Genuine online sellers caught in crossfire of GSTIN fraud crackdown, FIRST India urges fair treatment
Mumbai, May 30, 2023: The ongoing nationwide initiative led by Central and State Tax administrations to detect and eliminate fraudulent Goods and Services Tax Identification Numbers (GSTINs) is creating challenges for genuine online sellers and small businesses. Unlike the previous drives, jurisdictional officers now possess the authority not only to verify but also to suspend licenses during the campaign. This approach has raised concerns for genuine sellers who have registered their businesses using Virtual Places of Business (VPOBs), such as accountant premises or co-working spaces, as officers are demanding physical records and the presence of employees/directors.
Addressing these pressing issues, the Forum for Internet Retailers, Sellers, and Traders (FIRST) India organized a roundtable discussion, where Mr. Vinod Kumar, President, India SME Forum, and Trustee and President, FIRST India, said, "India, under PM Modi's leadership, has been at the forefront of enabling crores of job creators and not job seekers through path breaking initiatives like MUDRA, STAND UP INDIA, PMEGP. While the Government is enabling entrepreneurs to go fully compliant in order to fulfil the dream of a digital India, we cannot afford to have roadblocks and end up making life tougher for micro and small sellers by threats of cancellations of registrations and inspector. Most micro and small enterprises use shared warehouse spaces or co-working spaces as their registered addresses in various cities as GST registrations are required in each state. Insisting for records to be kept at all such locations and absence of proprietors on site, is being interpreted as non-compliance, leading to cancellation of their licenses and most such entrepreneurs are not savvy enough in legal terminology or communication to convince the officers of their genuineness. Due to this, many MSMEs who are providing crores of jobs may decide to wind up their businesses in the face of tough compliance and paperwork. This would dent the Indian business ecosystem for Micro Enterprises, massively. He also stated, “Earlier access to finance was seen as the biggest hurdle for MSMEs, but now it is becoming GST related complications.”
Mr. Prahlad Kakar, Chairman, India SME Forum (ISF), said, "In the past, some MSMEs maintained multiple enterprise accounts to stay under the taxation limits, and at ISF, we tirelessly emphasized the importance of consolidating their accounts after GST to unlock better access to finance and credit support. However, the current threat of suspension/cancellation of GST is compelling small businesses to revert to a cash-based/multiple enterprises to stay under the GST limits. The challenges surrounding GST compliance, checks and audits, are making it difficult for many micro and small enterprises which contribute only around 13% of taxation revenues, to formalize their operations. The Government will be better off in looking at enterprises with turnovers higher than 5 crores to check evasion or fraudulent ITC claims."
The event aimed to assess the impact of GST officials' raids on genuine small businesses and propose recommendations to mitigate the challenges. FIRST India presented five key recommendations to alleviate the situation:
● Establish a robust procedure that enables genuine entities to present their case and provide the necessary documentation, reducing the compliance burden they face.
● Offer comprehensive knowledge to tax officers at the grassroots level regarding existing provisions and judicial precedents, safeguarding the interests of genuine businesses.
● Ensure transparent investigations for taxpayers and MSMEs identified during the drive.
● Establish a prompt redressal mechanism to resolve cases concerning genuine businesses, as delays can lead to significant financial implications.
● Accelerate the process of remediation to proactively mitigate operational disruptions and support uninterrupted growth.
Samir Lakhani, Tax Head, InCorp Advisory Services, said. “When GST officials visit a place of business to check if the business is genuine or not, they look for the GST certificate, name board, book of account, etc. at the location. However, it is not always possible to have it on the premises and the proprietor, who is the one point of contact, might also be traveling. When an official visits and the proprietor isn't there, the license often gets suspended. The GST officials need to account for all these things.”
An entrepreneur from Maharashtra said, “I need to travel for business purposes and for me to stay at the registered premise can result in heavy losses. I am trying to convince the officials that just because I was not there does not mean my license is fake. I am paying taxes and so there is no question of anything fake. But now I don’t know when I will get the license back.”
While combating fraudulent registrations is crucial, it is equally important to acknowledge the unique challenges faced by MSMEs. The business model of MSMEs and the complexities associated with the registration process require careful consideration. These businesses heavily rely on e-commerce operators (ECOs) and various services such as warehousing, workspaces, etc., and their circumstances should be taken into account during the drive. Attention should be given to ensure compliance with safety measures and legal provisions, including bank account validation, Aadhaar authentication, and providing necessary clarifications and rulings.
The collaborative efforts of the government, tax authorities, and industry stakeholders will be instrumental in striking a balance between combating fraud and supporting the growth of genuine MSMEs in India.