The law committee of the goods and services tax (GST) council will meet on Wednesday in Delhi to discuss invoice frauds, tightening of registration process and consider amendments in the GST law, Finance Ministry sources have said.
The Directorate General of GST Intelligence arrested 25 people and singled out 1,180 entities for invoice fraud in the last four days, and the meeting will discuss similar cases to check how they can be minimised, said the sources who asked not to be named.
The fake invoices were used not only to game the system of input tax credit (ITC) but also to evade taxes, cheat banks and launder money using hawala route, where money exchanges hands in different locations without entering the formal banking channels, the sources said.
“This has very serious impact on the economy in the long run. These activities have been largely carried out by non-existent or fly-by-night firms and by using a network of firms game the system to usurp ITC on commission basis,” a Finance Ministry source said.
The GST council’s law committee will see what action they can take under the GST law to stop the fraud.
The Finance Ministry is working to plug gaps in the GST registration process to ensure only genuine businesses are allowed and those who intend to cheat the system are filtered out, the sources said.
Businesses whose owners or promoters do not have proper financial records like income tax returns may have to go through physical verification by tax officers before their companies can be considered for GST registration.
The rules on cancelling registration could be made efficient and faster so that fraudsters can be stopped before passing on fake credit down the chain, a source said.
The government last week said GST collections were at Rs 1.05 lakh crore in October, up 10 per cent on a year-on-year basis.