To address the alarming increase in GST evasion, surpassing Rs 1 lakh crore during the fiscal year 2022-23, both central and state tax authorities have launched a dedicated two-month ‘Special All-India Drive’ campaign. The primary objective of this special drive is to identify fraudulent GST registrations and apprehend those involved in such activities. The GST Policy Wing recently sent a communication to Principal Chief Commissioners of Central Tax, drawing attention to the prevalent misuse of fake or non-genuine registrations. These registrations are being exploited to deceitfully transfer input tax credit to unscrupulous recipients through the issuance of invoices without any actual supply of goods or services.
Currently, there are 1.39 crore businesses registered under Goods and Services Tax (GST), which was implemented on July 1, 2017.
During the ‘Special All-India Drive’ spanning from May 16 to July 15, tax officials will carry out essential checks and take appropriate measures to eliminate these fraudulent billers from the GST system. This will involve close collaboration between the State and Central tax administrations. Further, the GST Network will identify deceitful GSTINs for both State and Central Tax authorities. The information will be shared with the respective State/Central Tax administration based on jurisdiction. This will enable them to initiate verification campaigns and take necessary actions accordingly.
However, As per the Central Goods and Services Tax (CGST) Act, there is no specific provision that states whether physical verification of premises can be conducted without informing the registered person or authorized person. This is also supported by previous judgements.
Extract from Rule 25
“Rule 25 provides guidelines for the physical inspection of business premises under specific circumstances. If the authorized officer determines that it is necessary to physically verify the location where a person conducts their business due to the failure of Aadhaar authentication, non-selection of Aadhaar authentication prior to registration, or any other reason arising after registration, they have the authority to carry out such verification in the presence of the individual. The verification report, along with accompanying documents and photographs, must be uploaded in FORM GST REG-30 on the common portal within fifteen working days from the date of the verification.”
Previous Judgements
The Delhi High Court has made significant rulings regarding the interpretation and application of Rule 25 in two cases: Bimal Kothari vs Assistant Commissioner [WP(C) 9207/2019 & CM No.37947/2019 Dated: 01-Nov-2022] and M/s Curil Tradetex Pvt. Ltd. vs The Commissioner, DGST [WP (C) 10408/2022 Dated: 26-Aug-2022]. According to these rulings, Rule 25 should be understood in its ordinary meaning, and a notice for physical verification must be given to ensure the presence of the registered person.
Non-compliance with these procedural requirements can have severe consequences for the verification process, as demonstrated by cases such as the Calcutta High Court’s judgment in Rohit Varma and the recent Delhi High Court judgment in KPM Enterprises.
In the case of Micro Focus Software Solutions India Private Limited vs Union of India & Anr. (Delhi High Court) (Appeal Number: W.P.(C) 8451/2021, CM Nos.26176/2021 & 28634/2021 dated 26.04.2022), the petitioner filed a reply to a GST registration cancellation notice, providing reasons why its registration should not be revoked. However, the GST registration certificate was canceled despite the reasons stated in the reply. Moreover, the inspection of the premises was conducted by the authority before canceling the GST registration certificate, without the appellant’s knowledge. Rule 25 of the CGST Rules, 2017 explicitly requires that inspections be carried out in the presence of the person whose property is being inspected. As a result, the court set aside the cancellation order and directed the revival of the registration.
Care to be taken by taxpayers / Registered person
- Ensure that the registration certificate is prominently displayed at the main place of business and all additional locations, as per Rule 18(1) of the CGST/SGST Rules.
- Display the GSTIN on the name board at the main place of business and all additional locations, as per Rule 18(2) of the CGST/SGST Rules.
- Register all additional places of business where taxable goods are stored, supplied, or warehoused under GST.
- Have the necessary KYC documents of the proprietor, one of the directors/partners, and authorized person ready for verification, and ensure their presence to the best extent possible.
- Keep the relevant business address documents (principal and additional, if applicable) ready for verification, including copies of the latest electricity bill, tax bill, index 2, and NOC/rent agreement if the property is not owned.
- If multiple businesses are registered at the same premises, ensure proper demarcation and identification of the respective areas and stock.
- During the verification process, ensure that the physical stock matches the stock recorded in the books, as required by Section 35 of the law for the maintenance of accounts and records.
Read Also: Online GST Registration
It appears that the above details should be sufficient for the verification of the existence of registered individuals and their business premises. However, it is essential to emphasize timely and accurate accounting to avoid any discrepancies between physical and book stock.