The CBIC has initiated a special drive to be conducted by all Central and State GST department during the period 16th May 2023 to 15th July 2023 to detect suspicious/fake GSTINs. As per Instruction No. 01/2023-GST dated 04th May, 2023, in case the taxpayer upon verification is non-existent and fictitious, then the tax officer may initiate action for suspension and cancellation of the registration of the said taxpayer in accordance with the provisions of section 29 of CGST Act.
Further, the tax officer may block input tax credit in Electronic Credit Ledger as per CGST Rules. Further, suitable action may be initiated for demand and recovery of the input tax credit wrongly availed by the recipient on the basis of invoice issued by the said non-existing supplier, without underlying supply of goods or services or both.
In past also the GST registration of the tax payers were cancelled on account of the reason that the firm is not existing/ running at the registered place. Further, the actions were also taken upon the buyers who procured goods or services from the non-existent firm. There is difference between non-existent and bogus or fictitious firm. The field officer before cancelling any GST registration has to prove followed by corroborative evidence that the firm is fictitious and obtained GST registration by presenting forged or false documents. There might be some genuine reason due to which the tax payer could not be found at registered place or there was no business activity on the registered place. Such cases are illustrated as below:
- Change in address of the tax payer which was not updated on GST portal
- No prior intimation as per rule 25 was given to tax payer for inspection by the field officers due to which the tax payer was not available at the time of inspection
- Trading firms not maintain any stock and directly supplying goods from their supplier to the ultimate buyer. Such firms may not require a big setup and may have huge amount of turnover.
Therefore, the officer cannot straight away proceed for cancellation of registration considering the non-existent person as fictitious. Further, in the recent past the tax payers, whose registrations were cancelled considering them as non-existent, approached the High courts. The high courts have held that once registration is granted, the same could be cancelled only in terms of the conditions prescribed under Section 29(2) and allegedly being a bogus firm is not a ground enumerated under Section 29(2). It has been also held by the courts that no action can be taken on the buyer unless it is proved that the buyer and supplier have colluded to defraud the revenue and the transactions were dubious based upon corroborative evidence.
Cancellation of GST registration would curtail the fundamental right of a citizen to carry on trade and profession. Therefore, the GST department has to be cautious and provide appropriate opportunity to the tax payer to explain his case, before taking any action so that the genuine tax payer does not suffer. Further, due procedures as provided in law has to be followed before taking any adverse action.
