GST Registration Process – Mere Computerization or Improved Fool proof Process


There was a time when background of processes in law was not to believe anyone. In Excise this was known as System of Physical Control. It came a long way to the present day system of Self removal and self assessment. The present day system of believing the assessee comes along with presence of severe penalties for any wrong doer. Law continues to be complex and difficult to understand by a common man. There is always a chance for anyone to commit a mistake in following of law in letter and spirit. Any such mistake is termed as Malicious and an attempt to evade tax and the assessee is made to face severe penalties. Every year many changes are done in the name of simplification and rationalization but life for complying revenue laws continue to remain difficult. It looks that no efforts are being made to streamline and fool proof the system so that the chances of committing mistakes are plugged. GST backed by a massive IT system is expected to provide one such platform wherein there should be no chance of making a mistake. The Government in this regard has brought the GST processes in public domain for debate. One such process is process of registration under GST.     

The single most important objective of registration under any economic law is to ensure the existence and traceability of the person seeking registration and the economic activity for which registration is sought. The GST Registration process proposed by the Empowered Committee in this regard has proposed to seek all the possible documents concerning the person and his economic activity. It has provided for greater reliance on self certification of proposer by providing for visits of validating the information furnished only in rare cases “named as Risk Cases”. Major stress has been laid on verifying the information from the online data portal of the submitted documents through inter portal connectivity. Will this process ensure complete fool proofing in verifying this all important data of registration or Is it another case of showing an attempt of simplification and believing the assessee at the cost of compromising the system? Underlying this process is a strong belief that the data in other sources is flawless. Whereas the fact is that every data holder has carried this belief and there seems no one who has validated the furnished information. The framers need to learn from the strong processes devised by other departments / Ministries in this regard. The problem of vanishing companies was one such problem being faced by Ministry of Corporate Affairs (MCA). The process devised by MCA in this regard is one such process which has controlled this menace to a greater extent as it has devised a strong process for ensuring the traceability of registered office of the company and existence and traceability of directors of the company through the process of DIN. Besides, the process of Know Your Customer (KYC) followed and practiced by Banking industries is a strong process in this regard.

VANISHING DEALERS UNDER REVENUE LAWS

Though this is not a big problem under Excise law but this is an area in which state revenue departments are struggling to recover the revenue. It is worth noting that the State VAT rules provide for taking most of the documents being proposed by GST registration process. Besides any registration under State VAT laws is carried out after visit of the department officials. Below is the snap shot of few such cases put up at the site of haryanatax.com, in which tax department has not able to allot the PAN based numbers to the respective dealers.

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The documents in respect of address proof, proof of constitution,  identification of Proprietor / partners / directors are the minimum documents which are taken at the time of registration. Besides, the place of business is also invariably visited by department official. Still the quality of data in respect of address and constitution of business can be gauged from this snap shot.

As on date there is a large number of dealers who are not traceable. The GST registration process does not seem to have recognized this problem. In regard to registration it provides as under :-

6.12 The GST common portal will provide a risk profile to the tax authorities based on the risk parameters made available by the tax authorities. The Central/State tax authorities will also have their own risk profile based on their own risk parameters. It was noted that submission of Adhaar No. cannot be made compulsory. Non – submission of Adhaar No. could be one of the risk parameters for deciding about the post registration physical verification. On the basis of both risk profiles, jurisdictional officer of tax authorities will take a decision about post registration verification of the application if so provided in the GST Law.

6.13 GST Law Drafting Committee may provide for appropriate provision for imposition of substantial penalty in cases of fraudulent registrations.

Thus in respect of registrations as per proposal at point 6.13 above, following points are worth noting :-

  1. The registration is to be allowed on the basis of self certified documents duly validated by online verification of PAN data / Companies data on MCA 21. The verification by visits of jurisdictional tax official is to be done only in few risky cases.
  2. Imposition of substantial penalties in cases of fraudulent registration.

The proposal assumes that the fraudulent dealer will be traceable to face the penal provisions. Even in cases the dealer is traced, he would have financial capacity to face substantial penalty.

PROCESS ADOPTED BY MCA

There does not seem any risk of any company being termed as fraudulent registrant or not traceable not because of any strong process proposed under GST but because of strong process in this regard followed by MCA, which is as under :-

Rule 25. Verification of registered office.-

  1. The verification of the registered office shall be filed in Form No.INC.22along with the fee, and
  2. There shall be attached to said Form, any of the following documents, namely :-
  • the registered document of the title of the premises of the registered office in the name of the company; or
  • the notarized copy of lease or rent agreement in the name of the company along with a copy of rent paid receipt not older than one month;
  • the authorization from the owner or authorized occupant of the premises along with proof of ownership or occupancy authorization, to use the premises by the company as its registered office; and
  • the proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, as the case may bewhich is not older than two months.

Apart from its while filling the form 22 w.r.t companies (other than small companies) need to get the same certified by an independent professional.

The said form is drafted in such a way that the professional, while certifying the form is not only certifying/verifying the documents, details of the registered office address and area Police Station feed in the form/attach with the form, but also has to digitally sign a declaration as follow:

“Certificate by practicing professional”

I declare that, I have been duly engaged for the purpose of certification of this form. It is hereby certified that I have gone through the provisions of The Companies Act, 2013 and rules there under for the subject matter of this form and matters incidental thereto and I have verified the above particulars (including attachment(s)) from the original records maintained by the company which is subject matter of this form and found them to be true, correct and complete and no information material to this form has been suppressed. I further certify that:

1. The said records have been properly prepared, signed by the required officers of the company and maintained as per the relevant provisions of The Companies Act, 2013 and were found to be in order;

2. All the required attachments have been completely and legibly attached to this form;

3. I further declare that I have personally visited the registered office given in the form at the address mentioned herein above and verified that the said registered office of the company is functioning for the business purposes of the company.

The above process virtually plugged any chances of company not existing at the address provided for by it.

PROFESSIONALS RECOGNISED AS PARTNERS IN GOVERNANCE

The MCA got conscious of the problem of companies not existing at the registered addresses and made a strong process in this regard. They also realized the constraint of resources with them to personally verify the reported information in each and every case, involved the strong force of professionals and made them partners in governance. Whereas the Empowered Committee while proposing the process of registration seem to be failing in realizing the menace of vanishing dealers. It also seem to be forgetting that it has the availability of professionals (Chartered Accountants / Company Secretaries / Cost Accountants) who could be used as partners in the process of governance and virtually eliminate the menace of vanishing dealers.

THE PROCESS OF KYC FOLLOWED IN BANKING

The vibrancy of Reserve Bank of India brought into the process of KYC to be followed by the banking industries. It has shown a remarkable result in terms of financial discipline and traceability of account holders. The process of KYC has been fine tuned to a greater extent.

This could have been considered as one of the knowledge points while making proposal for process of registration under GST especially from the point that the GST registration will entail revenue implications for the Governments.