The Central and State Tax administrations’ decision to conduct a nationwide drive to detect and curb suspicious and fake Goods and Services Tax Identification Numbers (GSTINs) will likely impact genuine sellers. This was the concern raised by Forum for Internet Retailers, Sellers, and Traders (FIRST) India. The industry body, launched in March 2023 with reportedly 17,200 members, aims to help small retailers adopt digital transformation and grow their businesses.
The state and central administration recently announced an all-India drive from 16th May 2023 to 15th July 2023 to verify and weed out fraudulent billers. In November 2022, authorities detected GST fraud of Rs 55,575 crore over the last two years, which caused significant losses to the exchequer. A PTI report mentioned 22,300 fake GSTINs were detected by Directorate General of GST Intelligence (DGGI) officers.
However, FIRST claimed that the current two-month all-India drive announced by central and state tax administrations is creating challenges for genuine online sellers. Unlike the previous drives, jurisdictional officers are empowered to verify and suspend the licenses during the drive.
“The government has allowed businesses to register for GST using a virtual place of business (VPOB) address, as long as the virtual office provider is registered with the government and has obtained necessary approvals. However, it has been found that the officers verifying GST are insisting on physical records and the presence of employees and/or directors,” it stated.
Since many online sellers register their places of business as their chartered accountant’s premises or in a co-working place for cost benefits and better compliance, the current drive could cause immense damage to genuine small sellers.
Vinod Kumar, president of India SME Forum and trustee and president of FIRST India, said, “In the current global economic slowdown scenario, the small sellers should be encouraged to utilize the provisions made by the government to grow their businesses. Expecting the small sellers to adopt a traditional office set-up or have specific demarcation for goods in the warehouses can result in the unfair cancellation of their GST licenses even though they comply with the law. During this special drive, it is crucial to ensure that tax officers at the ground level are familiar with the existing provisions, circulars, FAQs, judicial precedents, and other relevant information to facilitate a successful and hassle-free process.”
While combating fake registrations is vital, it is essential to acknowledge the specific challenges faced by small sellers who conduct business through online channels. The business model of e-commerce sellers and the associated registration complexities are nuanced.
These sellers rely heavily on e-commerce operators (ECOs) for various services, and their circumstances should be considered throughout the drive. Due importance should be given to safety and legal provisions such as bank account validation, Aadhaar authentication, clarifications, and rulings.
To mitigate these challenges, FIRST has recommended that the administration implement a robust process allowing genuine entities to present their case and provide the necessary documentation, reducing the compliance burden. It can also offer comprehensive knowledge to tax officers at the ground level about existing provisions and judicial precedents to help curb fake registrations and safeguard the interests of genuine sellers.
It also expects the government authorities to ensure fair and transparent investigations for taxpayers and MSMEs flagged during the drive. Expediting the resolution of cases related to genuine sellers by establishing a timely redressal mechanism can also help the industry since delays in resolving these cases can have severe financial implications. Moreover, fast-track remediation can help prevent disruption in operations and growth.
According to market researcher Redseer's 2022 Ecommerce Festive Sales report released in October 2022, India’s ecommerce market touched $5.7 billion in gross merchandise value (GMV), registering about 27% growth from a year earlier. The launch of the state-backed Open Network for Digital Commerce (ONDC) network is expected to democratise the country’s online retail sector, especially giving small retailers better opportunities. These players seeking ease of business as they look at accelerating their digital business journeys.