Govt to launch all-India drive to weed out fake GST registrations from 16 August

Central and state authorities will launch a two-month-long nationwide drive against fake goods and services tax (GST) registrations to weed out bogus entities used for evading tax, showed an official order from the Central Board of Indirect Taxes and Customs (CBIC).

The drive, which will run from 16 August to 15 October, seeks to detect suspicious or fake GST registrations and conduct thorough verification to weed out entities engaging in fake invoicing, according to the order.

If it is found that a taxpayer is non-existent and fictitious, immediate action will be taken tosuspend and canceltheirGST registration. Also, steps will be taken to block input tax credits given and availed of based on fake invoices without any delay, the order said.

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The details of the recipients to whom input tax credits have been passed by such non-existent taxpayers may be identified through the details furnished in tax return forms relating to sales, the order said.

Steps will be taken to recover the input tax credits wrongly used by the business that used fake invoices without any underlying supply of goods or services. The drive has been planned after a similar effort last year was found to be effective in checking tax evasion.

Menace of face invoicing

Entities issuing fake invoices have been a headache for the tax authorities as they game the indirect tax system in which businesses can offset their final tax liability or part of it using credit for the taxes paid on raw materials and services used in their operations. The technology-intensive nature of GST and the formalisation of the economy has, however, helped the authorities in the battle against those dealing with fake invoices.

Experts said the second all-India drive against fake GST registrations is a significant step towards ensuring the integrity of the GST system. “By identifying and eliminating fraudulent GST Identification Numbers, the drive will help protect the revenue base, ensure fair competition, and restore confidence in the tax regime," said Rajat Mohan, executive director at accounting and advisory firm Moore Singhi.

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Mohan said businesses must maintain transparency and compliance. “While the previous drive in 2023 was acknowledged as effective, it would have been more impactful if the government had shared specific data on the number of cases of tax evasion identified, the amount of tax recovered, and the prosecutions initiated. Detailed outcomes would provide a clearer picture of the drive's success and justify the need for continued efforts."

This extended drive underscores the ongoing importance of robust data analytics and inter-agency coordination in effectively tackling tax evasion and highlights the government's commitment to maintaining a clean and fair tax environment, said Mohan.

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It is possible that genuine businesses may sometimes get unwarranted attention from the tax authorities for having done business with entities that are not genuine. A government official explained that businesses have to be very mindful of the credibility of the entities they engage with.

Transacting in goods and services without invoice by GST-registered entities and issuing invoices without making supply of underlying goods and services attract regulatory scrutiny. The problem, however, is not new. Even in the pre-GST regime, fake invoices were a challenge for the tax authorities. Various agencies, including the income tax department and the CBIC now share data to detect mismatches and zero in on instances of tax evasion. Also, matching data relating to e-way bills or electronic permits required to ship goods and the data captured by toll plazas from vehicles help detect information mismatches and tax evasion.