GST law committee to consider legal provisions against fake invoices on Wednesday

The Directorate General of GST Intelligence’s (DGGI) recent crackdown against people who create fake bills resulted in the arrest of 25 people

After launching a nationwide drive against fake Goods and Services Tax (GST) invoices that saw 25 arrests in just four days, the government is considering amending laws to check fraudulent claims of input tax credit (ITC) worth thousands of crores through bogus bills, a finance ministry official said.

“An urgent meeting of the Law Committee of the GST Council is being convened on Wednesday [November 18] on this matter that will further tighten the GST registration process,” the official said, requesting anonymity.

The Directorate General of GST Intelligence’s (DGGI) recent crackdown against people who create fake bills resulted in the arrest of 25 people. The agency has also identified about 1,180 entities and booked 350 cases against unscrupulous elements involved in availing and passing on of ineligible ITC fraudulently, he said. The crackdown that was carried out between November 9 and 13 was resumed from Monday after the Diwali holidays, the official mentioned above added.

Fake invoices were not only issued for availing ITC fraudulently, but also as a conduit for nefarious activities leading to tax evasion, massive bank loan fraud, money laundering and hawala transactions, he said. “These activities have been largely carried out by non-existent or fly-by-night firms and by using a network of firms to game the system to usurp ITC on commission basis,” he added.

These activities have been carried out primarily by unscrupulous elements who have exploited the ease of doing business conveniences in the existing system by getting a GST registration easily and quickly and later taking advantage of the liberalised norm for grant of registration in GST, he said.

“The Law Committee would do some out of the box thinking on this issue as at present the only way to curb this illegal activity is to identify the chain of entities involved in issuance of fake invoices and availment of credit and take strict action against them for preventing such fraud, including arresting the masterminds,” he said.

He said the committee would deliberate on measures that are required to plug loopholes in the law which are being exploited by the unscrupulous elements to defraud the exchequer. The Union finance ministry is in the process of plugging these gaps in the GST registration process to ensure that only genuine businesses get a GST registration and those who intend to defraud the system are purged out at the registration stage itself, he added.

The businesses, whose owners or promoters do not have commensurate financial track record, like filing of income tax returns and payment of income tax to the government, may require detailed physical and financial verification by tax officers, before their companies can be considered for GST registration, he said.

“The provisions related to deemed registration under GST law may also be tightened to prevent misuse of such provisions by fake dealers,” he added.

Besides, the provisions related to the suspension of the registration may also be streamlined to make the procedure of suspension and cancellation of registration more efficient and faster, so that such fraud operators can be prevented in time from continuing to pass on fake credit down the chain, he said.

The government will use data analytics techniques to identify unscrupulous elements, who are suspected to be involved in fraudulent activities, and a coordinated action is likely to be taken against such elements by suspending their registration, followed by detailed physical and financial verification by field officers to check the genuineness of their operations, before they are allowed to reuse their registration, he said.