Efforts made by the Delhi government to prevent the entry of fraudulent companies into the GST network are yielding positive results.
The Department of Trade and Taxes has established a centralised GST registration cell to get new applications and process them. This initiative has effectively prevented the GST registration of fake trading companies, thereby removing tax fraud and reducing revenue loss for the government.
Out of the 1.4 lakh applications that have been received from new players seeking registration with the trade and taxes authority in the fiscal year 2022-23, around 50,000 received “deemed approval.” In short, these firms obtained GST registration without their documents being thoroughly verified within the designated seven-day period due to the department officials’ inability to get the verification process done.
To address this issue, a specialized GST ward dedicated to the registration of new companies was established on July 21, 2023. This allowed the trade and taxes department to scrutinize all applications and reject those lacking proper documents or appearing suspicious.
In July of this year, 4,314 applications were “deemed approved,” but this number significantly decreased to 355 in August, 8 in September, 4 in October, and none in November.
Initially, the high number of deemed approvals was attributed to the Insufficient staffing in the new unit and the unequal division of applications among them.
When the centralised GST registration cell commenced operations in July, there were some initial challenges. However, the system has now stabilized, as evidenced by the scrutiny of applications and the absence of deemed approvals, according to an official from the trade and taxes department.
The trade and taxes department consists of 126 wards (106 physical and 20 virtual) responsible for handling GST cases in Delhi. Previously, applications for the registration of new firms were automatically distributed among the physical wards.
Sources reveal that operators of fake firms ensured their files remained untouched for days, allowing them to obtain deemed approval on the eighth day. Fake firms typically provide incorrect permanent account number (PAN) or Aadhaar details or fake addresses, which could easily be identified through physical scrutiny of the applications. Now, with all applications undergoing scrutiny and document verification, the chances of a fake firm being registered are negligible, stated another official.
Furthermore, this system allows other officials to allocate more time to GST-related accountabilities, also crucial tax administration tasks such as revenue generation, maintaining compliance, return scrutiny, audits, assessments, and appeals.
GST registration is mandatory for companies surpassing the threshold turnover limit, and certain kinds of businesses must also register under GST.
Currently, there are over 7.8 lakh businesses registered under GST in Delhi. In the fiscal year 2021-22, the department received over 1.2 lakh applications, and in 2022-23, the number increased to 1.4 lakh. So far, in the current fiscal year, the department has received 69,900 applications.
In 2022-23, the combined collection of GST and VAT, which form the backbone of Delhi’s tax revenue, amounted to over Rs 34,000 crore. The projection for the current fiscal year amounts to Rs 37,000 crore.
To enhance the system’s robustness, officials are working on implementing IT-enabled solutions.
