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March 15, 2021

New ‘core entity’ feature introduced in filing GST

by CA Jessica Nagaonkar in GST

New ‘core entity’ feature introduced in filing GST

GST when launched was publicized as ‘one nation, one tax’ by the government, aimed to provide a simplified, single tax regime.  GST is a dual levy where the Central Government levies and collects Central GST (CGST) and the State levies and collects State GST (SGST) on intra-state supply of goods or services. Centre also levies and collects Integrated GST (IGST) on inter-state supply of goods or services.

The GST Portal is a website where all the compliance activities of GST can be done before and after GST login. Activities such as the GST registration, return filing, payment of taxes, application for refund, etc. can be done on the GST Portal. The GST Network (GSTN) has now enabled a new feature that requires the taxpayer to select one core business activity on the GST Portal.

What do you mean by Core Business Activity?

Core Business Activity means which kind of business you primarily deal in. For example, if you are a phone manufacturer you may select “manufacturer” in Core Business Selection.

What is the new ‘core entity’ feature introduced by GSTN?

  • The taxpayer has to mention the core business on his profile page.
  • There are three options under the core business section – Manufacturer, Trader, Service Provider, Other.
  • Manufacturing: A manufacturer is a registered person produces new products from raw materials and components using tools, equipment and machines and then sells them to the consumers, wholesalers, distributors, retailers or to the other manufacturers. A manufacturer may sell some more brought out items or may provide some ancillary services with his manufactured goods, but he would continue to be classified as manufacturer because it is the Primary Business Activity.
  • Trader: A trader is a registered person who engages in the buying and selling of goods. Traders have been further classified as Wholesaler or Distributor and Retailer. The Retailer includes a registered person selling goods through e-commerce operators.
  • Service Provider and Other: A service provider is a registered person who provides service to a recipient of service and is neither a manufacturer nor a trader.
  • A taxpayer can select only one core business activity.
  • Business activities like work contract and other miscellaneous items will be included in the Others category.
  • If taxpayers want to change core activity, they can do so on the profile page.

What led to the introduction of the ‘core entity’ feature?

  • Tax experts believe the idea behind the move was to stop unscrupulous businesses from taking Input Tax Credit (ITC) by showing high expenses (fake bills) on unrelated activities.
  • Once an entity mentions its core business activity, tax authorities can confront it if it raises high-value invoices for unrelated services.
  • A GSTN spokesperson says the idea behind the new feature is to check the practice of circulation of ITC within a company.
  • Usually what happens, say a manufacturer sells to its sister company which claims to be into trading business, and take services from another sister concern which claims to be into providing a particular service.
  • This way the ITC is kept circulating within the group.

What businesses are exempted from compliance of these rules?

  • Certain businesses have been kept out of the scope of these rules. They include GST Practitioners, Online information and database access or retrieval services (OIDAR), TDS deductors, embassies, etc.

What are the effects of issuing fake invoices under GST?

Final action will be taken by the Government after investigating the genuineness of the supplier who generated the fake invoice and buyer who used that invoices for the taking unnecessary tax benefit. Once the forgery is proved then the following steps will be taken:

  • Cancellation of GST registration
  • Re-registration of such entities under GST law is differently dealt with than normal registration. No deemed registration should be done in this case and physical verification by the officer must include before allowing re-registration
  • GSTIN of Such supplier are flagged for generating fake invoices or for any other frauds and this will indicate those buyers who take credit on behalf of fake invoices and automatic alert for further verification by the officer
  • Input tax credit availed on behalf of fake invoices to be recovered as per the provision under the law
  • Even in certain cases, the input tax credit may be blocked from such persons so that no one can get the undue advantage of credit
  • Maximum imprisonment up to 5 years
  • Penalty of sum equal to the aggregate amount of such false or omitted entry. The assessing officer has been given discretionary power to impose penalty.
  • Further, there exists Sec 270A provides a penalty of 200 percent of the tax evaded in the case of misreporting of income.
  • So, if a company accepts a fake invoice of Rs 50 lakh without actual supply of goods or services and shows the same as his purchases or expenses and claims income tax benefit on the same, the amount of penalty shall be U/S 271 AAD of Rs 50 lakh plus 200% of tax evaded U/S 270A of Rs 30 lakh (assuming tax of 30%) i.e., Rs 80 lakh (more than the value of the fake invoice)

If any citizen comes across this kind of criminal activity, they are directed by the GST council to immediately inform the local CGST Seva Kendra either by telephone or e-mail with details. Their identity will be kept confidential and they will be rewarded suitably subject to the guidelines of CBIC.

The government has launched a nationwide crackdown on ITC against fake bills and fake firms. According to government sources, the crackdown on fake firms resulted in the number of registered entities with GSTN coming down from the peak of 1.28 crore to 1.23 crore.

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