CBIC’s Nationwide Investigation uncovered 10,000 alarming cases of bogus GST Registrations

The Central Board of Indirect Taxes and Customs (CBIC) has initiated an all-India campaign to prevent bogus Goods and Services Tax (GST) registrations. This collaborative endeavour of national and state tax officers effectively identified 10,000 cases of fake GST registrations in its first week. The campaign, which began on May 15, 2023, is scheduled to end on July 15, 2023. Officers identified fabricated supporting papers, such as utility bills, property tax receipts, and rent agreements, used to secure these illegal registrations throughout their investigations. According to a GST official, the overall amount of input tax credit fraud linked with these registrations has yet to be assessed but is expected to surpass Rs. 25,000 crore.

The growing crackdown on bogus GST registrations has unwittingly created operational difficulties for small businesses registered under GST that use co-working facilities offered by larger firms. Because of their affiliation with corporations under investigation, these tiny businesses have found themselves in the crosshairs of the tax authorities. Many of these smaller businesses have made co-working spaces or chartered accountant’s offices their primary places of business, partly to save money. Officers’ search actions are causing problems for these businesses.

Shri Vinod Kumar, President of the Forum for Internet Retailers, Sellers, and Traders (FIRST), underlined the unique problems that internet sellers confront. These companies frequently designate co-working spaces or chartered accountant’s offices as their primary locations, resulting in additional scrutiny throughout the continuing effort. Kumar emphasised that the current circumstance is posing problems for internet businesses.

The primary goal of confirming the physical location of a business is to guarantee that it is operating as stated. Before cancelling GST registrations, tax officials are undertaking due diligence. Officers are methodically checking physical documents and scrutinising the presence of workers and/or directors affiliated with the GST Identification Numbers (GSTIN) under examination. This extensive approach tries to determine the legitimacy of the firms under question.

The GST Network (GSTN) selects possibly fraudulent GSTINs based on pre-defined risk indicators determined from data analytics. On May 4, 2023, the CBIC provided comprehensive instructions to its officials explaining the particular processes to be followed throughout the drive. These recommendations provide a framework for identifying and investigating fraudulent GST registrations.

The CBIC’s special crackdown on fake GST registrations has already generated major results, with 10,000 bogus instances revealed in the first wave. This national effort tries to combat the prevalent problem of bogus GST registrations and associated input tax credit fraud. While the crackdown has been effective in identifying suspect registrations, small businesses and internet merchants using co-working spaces are facing operational issues due to their closeness to enterprises under investigation. Before cancelling GST registrations, the tax authorities do extensive due diligence and verification of physical locations. The CBIC is attempting to safeguard the integrity of the GST system and ensure compliance with tax legislation through this programme.