GST authorities cancel 1.62 GST registrations
Government functions with the help of the taxes collected from the citizens. Tax evasion is the major field, were Government revenue is lost. On account of non-payment of taxes by tax evaders, Government stands to lose revenue. For the past 6-7 months the COVID 19 pandemic has forced India into a lockdown. Most of the countries small businesses which relied on physical availability of customers have had the most hit. Small business revenues have plunged everywhere. Nevertheless, tax evaders have proved to be an exception to this rule, who no matter what the situation persists, find a way to evade tax.
The strict action for not filing returns showing monthly summary of transactions (return form 3B) is taken as part of a drive to improve tax compliance amid a sharp decline in tax receipts. Central GST officials and Directorate General of GST Intelligence (DGGI) have been on a compliance enforcement drive since November focusing on frauds involving fake invoices.
Action taken by GST Authorities against non-compliance
- Goods and Services Tax (GST) authorities have cancelled 1,63,042 GST registrations in October and November for defaulting on filing monthly tax returns for more than six months.
- Besides, 28,635 other taxpayers have been identified for cancellation of registration for defaulting on filing monthly returns for more than six months as on 1st December.
- 132 persons have so far been arrested including four chartered accountants (CAs) for dealing in tax credits wrongfully.
- 1,430 cases are booked against more than 4,586 fake registered entities across the country.
- One of the CAs arrested is linked to setting up of 14 fake firms to deal in invoices without supply of goods, the official said.
- Officials have also identified 55 tax payers who have secured deemed registrations between 21 August and 16 November without Aadhaar authentication as certain discrepancies have been noted in their case, said the official.
What are the effects of cancellation of GST Registration?
- Cancellation of GST registration simply means that the taxpayer will not be a GST registered person any more. He will not have to pay or collect GST.
- The registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher.
- In case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher.
- The cancellation of registration shall not affect the liability of the person to pay tax and other dues for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of cancellation.
- Registered person whose registration has been suspended, shall not be required to furnish any return.
Methodology adapted by authorities to check tax evasion
The push for better compliance comes on the heels of tax department’s nationwide drive against fake invoice scams. It is suspected that fraudsters often register firm under GST but remain mostly dormant on compliance while using the status to claim invalid input tax credit (ITC).
Fake invoices are used for violations including tax evasion, money laundering and diversion of funds from companies. These are also used for showing non-existent transactions in the book of companies to jack up figures and obtain loans from banks.
Direct and indirect authorities have been scaling up use of technology and data analysis in recent months to identify businesses with poor compliance track record. With the sharp reduction in tax revenues this year, the trend is expected to gain further momentum.
To check the practice of setting up shell firms for fraud, the government has already introduced Aadhaar authentication for taking GST registration. Businesses taking GST registration without Aadhaar authentication will have to undergo physical verification of their premises.
The government’s efforts to check evasion of GST and step up the indirect tax system’s efficiency is set to reach the next level soon with officials being able to intercept suspicious and fraudulent transactions on a real time basis. The aim is to enable tax officials to block generation of electronic invoice at the time of the transaction in the case of companies against which red flags have been raised in the system.