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CBIC's Nationwide Sweep Exposes 10,000 Alarming Cases of Fake GST Registrations

Rashmi , Last updated: 27 May 2023  
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Introduction

The Central Board of Indirect Taxes and Customs (CBIC) has launched a special all-India drive to combat cases of fake Goods and Services Tax (GST) registration. In its first week, this joint initiative by central tax and state tax officers successfully exposed 10,000 instances of fraudulent GST registrations. The campaign, which began on May 15, 2023, is set to continue until July 15, 2023. During their investigations, officers discovered forged supporting documents, such as electricity bills, property tax receipts, and rent agreements, that were used to obtain these fraudulent registrations. The total extent of input tax credit fraud associated with these registrations is yet to be determined but is estimated to exceed Rs. 25,000 crore, according to a GST official.

Impact on Small Companies and Co-working Spaces

The ongoing crackdown on fraudulent GST registrations has inadvertently caused operational challenges for small companies registered under GST that utilize co-working spaces provided by larger entities. These small companies find themselves caught in the tax authorities' crosshairs due to their association with entities under investigation. Many of these smaller firms have declared co-working spaces or chartered accountant's offices as their principal places of business, primarily to benefit from cost savings. The search activities conducted by officers are resulting in inconveniences for these companies.

CBIC s Nationwide Sweep Exposes 10,000 Alarming Cases of Fake GST Registrations

Challenges Faced by Online Sellers

Shri Vinod Kumar, President of the Forum for Internet Retailers, Sellers, and Traders (FIRST), highlighted the specific challenges faced by registrants engaged in online selling. These businesses often declare co-working spaces or chartered accountant's offices as their principal places of business, leading to increased scrutiny during the ongoing drive. Kumar emphasized that this situation is causing difficulties for online sellers.

Verification of Physical Places of Business

The primary objective behind verifying the physical place of business is to ensure that businesses are genuinely operating as declared. Tax authorities are conducting due diligence before canceling GST registrations. Officers are meticulously examining physical records and scrutinizing the presence of employees and/or directors associated with the GST Identification Numbers (GSTIN) under investigation. This thorough process aims to ascertain the authenticity of the businesses in question.

 

Risk-Based Selection Process

The selection of potentially fraudulent GSTINs is based on pre-defined risk parameters derived from data analytics conducted by the GST Network (GSTN). The CBIC has issued detailed instructions to its officers on May 4, 2023, outlining the specific procedures to be followed during the drive. These guidelines provide a framework for the effective identification and investigation of fake GST registrations.

 

Conclusion

 The CBIC's special drive against fake GST registrations has already yielded significant results, with 10,000 bogus cases exposed in the initial phase. This nationwide campaign aims to address the widespread issue of fraudulent GST registrations and the associated input tax credit fraud. While the crackdown has been effective in targeting suspicious registrations, small companies and online sellers utilizing co-working spaces are experiencing operational challenges due to their proximity to entities under scrutiny. The tax authorities are conducting thorough due diligence and verification of physical places of business before canceling GST registrations. Through this initiative, the CBIC is striving to maintain the integrity of the GST system and ensure compliance with tax regulations.

The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.

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Published by

Rashmi
(business)
Category GST   Report

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