Government to launch a special TWO-Month nationwide Drive Against GST frauds w.e.f. 16th May

Government to launch a special TWO-Month nationwide Drive Against GST frauds w.e.f. 16th May

Starting on May 16, the government will initiate a two-month special drive to combat fraudulent practices involving input tax credits within the Goods and Services Tax (GST) system. This drive aims to target individuals, professionals, and firms who unlawfully claim input tax credits by using fake identities and forged documents, despite not actually supplying any products.

An anonymous finance ministry official revealed that a directive was circulated to all field formations, emphasizing the need for a special drive to prevent revenue leakages within the Goods and Services Tax (GST) system. The directive includes comprehensive standard operating procedures (SOP) and safeguards to ensure effective measures without public awareness.

According to one of the circulars reviewed by HT, it was recommended to launch an all-India drive from May 16, 2023, to July 15, 2023. The objective is to identify suspicious or fake GST identification numbers (GSTINs) and conduct thorough verifications. Additionally, necessary actions will be taken to eliminate fake billers from the GST ecosystem, thereby safeguarding government revenue.

This initiative follows a recent measure by the finance ministry, which holds professionals accountable for their client's actions. Changes were made to the Prevention of Money Laundering Act (PMLA) to include chartered accountants, company secretaries, and similar professionals who engage in financial transactions on behalf of their clients. Consequently, they will now be treated as reporting agencies, similar to banks, under the Prevention of Money Laundering Act (PMLA).

The aforementioned official revealed that individuals engaging in dishonest practices have been found obtaining fraudulent registrations using forged documents, such as electricity bills, property tax receipts, and rent agreements, to falsely establish their principal place of business.

To illustrate this issue, the official provided an example of a recent case uncovered by the tax authorities in Gujarat. In this case, fraudsters acquired fake GST registrations by misusing the PAN (permanent account number) and Aadhaar numbers of individuals belonging to economically weaker sections, without their knowledge. The fraudsters deceitfully altered their phone numbers and Aadhaar details at a local Aadhaar Seva Centre by providing cash under the pretense of a government scheme.

Recognizing the severity of the situation, the official stated that during a meeting among central and state tax authorities, it was decided to launch a concerted and coordinated nationwide operation in a systematic manner to apprehend such individuals. This action will be executed with a mission-driven approach.

Utilizing comprehensive data analytics and risk parameters, tax authorities will identify unscrupulous individuals within their respective jurisdictions. "In order to apprehend these wrongdoers, tax authorities will leverage their own analytical tools, human intelligence, and the Aadhaar database," he explained. Furthermore, the authorities will actively exchange information among jurisdictions.

The culprits will face various consequences without delay, such as the blocking of input tax credit (ITC) in the electronic credit ledger, in accordance with the provisions of the law.

To oversee the entire operation, a National Coordination Committee will be established. This committee will be led by a member of the Central Board of Indirect Taxes and Customs (CBIC) responsible for GST and will consist of senior officials from the central and state governments. The secretariat for the committee will be provided by the GST Council Secretariat, he added.

Saurabh Agarwal, Tax Partner at EY, stated that the CBIC's initiative to crack down on fake registrations is expected to effectively combat tax evasion. He further mentioned that this effort would facilitate the exchange of information between central and state administrations, thereby enhancing tax administration. Agarwal also noted that the actual impact on GST collections would become evident in the coming months.

ICAI plans to organize an awareness program for its members regarding financial transactions that are already prohibited on behalf of their clients within their professional domain. Additionally, he mentioned that ICAI will maintain collaboration with authorities and regulators to ensure the proper implementation of these changes and to foster understanding of the role professionals play in this context.

Source: HT