GST Authorities to Implement Biometric Authentication and Geo-Tagging to Combat Fake Entities

In an effort to tackle the issue of fake entities, the Goods and Services Tax (GST) authorities are planning to tighten registration norms by implementing biometric authentication and geo-tagging for risky entities. The Chairman of the Central Board of Indirect Taxes and Customs (CBIC), Vivek Johri, announced this initiative after the detection of approximately 12,500 fake entities during a special two-month drive conducted jointly by states and the central government.

Identification of Misuse and Bogus Entities

Johri revealed that fraudsters have been misusing Permanent Account Numbers (PAN) and Aadhaar identification to obtain GST registration. Out of the 50,000 verifications conducted during the drive, 25 per cent were found to be bogus, resulting in the detection of approximately 12,500 fake entities. This discovery has prompted the authorities to further tighten the return filing system and take action against these fraudsters.

Implementation of Biometric Authentication and Geo-Tagging

To combat fraudulent activities, GST authorities are planning to introduce biometric authentication and geo-tagging for both existing and new registrants who are identified as risky entities involved in input tax credit fraud. The goal is to authenticate the addresses provided during GST registration and ensure that they correspond to the actual operating locations of the entities. 

A pilot project on biometric authentication and geo-tagging is already underway in a few states, and based on the evaluation of the results and digital infrastructure requirements, the initiative will be rolled out across India.

Enhanced Authentication Measures

Johri explained that the authorities are exploring ways to further tighten the system. Previously, the system relied on OTP-based authentication, but now biometric authentication will be introduced. In suspicious cases, individuals will be required to visit an Aadhaar centre to have their biometrics verified.

Challenges for the Service Sector

Certain locations, including Delhi, Haryana, Rajasthan, parts of Gujarat, Noida, Kolkata, Assam, Telangana, Tamil Nadu, and Maharashtra, have been identified as hotspots for fake entities with GST registration. The sectors primarily affected by fake entity cases include metal or plastic scrap, waste paper, manpower services, and advertising services.

The service sector, particularly co-working spaces, has raised concerns about fitting into the brick-and-mortar rules for GST registration. Johri acknowledged these concerns and stated that the suggestions provided by the sector are currently being examined. 

The issue revolves around the requirement for a definite place of business for GST registration, which poses challenges for service entities operating from shared workspaces. The authorities are actively working on finding a resolution to this matter.

Controlling Fake Input Tax Credit Claims

Johri addressed concerns regarding fake Input Tax Credit (ITC) claims and mentioned that the tax authorities have already tightened the system. However, there is still some flexibility for taxpayers to edit the amount of ITC they can claim in GSTR-2A. 

This flexibility was introduced to address delays in invoice uploads by suppliers. To reduce the scope for passing certain ITC, the authorities are considering further tightening measures.

The detection of fake entities in the GST system has prompted the authorities to take immediate action. The introduction of biometric authentication and geo-tagging aims to tighten registration norms and authenticate the operating addresses of entities. The ongoing pilot project, along with the evaluation of digital infrastructure requirements, will determine the nationwide implementation of these measures. 

Additionally, the authorities are examining the challenges faced by the service sector and working on finding solutions. Efforts are also being made to control fake Input Tax Credit claims by reducing the scope for editing claims. These initiatives highlight the commitment of the GST authorities to ensure a transparent and fraud-free taxation system in India. 

50th GST Council Meeting

During the 50th meeting of the GST Council, several recommendations were put forth to enhance the GST system. One significant proposal was to tax Casino, Horse Racing, and Online gaming at a uniform rate of 28% based on the full face value. This move aims to create consistency in the taxation of these activities. Additionally, the council suggested the establishment of the GST Appellate Tribunal by the Centre, effective from August 1, 2023, to streamline dispute resolution.

The council also focused on exemptions and rate reductions. They recommended exempting Dinutuximab (Quarziba), medicines, and Food for Special Medical Purposes (FSMP) from IGST when imported for personal use, subject to existing conditions. The exemption for FSMP would also extend to imports by Centres of Excellence for Rare Diseases or on the recommendation of such centers. Moreover, the council proposed reducing the tax rates from 18% to 5% for specific items, including uncooked snack palettes, fish soluble paste, LD slag, and imitation zari thread. These adjustments aim to make these products more affordable for consumers. Finally, the council emphasized the need to streamline compliances in the GST system, although specific measures were not outlined.