The Forum for Internet Retailers, Sellers, and Traders India (FIRST India) organized a session on June 8 in the capital where industry leaders voiced their concerns about the widespread harassment of genuine MSME online sellers by GST officials. The industry leaders believe that this harassment, which is carried out under the guise of a special drive to eliminate fraudulent GST identification numbers, is unjustified.
In May, the Central Board of Indirect Taxes and Customs (CBIC) initiated a two-month drive to root out fake GST registrations. The CBIC, which is responsible for regulating GST inflows, stated that these fake registrations were being used to transfer input tax credit (ITC) to dishonest recipients through the issuance of invoices without any actual supply of goods or services.
Vinod Kumar, President of India SME Forum and Trustee and President of FIRST India, criticized the government’s fake GST registration drive, stating that it is causing numerous issues for genuine online sellers. He pointed out that the GST framework was designed to establish a unified tax regime for the entire nation. However, the interpretation of tax laws by tax officials and the requirement for state-specific paperwork have hindered the smooth implementation of GST, contradicting its goal of being a faceless tax assessment.
Under the current regulations, businesses with a turnover of less than Rs 40 lakh for goods and Rs 20 lakh for services are exempt from GST registration. Additionally, businesses with a turnover of less than Rs 1.5 crore can opt for a composition assessment, which doesn’t involve invoice-based tax assessment. These businesses do not claim input credit and operate outside the GST network.
Entrepreneurs, frustrated by the harassment and increased regulations, are considering closing down their multi-state operations, opting instead for the safety of operating within the Rs 40 lakh-turnover slab as sole proprietorship firms. This trend is worrisome as it hampers the ease of doing business.
MSME players present at the event revealed that those operating coworking spaces or shared warehouses are particularly affected by corruption during the verification process.
While combating fake registrations is crucial, the unique circumstances of small sellers who rely on e-commerce platforms should also be taken into consideration. FIRST India emphasized that these sellers often depend on e-commerce operators (ECOs) as service providers, and their situation should be considered during the drive.
The Federation of All India Vyapar Mandal’s Senior Vice-President, Radhey Shyam Sharma, highlighted cases of genuine small sellers being adversely affected by GST officials’ raids. He expressed concern about the fear of bureaucratic outreach affecting the business climate, emphasizing that if MSME firms abandon their plans for growth, it will have negative implications for the entire country.
The India SME Forum stressed the importance of adhering to legal provisions, including authentication, bank account validation, clarifications, and rulings, in light of the ongoing special drive. The forum noted a trend of suspending or threatening to cancel GST registrations of genuine small sellers based on unreasonable criteria, such as the expectation of a traditional office setup, non-acceptance of shared coworking space as a place of business, absence of physical record requirements for the presence of directors, and lack of specific demarcation for goods in the warehouse for each seller.
Registering in multiple states and complying with separate requirements and procedures poses significant challenges for businesses. For instance, in Haryana, officers demand separate electricity registrations for each entity, even though regulations permit multiple registrations at the same premise. Additionally, the expectation of immediate availability during inspections often proves impractical. These obstacles hinder ease of doing business, especially for small entrepreneurs who lack resources for tax consultants or lawyers, according to Ankit Jain, a chartered accountant.
The industry body emphasized the need to ensure that tax officers at the ground level are well-informed about the provisions. They also called for fair and transparent investigations for taxpayers and MSMEs flagged during the drive, implementing a robust process that allows genuine entities to present their case and provide necessary documentation to prevent undue harassment.
Furthermore, the industry representative stressed the importance of creating awareness among tax officers about the provisions related to MSMEs. They emphasized the need for a fair and transparent investigation process for taxpayers and MSMEs who are flagged during the drive. Implementing such a process would allow genuine entities to present their case and provide the required documentation, thereby preventing unwarranted harassment.
The industry leaders urged for a comprehensive evaluation of the unique circumstances faced by small sellers who rely heavily on e-commerce platforms and service providers. They highlighted the challenges these sellers encounter and emphasized the importance of considering their situation during the drive to eliminate fake registrations.
Ankit Jain, a chartered accountant, pointed out the difficulties faced by businesses in registering across multiple states with varying requirements and compliance procedures. He cited the example of Haryana, where officers demand separate electricity registrations for each entity, despite regulations allowing multiple registrations at a single premise. Jain also emphasized that the expectation of immediate availability during inspections often poses logistical challenges for small entrepreneurs. These obstacles hinder the ease of doing business, particularly for those who lack the resources to hire tax consultants or lawyers.
In light of these concerns, the industry body called for a balanced approach that upholds the legal provisions while ensuring that genuine small sellers are not subjected to unnecessary scrutiny and harassment. They stressed the need for tax officials to be made aware of the provisions and advocated for a fair and transparent process that allows legitimate businesses to present their case and provide the necessary documentation to substantiate their operations.
The industry representative concluded by stating that preventing undue harassment and ensuring a supportive environment for MSMEs is crucial, as they form the backbone of India’s economy. If these businesses abandon their growth plans due to the challenges posed by the current GST system, it would have far-reaching negative implications for the entire country.
In summary, the industry leaders at the session organized by FIRST India voiced their concerns about the undue harassment of genuine MSME online sellers by GST officials. They called for an end to this harassment and emphasized the need for a fair and transparent investigation process that takes into account the unique circumstances faced by small sellers. The industry body stressed the importance of ensuring that tax officers are aware of the provisions and advocated for a balanced approach that supports legitimate businesses while combating fake registrations effectively.