The GST Network (GSTN) has enabled a new feature that requires the taxpayer to select one core business activity on the GST Portal. Tax experts believe the idea behind the move was to stop unscrupulous businesses from taking Input Tax Credit (ITC) by showing high expenses (fake bills) on unrelated activities.
The taxpayer has to mention the core business on his profile page. There are three options under the core business section - Manufacturer, Trader, Service Provider, Other. A taxpayer can select only one core business activity. Business activities like work contract and other miscellaneous items will be included in the Others category. If taxpayers want to change core activity, they can do so on the profile page.
However, certain businesses have been kept out of the scope of these rules. They include GST Practitioners, Online information and database access or retrieval services (OIDAR), TDS deductors, embassies, etc. Rajat Mohan, partner, AMRG & Associates, says that a similar system was prevalent in the pre-GST regime, and the same has been revived to check large-scale fake bill and ITC frauds.
He explains: "There are times when a company in the manufacturing industry with high accumulated input credits would issue fake bills to another entity for, say, consultancy services or other business auxiliary services. It will then adjust the accumulated ITC against the GST payable on the fake bills issued."
Once an entity mentions its core business activity, tax authorities can confront it if it raises high-value invoices for unrelated services. A GSTN spokesperson says the idea behind the new feature is to check the practice of circulation of ITC within a company. "Usually what happens, say a manufacturer sells to its sister company which claims to be into trading business, and take services from another sister concern which claims to be into providing a particular service. This way the ITC is kept circulating within the group."
The government has launched a nationwide crackdown on ITC against fake bills and fake firms. According to government sources, the crackdown on fake firms resulted in the number of registered entities with GSTN coming down from the peak of 1.28 crore to 1.23 crore.