TGST Act, 2017 – GST ITC Fraud cases - Guidelines and Standard Operating Procedure – Issued - GST - States - A(1)/16/2023

Office of the Commissioner of Commercial Taxes Telangana State: Hyderabad CIRCULAR CCT s Ref No. A(1)/16/2023, Dt. 20-03-2023 Sub: - TGST Act, 2017 GST ITC Fraud cases - Guidelines and Standard Operating Procedure Issued - Regarding. Ref:- CBIC - Circular No. 171/03/2022-GST, Dt: 06.07.2022. The following guidelines and standard operating procedure are issued to deal with non-genuine tax payers / bill trading cases by the proper officers of enforcement wing and territorial divisions / circles. Introduction: Bill trading is a fraudulent activity that creates an artificial trading trail by issuance of tax invoices by non-genuine tax payers without any supply of goods or services or both, with intention to aid in evasion of tax enabling beneficiary TPs to avail ITC fraudulently. Mastermind obtains registration(s) either in his name or any other person by either furnishing fake documents or documents of a person who doesn t have capacity to conduct business. The other person may or may not be aware of the activity carried out in their name by the Mastermind. Mastermind also opens and operates bank accounts of such fictitious entities, generates e-way bills, issues invoices, files returns in the name of such fictitious entities. Some of the major frauds identified are: Issuing an invoice without supply of goods or services or both. Availing or utilizing input tax credit without actual receipt of goods or services or both. Obtaining refunds by availing fraudulent Credits. Generates e-way bills for suppressed supplies of other taxpayers or without any actual supply of goods Issuing invoices without supply of goods or services to accommodate supplies from TPs who have not issued invoices. (The list is only illustrative in nature and but not exhaustive) Preparation of case file: i. The Enforcement wing and Jurisdictional officers have been receiving information on GST frauds from various sources such as: The Central GST Officers DGGI Officers Officers of other states. Other Telangana State officers Suo-moto identification ii. In cases where it has already been determined that there is fraudulent activity, action shall be initiated for suspension of registration i.e., show-cause notice for ab-initio cancellation of registration and blocking of credit to avoid further issuance of E-waybills and utilization of credit within (48) hours of receipt of information. iii. After receipt of information from any source about GST fraud, the Enforcement officer or Jurisdiction officer shall verify the information available from the following sources and prepare case file and the details shall include: a) All details of registration, PAN details and registrations on the PAN and on the PAN of partners and directors including other state TPs. b) Return and tax payment details turnover, tax and nature of disposal of tax (credit and / or cash) c) e-way bills reports available in NIC portal, BIFA (GAIN) reports, Status of refunds granted d) Transportation Details, Toll Gate (NIC/ NHAI) Data e) Electricity consumption details f) Notices issued, if any; g) Any other information/documents received from internal or external sources. iv. Preparation for case file shall be completed within three (3) working days from the date of receipt of the information. Inspection: The case file shall be studied in detail with reference to the information received and if there is a reason to believe that the registered person is a bill trader/ Master mind/ Beneficiary, a case report shall be submitted to the proper officer (authorizing officer) and after due authorization conduct inspection, search seizure of identified business / residential premises under Section 67 of the TGST Act, 2017. During the inspection, search seizure detailed evidences have to be gathered including the following by the inspecting officer to arrive at a conclusion that the person is actually a bill trader/Mastermind/Beneficiary: i) The taxable person is non-existent at the place of business /residential address and actual business has not been carried on by him. ii) Statement from the witness nearby/adjacent shops, to the effect that, the taxable person is non-existent at the place of business. iii) Statement should be recorded from the owner of the premises. iv) Photograph of the place of business with inspecting official/s v) Report regarding the existence/non-existence of such person. vi) Further, proof of data analytics with reference to bill trading activity A detailed inspection report shall be prepared and furnished to the Authorizing Officer, enclosing all the relevant documents based on which it was concluded that the registered person is involved in GST fraud. The entire procedure of investigation, inspection and submission of inspection report shall be completed within (15) days from the date of receipt of the information. Post inspection work: After inspection, once sufficient evidence is gathered against a person as involved in GST fraud, then action should be taken against him to curb further fradulent activities including, cancellation of registration, blocking of ITC, reversal of ITC, filing of criminal case and levying of penalty and interest. i) Cancellation of Registration: a. In all cases where GST fraud has been identified, immediate suspension of registration of the registered person, i.e. notice for ab-initio cancellation of registration shall be issued immediately. b. After following due procedure, Registration shall be cancelled. The cancellation proceedings of such registration should be a speaking order by incorporating all the evidences. The cancellation orders passed without details, in single line and without establishing the involvement of taxable person in the fraudulent activities, will not stand judicial scrutiny. Hence, the proper officer shall not be negligent in passing order, as the cancellation order is the main evidence for adjudication and recovery of bogus ITC availed by beneficiaries of the fraudulent activity. ii) Blocking of Credit: If the Registered person has credit available in Electronic Credit Ledger, then credit shall be blocked under Rule 86A of GST Rules, 2017. iii) Determination of Tax Penalty, Show cause notice and Order: a. CBIC has issued circular No. 171/03/2022-GST dated 06-07-2022, wherein Clarification was issued on various issues relating to applicability of demand and penalty provisions under the Central Goods and Services Tax Act, 2017 in respect of transactions involving fake invoices. The same shall be followed. b. Adjudication orders shall be passed determining the Tax and/or Penalty payable. c. In the adjudication order, the bogus ITC availed by the beneficiary through creation of bogus networks and how this nefarious network had exploited the value addition chain with ulterior motive to evade tax due to the exchequer, should be established. d. Adjudication orders without establishing the above facts, will not stand scrutiny of judicial test, therefore the adjudicating officers should take responsibility to pass well-reasoned order. e. It must be ensured that entire gamut of adjudication by the proper officer shall be completed within six (6) months and not later than the outer limit of one year without allowing the case to unblock automatically by the system on expiry of one year from the date of blocking. In the event of the ITC getting unblocked automatically, serious view will be taken against the officer concerned. iv) Identification of beneficiary of GST Fraud and intimation: a. The Supplier(s) who passed on ITC to the fraudulent person and the recipient(s) who availed the ITC passed on by the fraudulent person shall be identified. b. The TPs having registration with the PAN of the fraudulent person shall be identified. The TPs having registration with the PAN of the partners/ directors of fraudulent person shall be identified. c. The proper officer shall communicate the details of above said TPs along with evidencing record to the jurisdiction officer of the concerned TP under intimation to authorizing officer and concerned Nodal Officer for taking immediate necessary action including the SOP prescribed in this circular. d. The respective jurisdiction officers shall initiate action on bill traders / beneficiaries within three (3) days on receipt of communication. General Instructions: 1. The proper officers of registration shall act immediately not later than two (2) days on the requests of investigation / inspection officer for suspension of registration and cancellation of registration. Any negligence in this regard will be viewed seriously. 2. Similarly the proper officer for blocking of credit shall act upon the request of the investigation / inspection officer for blocking of credit immediately. 3. The Additional Commissioner (CCW) is requested to develop the online functionalities as detailed in this circular for the purpose of maintaining an electronic repository of Non-genuine Taxpayers by the Enforcement Officers and Jurisdictional Officers. 4. All the Joint Commissioners (ST) and the Officers in charge of the Enforcement Wing(s) are instructed to ensure that the above instructions are implemented and followed by the officials working under their control without any deviation. Sd/- Neetu Prasad Commissioner (ST)