GSTN to get info from FIU about suspicious forex transaction by GST assessee

In order to curb misuse of GST registration for money laundering, the government has included GST Network (GSTN) in the list of entities for sharing of information by Financial Intelligence Unit (FIU) under Prevention of Money Laundering Act (PMLA).

GSTN is the 26^th agency in the list, as prepared by the Finance Ministry. Other agencies include Directorate of Enforcement (ED), Cabinet Secretariat (Research and Analysis Wing); Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, National Investigating Agency, Serious Fraud Investigation Office and Director General of Foreign Trade among others.

A notification by the Finance Ministry, dated July 7, said GSTN has been included “in the public interest.” This move has been initiated under section 66 of PMLA which prescribes sharing of information by officers responsible for enforcement of the act, in case of case of suspicion of contravention of any other law. Information will be shared with the agency responsible for implementation of other laws. In other words, if FIU or ED finds a GST assessee involved in suspicious transaction in foreign exchanges, then information can be shared with GSTN for action.

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Curbing fake invoicing

Commenting on the latest move, S Vasudevan, executive partner with Lakshmikumaran and Sridharan says, “The addition of GSTN will allow seamless flow of information from the ED to the GST authorities which can be used by them for initiating necessary proceedings under the GST law,” he said.

Similarly, Smita Singh, Partner with S&A Law Offices says this amendment is a step towards tightening the noose in GST fake invoicing cases, which is on a rise exponentially. Now the intelligence-based information already available with the Director, FIU, can also be shared parallelly with GSTN under the PMLA. It’s a known fact that fake invoicing is being used for money laundering using shell companies. Thus, now real-time data and investigation information will be shared in cases handled under the PMLA to ensure that a coordinated action is taken against offenders and tax evaders.

“This information can be used by GST authorities to initiate action and target economic offences related to fake invoicing and fraudulent dealings using non-existent companies under the GST Act,” she said.

This move has been initiated at a time when two drives are being taken to weed out firms including shell companies, allegedly involved in use of fake invoices. Central GST Authority has tracked fake invoices amounting to ₹63,000 crore in three years starting August 2020. However, it has managed to collect only about ₹3,000 crore.

Meanwhile, the two-month joint special drive by the Centre and State GST authorities, starting May 16, selected over 69,600 GST Identification Numbers (GSTINs) for physical verification by field tax officers. Of this, over 59,000 GSTINs have been verified and 16,989 have been found to be non-existent. Out of the 69,600 GSTINs, over 11,000 GSTINs have been suspended and 4,972 registrations have been cancelled. This involved tax evasion of over ₹15,000 crore, blocking of input tax credit (ITC) was ₹1,506 crore and recovered taxes worth ₹87 crore.