GST registration could become tedious if the GST Council accepts its Law Committee's recent recommendations to plug GST leakages via input tax credit (ITC) using fake invoices.
According to sources, the Law Committee of GST Council has suggested tightening of fresh registration of taxpayers under the GST regime by adopting 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 (GSKs), just like Passport Seva Kendras or Aadhaar Seva Kendras. The GSKs can work on the pattern of Passport Seva Kendras to provide new registration facilities with required checks on fake registration.
The process becomes even more difficult for those who opt for non-Aadhaar-based authentication for registration and do not have income-tax returns reflecting adequate financial capability. Such registrants will have to compulsorily go for physical verification and personal identification. In such a case, the new registrants may have to submit recommendation letter by two taxpayers of adequate reliability, say the sources.
According to the recommendations, the new registrants would be categorised as trustworthy and non-trustworthy, depending on the documents they submit. Applicants falling in the trustworthy category can get registered within 7 working days. Those not in the trustworthy category will be granted conditional registration within 60 working days only after physical verification of the place of business. For those falling in the non-trustworthy category, the input tax credit to their buyers will 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.
MS Mani, Partner at Deloitte India, says that these suggestions, if implemented, would make registration process tedious. "One of the key changes due to advent of GST has been easier registration which encourages more businesses to register with GST authorities. But if registration becomes a tedious process, many small businesses might not like to register themselves."
The requirement for a one-time deposit of 2 per cent of the tax dues through cash or a bank guarantee might further add to the cost for a taxpayer, especially small taxpayers, says Rajat Mohan, Partner in chartered accountancy firm AMRG and Associates.
According to Department of Revenue sources, to weed out existing fake dealers from the GST system, the Law Committee has proposed full application of 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 availing input tax credit, tax payment for catching fake dealers, and taking appropriate action, including enforcement.
The law committee has also 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. The panel has pointed out that there are about 6 lakh dormant registrants in GST.
It further proposed that no income tax credential be given to a GST registrant if 99 per cent tax is paid through ITC. There were about 35,000 dealers with annual GST liability of more than Rs 50 lakh, who pay 99 per cent tax through ITC and have no credential in income tax (did not pay even Rs 1 lakh as income tax 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. It also suggested that measures should be taken to build a full system-based work flow for suspension of risky dealers besides system integrated income tax credential verification and bank data verification for credibility of taxpayer (like done by CIBIL), cross verification of documents submitted, etc. The law committee further recommends making sequential filing of returns and statements compulsory for all new applicants from April 1, 2021.
Sources said that the urgent need to work out certain modifications in GST Rules is evident from the fact that within ten days of a nationwide drive against the GST fake invoice frauds, the Director General of GST Intelligence (DGGI) and CGST commissionerates have so far arrested 48 persons, including one woman and three chartered accountants, booked 648 cases, and identified 2,385 entities generating fake invoices.
These suggestions will have to be accepted by the GST Council before they are implemented.