The Central Board of Indirect Taxes and Customs (CBIC) had launched a special two-month drive in May to weed out fake GST registrations. The apex body for regulating GST inflows had stated that fake or illegitimate registrations were being used to transfer input tax credit (ITC) to unscrupulous recipients by issuing invoices without any underlying supply of goods or services.
Traders said this was causing troubles for honest businesspeople, too.
“The government’s so-called fake GST registration drive, which started last year and this year, is resulting in widespread issues for genuine online sellers,” said Vinod Kumar, President, India SME Forum and Trustee and President, First India. “The whole GST framework was supposed to usher in one nation, one tax regime; but considering the way tax officials are now interpreting tax laws — and various states continue to ask state-specific mandatory paperwork — the on-ground execution of GST is nowhere near its ambitious goals, leave aside being a faceless tax assessment, which it never was.”
Currently, suppliers of goods with less than Rs 40 lakh turnover and suppliers of services with less than Rs 20 lakh turnover are exempt from registering under GST. Also, businesses with turnover of less than Rs 1.5 crore can opt for a composition assessment which doesn’t require invoice-based tax assessment. Such businesses don’t claim input credit and remain outside the GST network.
Tired of harassment and increased regulations and compliances related niggles, several entrepreneurs now want to close down their multi-state operations, Kumar said. “Even in the times of UPI and the digital payment bandwagon that India is now known for, there certainly is no ease of doing business. Several MSMEs have told me that they now plan to operate under the ‘safe zone’ of the Rs 40 lakh-turnover slab, and register as sole proprietorship firms just to get rid of the increased GST niggles. This is a worrying development.”Those operating coworking spaces or shared warehouses are among the worst sufferers of corruption in the name of the verification process, MSME players present at the event told ET Online.While targeting fake registration is crucial, it’s equally important to consider the unique circumstances of small sellers who operate through ecommerce platforms. An official of FIRST India said these sellers often relied on e-commerce operators (ECOs) as service providers and their situation should be taken into account during this drive.
Radhey Shyam Sharma, Senior Vice-President of the Federation of All India Vyapar Mandal, highlighted several cases of genuine small sellers being affected by the raids of GST officials. “There is a fear of bureaucratic outreach hurting the business climate today. No one is sure what paperwork he can be asked to submit and where he can be asked to be present personally. The MSME sector is the backbone of India’s economy. If these firms leave their dream of scaling up, it’s not good news for the entire country.”
Currently, suppliers of goods with less than Rs 40 lakh turnover and suppliers of services with less than Rs 20 lakh turnover are exempt from registering under GST.
Industry body India SME Forum said in the backdrop of the ongoing special drive, it was imperative to give due importance to legal provisions, including authentication, bank account validation, clarifications and rulings. It added that there has been a trend of suspending or threatening cancellation of GST registrations of genuine small sellers due to reasons such as the expectation of a traditional office setup, non-acceptance of shared coworking space as a place of business, absence of physical record requirements on the presence of directors and absence of a specific demarcation for goods in the warehouse for each seller.
“It’s challenging for firms to register in multiple states with separate requirements and compliance procedures. For instance, in Haryana, officers demand separate electricity registrations for each entity, even though regulations allow multiple registrations on the same premise. Besdies, the expectation of immediate availability during inspections is often not feasible. These hurdles hinder ease of doing business, particularly for small entrepreneurs who lack resources for tax consultants or lawyers,” said Ankit Jain, a chartered accountant.
The industry body further said it was crucial to ensure that the tax officers at the ground level were made aware of the provisions. “We also want fair and transparent investigation for taxpayers and MSMEs flagged during the trial, and implementation of a robust process that allows genuine entities to present their case and provide necessary documentation, in order to prevent undue harassment,” said an industry representative.
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