Government gains power to implement a ‘Track and Trace’ mechanism to combat GST Evasion

With the introduction of the Finance Act 2025, the government has been granted the power to implement a Track and Trace mechanism to combat GST evasion during the new financial year, which begins on Tuesday. The new mechanism attempts to concentrate on tobacco-related products, where evasion is quite high.

The Finance Act 2025 has added a new provision (148A) to the CGST Act 2017. Therefore, depending on the GST Council’s proposal, the government may designate the goods and the persons or classes of people in possession of or dealing with such goods to whom the Track and Trace mechanism will apply. The new rule would also establish a mechanism for affixing unique identification markings, as well as electronic storage and access to information.

This action follows a recommendation made by the GST Council during its meeting in Jaisalmer on December 21, 2024. The proposed amendment is based on the GST Council’s suggestion during its meeting last month. This will give a legal framework for the development of such a system, as well as aid in the deployment of a method for tracing certain commodities along the supply chain, the recommendation stated.

The Directorate General of GST Intelligence’s annual report for 2023-24 identified five top evasion-prone goods: iron, copper, scrap, and alloys; pan masala; tobacco, cigarettes, and bidis; plywood, timber, and paper; and electronics, marble, granite, and tiles. However, officials believe that the proposed change will focus more on tobacco-related products.

“The proposed mechanism is based on the World Health Organization’s (WHO) protocol for eliminating illicit tobacco traffic. It is proposed that every unit packets include a unique identification. The unique identifier may be non-sequential, non-predictable, and non-repeatable and may be required to be irremovably printed or affixed, indelible, and clearly visible,” according to the proposal.

The unique identification, which takes the form of a tamper-proof security feature with both visible and invisible components, should allow authorities and consumers to verify authenticity. The regulation could apply to both locally manufactured and imported goods. The identifier will include six key pieces of information: the date, location, and factory of manufacture; the machine used in manufacturing; the production shift or time of manufacture; product description; quantity and maximum retail price; intended market of retail sale; and any other relevant information.

Key persons involved in the trade of goods, such as manufacturers, dealers, and wholesalers, may be forced to register their movements. The data will be sent to an independent provider designated by the government or maintained on government-owned servers. However, retailers are not obligated to have this system.

The recorded data must be made available to enforcement agencies. All makers and importers will be required to enter into a data storage contract that will allow the government-approved independent third party to verify the acquired information.

The amendment has also included a penalty provision. A violation will result in a penalty of Rs.1 lakh or 10% of the tax payable on the goods, whichever is higher. It may also indicate that the cost of deploying the Track and Trace system will be recovered from the trader in the form of a fee or charge for the development of a unique identification number.