Centre’s Crackdown On Fake GST Registrations Creates Challenges For New-Age Tech Startups

The Centre’s pan-India drive against fake goods and services tax (GST) registrations has reportedly become troublesome for new-age tech startups, especially in the ecommerce sector, which have virtual offices in various states with minimal staff and no books of accounts.

Tajinder Singh, Group VP -Taxation at MakeMyTrip, told PTI that the drive has created a lot of problems for the traveltech company. 

“We maintain virtual offices in states… in this fake registration drive the field officers mistook these offices as fake registration. However, we were only using these offices for tax payment, there was no ITC (input tax credit) flow or fraud being committed using those registrations. Because of this, a lot of registration was blocked for compliance purposes and that created problems for us,” Singh was quoted as saying by the news agency.

Singh is of the view that the GST officials should enquire with the head offices about virtual offices before categorising a state registration as a fake entity for non-production of books of accounts.

“When field officers come to these virtual offices, they will not find physical presence of employees and in that sense they would say nothing is there. After going back, they will send us emails and we provide them the information. All the information is available, all the records are available. It may not be readily available when they approach the office,” Singh said. 

Hence, he added that the field officers should take into account the fact that virtual offices are maintained with a few employees and often they do not attend the office every day. The virtual office with a place of address is created only to comply with state GST laws and is not meant to claim wrongful ITC.

It must be noted that the Central Board of Indirect Taxes and Customs (CBIC) initiated a two-month crackdown on companies with suspicious/fake GSTINs in May this year. The drive was aimed at conducting requisite verifications and taking remedial action to weed out fake billers from the GST ecosystem. 

As per reports, about 45,000 fake GST registrations have been identified under the drive so far. The CBIC has also blocked INR 1,430 Cr of wrongfully claimed ITC.

Meanwhile, speaking on the challenges faced by the new-age tech companies, CBIC member GST, Shashank Priya told the news agency that while the line of distinction between a fake registrant and an ecommerce operator is very thin, there should be some distinguishing feature by which virtual offices in states can prove that they are genuine.

“You should be able to fetch your books of accounts. Sometimes when the officers go, the administration people say that the records are not with us, they are with the head office. So that creates a suspicion,” Priya was quoted as saying.

Tech Cos Under The Radar Of GST Authorities

The Centre’s efforts to increase compliance and GST revenue have resulted in many new-age tech startups coming under scrutiny.

Last year, the Directorate General of GST Intelligence (DGGI) issued an INR 21,000 Cr show-cause notice to Gameskraft, alleging tax evasion by the gaming startup. Recently, the Karnataka High Court quashed the notice, in a relief to the company.

A similar incident happened with Jaipur-based gaming startup MyTeam11 as well.

On the other hand, the DGGI also served show cause notices to online insurance players including Go Digit and Policybazaar in April for allegedly claiming ITC wrongfully.

Last year, the Confederation of All India Traders (CAIT) had told the government that its requirement for mandatory GST registration to list on the Open Network for Digital Commerce (ONDC) could be a major roadblock for small traders.

Recently, the trade body has reportedly urged the Central government to make GST a more simplified and rationalised tax system.