in revenue loss.

In May last year, the CBIC launched a drive against bogus registrations and fake invoices. Over seven months, the drive detected 29,273 bogus firms involved in ITC evasion totaling Rs 44,015 crore. This translated to savings of Rs 4,646 crore, with Rs 3,802 crore blocked ITC claims and Rs 844 crore recovered. Additionally, 121 arrests were made.

What is the motive behind these frauds? Apart from GST evasion, these frauds facilitate money laundering and fake purchases for income tax benefits. Showing reduced profit margins and higher expenses helps in reducing net profits for tax benefits. Entities can also present inflated turnovers to obtain higher credit limits, bank loans, and improve valuations for stake sales or IPOs. The fake invoice scheme can also divert company funds to save on taxes.

Would these measures help? Tax experts believe that the measure is “progressive in nature” and would help achieve its stated goals. However, the success depends on each state government’s readiness, including resources and training for GST officials. The functionality must also be user-friendly for large-scale implementation.

One expert noted that focusing on high-risk applicants with a history of cancelled or suspended registrations underscores the commitment to a “credible and transparent GST system.” Supported by the Directorate General of Analytics and Risk Management (DGARM) and GSTN, the measure would enhance the security and integrity of the registration process. The industry hopes for a single biometric authentication across India, allowing one-time verification for companies with a presence in multiple states, thus streamlining the process and reducing redundancy.

While acknowledging potential discrepancies in Aadhaar information, experts agree that the majority of future registrations would gain credibility due to this exercise.

Source: The Hindu

State’s GST Department Witnesses 43% Decline in GSTIN Applications Following Introduction of Biometric Verification to Combat Fraudulent Billing

editor — Fri, 05 Apr 2024 04:41:47 +0000

A notable development within the state’s GST department reveals a substantial 43% decrease in the average monthly count of GSTIN (Goods and Services Tax Identification Number) applications since November 2023. This reduction, from 26,800 applications to 15,350 between November last year and February this year, is not indicative of a slowdown in business or establishment formations. Rather, it reflects a strategic initiative by the state government aimed at curbing fraudulent billing practices right from the registration stage.

A new protocol mandating biometric verification for GSTIN applicants has been initiated as part of a pilot program. This additional step effectively filters out illegitimate applications, thereby contributing to the observed decline in application numbers. Rolled out in November 2023, this initiative aims to bolster the security and efficacy of the registration process. Similar pilot projects are also underway in Andhra Pradesh and Puducherry.

According to a senior official from the SGST department, fraudulent billing often commences with the acquisition of counterfeit GST registration through deceptive means. These fictitious entities’ GSTINs are then exploited to generate sham invoices and claim input tax credits without any actual exchange of goods. Additionally, instances have surfaced where individuals have discovered the unauthorized use of their banking and identity credentials for these fake registrations.

Bogus billing has posed a significant challenge for Gujarat, particularly since the GST rollout. The state government has incurred losses amounting to Rs 11,443 crore due to tax evasion schemes involving fraudulent billing practices. The cumulative value involved in such operations is nearing Rs 1 lakh crore since the GST’s inception.

Under the revised verification framework, applicants must undergo thumbprint authentication and furnish various identification documents during GST registration to verify their identity. Moreover, applicants may undergo further scrutiny in the future if deemed necessary. The integration of biometric verification is anticipated to act as a deterrent against fraudulent activities by ensuring that GST registrations are exclusively issued to legitimate entities.

Discretion of Appellate Authority in Admitting Appeals Beyond Limitation Period

editor — Tue, 26 Mar 2024 04:48:21 +0000

In the case of Arvind Gupta v. Assistant Commissioner of Revenue State Taxes [Writ Petition Application No. 2904 of 2023 dated January 04, 2024], the esteemed Calcutta High Court determined that the Appellate Authority possesses the discretion to permit the submission of an appeal within one month after the expiration of the prescribed limitation period from the date of order communication, provided sufficient cause is demonstrated, as per Section 107(4) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).

Facts of the case:

The Appellate Authority retains discretion to accept appeals submitted after the limitation period.
The Calcutta High Court, in Arvind Gupta v. Assistant Commissioner of Revenue State Taxes [Writ Petition Application No. 2904 of 2023 dated January 04, 2024], affirmed that the Appellate Authority possesses discretion to entertain appeals within one month after the expiration of the limitation period as per Section 107(4) of the Central Goods and Services Tax Act, 2017 ("CGST Act").
Arvind Gupta, the petitioner, appealed before the Senior Joint Commissioner of Revenue, mentioned in the annexure to FORM GST APL-01 the period of delay and reasons for the delay:

Issue:

Whether the Appellate Authority may exercise discretion to admit appeals submitted within one month after the limitation period?

Held:

Relied on, the Hon’ble Division Bench in the matter of S.K. Chakraborty v. Union of India & Ors. (MAT 82 of 2022) where the Bench held that the provisions of Section 5 of the Limitation Act, 1963 have not been expressly or impliedly excluded by Section 107 of the CGST Act under Section 29(2) of the CGST Act. Therefore, Section 5 of the Limitation Act, 1963 stands attracted. Hence, the Respondent has the discretion to allow an appeal to be presented within one month after the expiry of the period of limitation stipulated from the date of communication of the order upon sufficient cause being shown as per Section 107 (4) of the CGST Act. Paraphrase
Observed that, it was well within the power of the Respondent to consider the prayer of the Petitioner for condonation of delay. The Impugned Order passed by the Respondent that there is no scope to condone the delay beyond four months suffers from infirmity.
Noted that, the delay was evident from the annexure to FORM GST APL-01 and the Petitioner was prevented by sufficient cause for not preferring the appeal within the statutory period.
Held that, the Respondent failed to exercise its jurisdiction. The delay in presenting the appeal before the Respondent was condoned. The Respondent was directed to consider the appeal on merit and decide the same in accordance with law upon giving an opportunity of hearing to the Petitioner.

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GST Council Recommends Biometric Aadhaar Authentication for GST Registrations to Combat Fraud

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State’s GST Department Witnesses 43% Decline in GSTIN Applications Following Introduction of Biometric Verification to Combat Fraudulent Billing

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Discretion of Appellate Authority in Admitting Appeals Beyond Limitation Period

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