Kerala becomes the First State to Adopt Second Level Verification for New GST Registrations

Move to curb benami registrations and claiming of fake input tax credit

In an effort to curb ‘benami’ businesses under the Goods and Services Tax (GST) regime, Kerala has become probably the first State to introduce second level verification of registration granted on or after June 1.

This verification will be done for both State and central assessees.

The rule says, every supplier of goods with annual turnover of ₹40 lakh or more will be required to register.

However, this threshold is ₹20 lakh in the States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand.

In case of services, GST registration would be mandatory for all businesses with turnover of ₹20 lakh or more, with the exception of Manipur, Mizoram, Nagaland and Tripura, where this threshold would be ₹10 lakh. Registration is done mainly on the basis of Permanent Account Number (PAN). As on date, there are nearly 1.22 crore registered assessees in the country.

A circular issued by Kerala’s Commissioner of State Tax, State Goods and Services Tax Department said the Registering Authority has the primary responsibility of ensuring proper paper work.

“Considering the present situation, it is decided to conduct a second level verification by the intelligence wing,” it said.

Details on portal

Further, it mentioned that once registration is granted, all details will be made available on the GST portal and the Deputy Commissioner (Intelligence) of each jurisdictional district will collect and assign the Enforcement Squad for verification.

Squads will conduct detailed enquiries and check the background of proprietor/partners/directors. They will also confirm whether the applicant is genuine or a benami. Then a report will be submitted to District Joint Commissioner with a recommendation whether the registration is to be cancelled or not along with giving reasons for that.

“This verification and furnishing report is to be completed within seven days of receiving the details by each squad,” the circular said. The same mechanism will be adopted for Central assessees but the report will be submitted to the Deputy Commissioner of Central Goods and Services Tax.

The circular noted that despite the instructions issued for ensuring utmost care while granting new registration, bogus and benami registrations are being reported in the State.

This is very critical especially in the case of evasion-prone commodities such as lottery, iron and steel, flooring materials, glass, timber, hill produce, plywood, arecanut, cardamom etc. Since, the system automatically approves the application within three days of filing, many unscrupulous persons misuse the system. This is being done to claim fake input tax credit or taking and supplying credit through circular trade.

Interestingly, the Central Goods and Services Taxes (CGST) rules prescribe physical verification of the place of business of a registered person after the grant of registration, in case of doubt or incomplete Aadhaar authentication.

Accordingly, a report is to be submitted within 15 days. However, as on date no such mechanism has been developed at the State level for re-confirming or verifying the credentials of applicants but now Kerala seems to have taken the lead.

This exercise is critical for all States as all administrative control over 90 per cent of taxpayers having turnover below ₹1.5 crore vests with State tax administration and the remaining with Central tax administration.

Further all administrative control over taxpayers having turnover above ₹1.5 crore shall be divided equally between the Central and State tax administrations.