The Central Board of Indirect Taxes and Customs (CBIC) has issued guidelines for processing applications for GST registration to avoid fake GST registrations and input tax credit frauds, vide GST Instruction 3/2023 dated 14th June, 2023. These guidelines are aimed at establish stricter controls on processing of applications for GST registrations to address the menace of false and deceitful GST registrations used for fraudulent invoicing without actual supply of goods or services, resulting in the fraudulent passing of input tax credit and revenue loss to the government.
CBIC GST Instructions 3/2023 dated 14/06/2023: Guidelines for Processing GST Registration Applications 2023
Menace of Fake/ Bogus GST Registrations
Instances of unscrupulous elements obtaining fake or bogus GST registrations and defrauding the government have become a serious problem. These fraudulent registrations are utilized to pass on input tax credit to unauthorized recipients through the issuance of invoices without any underlying supply of goods or services. Fraudsters engage in dubious and complex transactions, causing significant revenue loss to the government.
Modus Operandi of Fake Registrations
Various methods have been detected by the Central and State Tax administrations regarding the obtaining of fake registrations. Some cases involve the misuse of identities such as PAN and Aadhaar to obtain GST registration, without the knowledge of the concerned individuals. Additionally, forged documents like electricity bills, property tax receipts and rent agreements are being used as proof of the principal place of business to obtain GST registration.
In certain instances, forged identities have been created using the same photo of a person on different Aadhaar cards under different names. Shockingly, it was discovered that fraudsters obtained fake GST registrations by fraudulently modifying the phone numbers on Aadhaar cards of individuals from economically weaker sections. These fraudsters achieved this by taking advantage of Aadhaar Seva Kendra, where they altered the thumb impressions and linked the Aadhaar cards to dummy mobile numbers.
Special All-India Drive Against Fake Registrations
To combat the issue of fake registrations and fraudulent input tax credit, GST Instructions 1/2023 were issued. This instruction calls for concerted and coordinated action by Central and State tax authorities through a special All-India Drive against fake registrations.
CBIC’s Special All-India Drive Against Fake GST Registrations
Guidelines for Strengthening the Verification Process
The verification of registration applications by proper officers is crucial in preventing fake or bogus registrations. While policy and system-level initiatives have been and are being undertaken, it is essential to enhance the scrutiny and verification process at the tax officers’ end. To achieve this, the following guidelines have been issued for strengthening the verification process uniformly:
1. Initiating Scrutiny and Verification
Upon receiving an application for registration in the Task List of the concerned officer on ACES-GST application, the officer must initiate the process of scrutiny and verification. This includes reviewing the details filled by the applicant in FORM GST REG-01 and the documents uploaded with the application.
2. Careful Examination of Documents and Details
The proper officer must carefully scrutinize the uploaded documents to ensure legibility, completeness and relevance. The details provided by the applicant in the application should be cross-verified with the uploaded documents to check for completeness and authenticity. The addresses of principal and additional places of business and their corresponding documents should undergo thorough scrutiny to verify their completeness and accuracy. Additionally, the authenticity of address documents can be cross-verified with publicly available sources such as land registries, electricity distribution companies, municipalities and local bodies.
3. Risk Rating and Consideration
The Directorate General of Analytics and Risk Management (DGARM), in coordination with GSTN, conducts risk rating of registration applications and provides the ratings to CGST field formations. Proper officers must check the risk ratings assigned to applications and pay special attention to those designated as “High” risk.
4. Check for Previous Registrations and Risky Circumstances
The proper officer should verify whether registrations have been obtained on the same PAN previously, either within the same financial year or in earlier financial years. This verification will help identify cases of duplicate or multiple registrations under the same PAN.
In addition, the officer should also consider any risky circumstances associated with the application, such as cases where the principal place of business is a non-commercial or non-existent address, applications received from suspicious IP addresses or cases where the applicant has previously been involved in fraudulent activities.
5. Physical Verification and Background Checks
In cases where the officer deems it necessary, physical verification of the principal place of business or additional places of business may be conducted. This verification may involve site visits and inspections to ensure that the declared business premises actually exist and are suitable for conducting the stated business activities.
Background checks on the applicant, including their past business history, financial credibility and any history of non-compliance with tax laws, should also be conducted. This can be done through coordination with other tax authorities or by accessing relevant databases.
6. Communication with the Applicant
During the verification process, if the officer identifies any discrepancies or requires additional information or documents, they should communicate with the applicant through the ACES-GST application. The officer may issue a query seeking clarification or request for submission of specific documents within a specified timeframe.
7. Verification Report and Final Decision
Based on the scrutiny, verification, risk assessment and physical verification (if conducted), the proper officer should prepare a verification report. This report should summarize the findings, including any discrepancies or issues identified during the process.
After the verification report is prepared, the proper officer should make a final decision on the registration application. If the officer is satisfied with the authenticity and completeness of the application and supporting documents, they may approve the registration. However, if the officer finds significant discrepancies or doubts regarding the application, they may reject the registration and provide reasons for the rejection.
8. Monitoring and Post-registration Compliance
Once a registration is approved, the officer should continue to monitor the registered person’s compliance with GST laws and regulations. This includes conducting periodic audits, reviewing the GST returns filed and verifying the matching of input tax credits.
In case of any non-compliance or suspicious activities detected post-registration, appropriate action should be taken, including cancellation of registration, initiation of investigations or imposition of penalties as per the provisions of the GST law.
Conclusion
The CBIC guidelines/instructions for processing GST registration applications aim to strengthen the verification process and prevent the issuance of fake or bogus registrations. By implementing stricter scrutiny, risk assessment, physical verification and background checks, the government intends to curb fraudulent practices and protect revenue. These guidelines provide a comprehensive framework for tax officers to follow during the registration process and subsequent monitoring of registered entities, ensuring compliance with GST laws and regulations.