Delhi: How GST registration cell is thwarting fake companies

Delhi government’s efforts to check the entry of fake firms in the GST network has started bearing fruits.

By setting up the centralised GST registration cell to receive and process new applications, the Department of trade and taxes has managed to check the deemed registration of firms, restricting the entry of fake trading firms and curbing tax evasion and subsequent revenue loss to the government.

Of over 1.4 lakh applications received from new firms to register with the trade and taxes department in 2022-23, nearly 50,000 got “deemed approval”. In simpler terms, these firms managed to get the GST registration without getting their documents checked, as the officials of the trade and taxes department could not complete the verification process within the stipulated seven days.

With the opening of a specialised GST ward that only dealt with the registration of new firms on July 21, 2023, the trade and taxes department started scrutinising all applications and rejected the ones that did not have proper documents and looked suspicious.

While 4,314 applications were “deemed approved” in July this year, the number came down to 355 in August, 8 in September, 4 in October and zero in November. Initially, deemed approvals were high due lack of officers in the new cell and unequal distribution of applications among them.

“There were some teething issues when the centralised GST registration cell started working in July. Now, the system has stabilised, which reflects in the number of applications that are being approved after carefully scrutinising the documents and no deemed approval is being granted,” said an official of the trade and taxes department.

There are 126 (106 physical and 20 virtual) wards in the trade and taxes department that deal with GST cases in Delhi. Earlier, the applications for the registration of new firms would get automatically divided among the physical wards. Sources said the operatives of fake firms used to ensure that their files would not come up before any officer for even days and the registration got deemed approval on the eighth day. “Fake firms would generally have wrong PAN or Aadhaar details or a fake address, which easily comes to notice if the applications are physically scrutinised. Now, when all the applications are closely scrutinised and documents verified, the possibility of the registration of a fake firm is negligible,” said another official.

“The system also gives more time to other officials to focus on GST-related responsibilities as well as other key tax administration tasks like revenue collection, compliance monitoring, scrutiny of returns, audit, assessments, and appeals,” the official added.

Businesses whose turnover exceeds the threshold limit must register under GST. For certain categories of businesses, the GST registration is mandatory.

There are over 7.8 lakh businesses in the capital registered with GST. While the department received over 1.2 lakh applications in 2021-22, 1.4 lakh in 2022-23, the number in the current fiscal stands at 69,900 so far.

In 2022-23, the government’s collection of GST and VAT combined, the mainstay of Delhi’s tax revenue, was more than Rs 34,000 crore while the projection in the ongoing financial year is Rs 37,000 crore.

To make the system more robust, officials said the government was working to make it IT-enabled.