GST Special Drive 2.0: Combating Fake Registrations, Enhancing Compliance, and Strengthening India’s Tax Framework

The Government of India has intensified its efforts to curb tax evasion and fortify the integrity of the Goods and Services Tax (GST) framework with the launch of GST Special Drive 2.0. This initiative, spearheaded under Instruction No. 02/2024-GST, dated August 12, 2024, is a strategic move to dismantle fraudulent GST registrations, which have long plagued the system by facilitating fake invoicing and wrongful Input Tax Credit (ITC) claims.

As the GST regime enters a more mature phase, ensuring a robust compliance mechanism is paramount. Fake registrations not only result in massive revenue leakage but also distort the tax ecosystem, making genuine businesses suffer due to unfair competition. Special Drive 2.0 is a well-structured enforcement strategy aimed at detecting, verifying, and eliminating fraudulent registrations while reinforcing the legitimacy of the tax framework.

Background and Objectives


Since its implementation in 2017, the GST system was envisioned as a unified taxation framework designed to facilitate seamless credit flow, prevent cascading effects, and curb tax evasion. However, unscrupulous elements have exploited loopholes, using fake GST registrations to generate fraudulent invoices, claim illegal ITC, and disrupt tax compliance. Recognizing the gravity of this issue, the government has intensified enforcement measures through GST Special Drive 2.0, building upon the success of previous anti-evasion campaigns. This latest initiative seeks to tighten compliance norms, leveraging cutting-edge technology, analytics, and field verifications to track and eliminate fraudulent entities.

Key Objectives of GST Special Drive 2.0

  1. Verification of Suspicious Registrations:
    • Conducting rigorous checks on entities suspected of being non-existent or fraudulent.
    • Ensuring that genuine businesses are not affected while eliminating fake registrations.
  2. Enhanced Data Analytics & AI-Driven Detection:
    • Utilizing advanced analytics, machine learning, and AI to flag suspicious activities.
    • Cross-referencing registration data, invoice patterns, and ITC claims to identify anomalies.
  3. On-Ground Inspections & Field-Level Investigations:
    • Strengthening collaboration between tax officers and enforcement agencies.
    • Conducting physical verifications of business premises and documents.

Understanding GST Special Drive 2.0: Concept, Legal Framework, and Misconceptions


The GST Special Drive 2.0, initiated through Instruction No. 02/2024-GST (dated August 12, 2024), is a targeted compliance initiative aimed at eliminating fraudulent GST registrations. However, many misconceptions surround this drive, particularly regarding the powers of GST officers.

Legal Foundation: Enforcement without New Powers

A crucial aspect of this initiative is that it does not introduce any new legal powers for GST officers. Instead, it reinforces and strictly enforces existing provisions of the Central Goods and Services Tax (CGST) Act, 2017, particularly those related to registration verification, inspections, and fraud detection. GST officers conducting verifications and investigations under Special Drive 2.0 must strictly adhere to the legal framework prescribed in the GST law, including:
    • Section 29 of the CGST Act, 2017 – Governing suspension and cancellation of GST registrations for non-compliant taxpayers.
    • Section 67 of the CGST Act, 2017 – Powers to inspect, search, and seize in cases of suspected tax evasion or fraudulent activities.
    • Section 71 of the CGST Act, 2017 – Powers to access business premises for auditing and examining records.
    • Rule 86A of the CGST Rules – Governing restrictions on fraudulent Input Tax Credit (ITC) claims.

Misconceptions about Special Drive 2.0

One of the most common misconceptions among businesses is the belief that this drive grants additional or arbitrary powers to GST officers. However, this is not the case. No new laws, amendments, or regulatory changes have been introduced under this drive. It simply strengthens the enforcement of existing provisions through a structured verification process.

Built-in Safeguards for Taxpayers

To prevent misuse of enforcement powers and ensure taxpayer protection, Special Drive 2.0 operates within defined legal safeguards, which include:
  1. Authorization Requirements:
    • Any inspection or search must be authorized by a Joint Commissioner or a higher-ranked officer under Section 67 of the CGST Act.
  2. Mandatory Documentation:
    • Officers must present a valid INS-01 form before initiating any inspection or verification.
  3. Taxpayer Rights:
    • Businesses have the right to request and retain a copy of the INS-01 form for future reference and legal protection.
By adhering to these safeguards, the government ensures that legitimate businesses are not harassed and that only fraudulent GSTIN holders face strict action under the law.

Scheme of the Drive:

A. Duration of Special Drive:


The second nationwide special drive is scheduled to be carried out by both Central and State Tax authorities from August 16, 2024, to October 15, 2024. The primary objective of this initiative is to identify and eliminate fraudulent or questionable GSTINs through an extensive verification process and corrective measures. The ultimate goal is to protect government revenue and preserve the integrity of the Goods and Services Tax (GST) system.

B. Detection of Fraudulent GSTINs:


In partnership with the GST Network (GSTN), the Directorate General of Analytics and Risk Management (DGARM), and the Central Board of Indirect Taxes and Customs (CBIC), advanced data analytics and risk-based criteria will be employed to identify potentially suspicious or high-risk GSTINs. These GSTINs will be flagged for further examination by both Central and State tax authorities. The concerned tax administrations will receive a jurisdiction-wise list of these flagged GSTINs for verification. In addition to the data from GSTN, tax authorities may incorporate their own findings from systems like BIFA, GAIN, ADVAIT, NIC Prime, E-Way Bill Analytics, as well as insights obtained from human intelligence, prior cases, and the first special all-India drive.

C. Steps for Tax Authorities:

  1. Verification of Identified GSTINs:
Upon receiving the flagged GSTINs from GSTN, tax officers are mandated to perform a detailed and time-bound verification process. If a taxpayer is determined to be fictitious or non-existent, the tax officer may proceed with the suspension or cancellation of the registration, as stipulated under Section 29 of the Central Goods and Services Tax (CGST) Act.
  1. Blocking of Input Tax Credit (ITC):
As per Rule 86A of the CGST Rules, tax officers have the authority to block the input tax credit in the Electronic Credit Ledger of the recipient. In cases where recipients have claimed ITC from non-existent or fraudulent GSTINs, those recipients will be identified through FORM GSTR-1.
  1. Demand and Recovery Process:
For GSTINs within the same jurisdiction, the concerned tax authority will initiate recovery actions for the wrongly claimed ITC. In cases where the recipient’s GSTIN belongs to a different jurisdiction, the details of the case will be forwarded to the relevant tax authority, utilizing the format provided in Annexure-B.
  1. Coordination Across Tax Jurisdictions:
To ensure smooth information exchange between different jurisdictions, each Zonal CGST Zone and State will appoint designated nodal officers. These officers will manage the communication and information-sharing process via the GSTN Back Office’s ‘Initiate Enquiry’ function in the Enforcement module.
  1. Guidelines for Functionality Use:
GSTN will issue detailed instructions regarding the proper use of the functionality for this drive to ensure uniformity and efficiency.
  1. Further Enforcement Actions:
In addition to the immediate steps mentioned, authorities will actively pursue the masterminds or beneficiaries behind these fraudulent GSTINs, including the collection of dues owed to the government and the potential attachment of properties or bank accounts under Section 83 of the CGST Act. Any linked suspicious GSTINs discovered during this verification process will also undergo similar actions.

D. Reporting and Feedback Mechanism:

  1. Weekly Reporting Requirement:

Every State and CGST Zone will be required to upload a report of the actions taken weekly to the designated portal. This report will be submitted by the nodal officer and should include information about GSTINs flagged by GSTN, as well as those identified locally by the respective tax authorities. This format is outlined in Annexure-A.

  1. Identification of Novel Techniques:

Any new tactics or methods discovered during the investigation should be reported. Upon completion of the special drive, GSTIN-wise feedback, containing details of the verification results, should be submitted to GSTN using the format found in  Annexure-C.

E. Details of Annexures:

  1. Annexure-A:

This annexure outlines the format for the action-taken report, which needs to be submitted weekly by each State and CGST Zone. This report should cover the actions taken on suspicious GSTINs identified by GSTN as well as those identified through local efforts by the tax authorities.

  1. Annexure-B:

This annexure provides the format for sharing case details when the recipient GSTIN belongs to a different jurisdiction. The case details will be forwarded to the respective jurisdiction using this format for necessary follow-up actions.

  1. Annexure-C:

This annexure outlines the format for submitting GSTIN-wise feedback on the verification outcomes at the end of the drive. The feedback will be shared with GSTN as part of the concluding phase of the special drive.

Challenges and Expected Outcomes


While GST Special Drive 2.0 is a powerful initiative designed to curb fraudulent activities within the GST framework, it is not without its challenges. The intricate nature of GST compliance, the sheer volume of registrants, and the continually evolving tactics employed by fraudsters make this a difficult task. However, leveraging data analytics and fostering coordination between various tax departments offers a practical solution to these challenges.

Challenges:

  1. Complexity of GST Compliance:
The GST system itself can be intricate, and navigating its numerous provisions, forms, and returns can be cumbersome for businesses. This complexity presents challenges for tax authorities to accurately distinguish between legitimate businesses and fraudulent entities.
  1. Vast Number of GST Registrants:
With millions of GSTINs in operation, identifying and verifying each one requires immense effort, manpower, and technological infrastructure. The number of stakeholders involved further complicates the verification and rectification processes.
  1. Evolving Fraudster Tactics:
Fraudsters are increasingly sophisticated, adapting to new systems and regulations. Their methods to create fake registrations and claim fraudulent Input Tax Credit (ITC) have evolved significantly, posing a continuous challenge for tax authorities.

Expected Outcomes:

  1. Enhanced Compliance:
By actively preventing fraudulent GST registrations, this initiative will likely promote greater compliance across the board. It aims to ensure that only genuine businesses are part of the GST system, thereby improving the overall credibility of the GST regime.
  1. Revenue Growth:
A primary objective of the special drive is to reduce ITC fraud, which leads to significant revenue leakage. By addressing this issue, the government expects to augment its GST collections and strengthen the financial base.
  1. Restoration of Trust:
This drive is set to restore public trust by ensuring that businesses under the GST system are legitimate and compliant. Such efforts will create a more level playing field, encouraging honest taxpayers to continue their operations without the fear of being undermined by fraudulent practices.

Case Laws in Support of the GST Special Drive:

  1. Case: Union of India v. M/s. Dharmani Dinesh & Company (2020)
In this case, the Delhi High Court dealt with the issue of fake GST invoices being generated for fraudulent Input Tax Credit (ITC) claims. The court upheld the need for stringent actions by the authorities against individuals found to be claiming ITC based on fraudulent invoices. The ruling emphasized the role of tax authorities in preventing revenue leakage and ensuring the integrity of the GST system, which aligns with the objectives of the GST Special Drive 2.0.
    • Relevant Sections: Section 16(2) (Conditions for claiming ITC), Section 83 (Provisional attachment of property)
  1. Case: M/s. VKC Footsteps India Pvt. Ltd. v. Union of India (2020)
In this case, the Supreme Court clarified that the power to block ITC under Rule 86A is a preventive measure against fraudulent claims, ensuring that tax authorities can act swiftly when fraudulent activities are suspected. This ruling is crucial in supporting the ongoing effort of the GST Special Drive to block ITC for fraudulent GSTINs identified during the drive.
    • Relevant Sections: Rule 86A (Blocking of Input Tax Credit), Section 16(2)(c) (Restrictions on ITC)
  1. Case: State of Gujarat v. M/s. Nirmal Lifestyle Ltd. (2021)
The Gujarat High Court addressed the issue of fraudulent GST registration and the improper availing of ITC. The court affirmed that any GST registration that is found to be fake or based on incorrect information should be immediately canceled, and any associated ITC claimed based on such fraudulent registration should be reversed. This aligns with the actions taken during the GST Special Drive to investigate suspicious GSTINs and block or reverse fraudulent ITC claims.
    • Relevant Sections: Section 29 (Cancellation of Registration), Rule 86A (Blocking of ITC)
These case laws emphasize the legal backing of the initiatives taken by GST authorities under GST Special Drive 2.0. The drive’s efforts to eliminate fraudulent activities align with judicial decisions that stress the importance of compliance, integrity, and effective enforcement within the GST framework.

Ending Note


GST Special Drive 2.0 marks a significant step in India’s ongoing efforts to combat GST fraud. Through a combination of advanced technology, field verification, and stringent enforcement actions, the initiative is aimed at safeguarding the integrity of the GST system. The drive’s focus on identifying and addressing fraudulent GSTINs will significantly contribute to the credibility of the system, thereby restoring public trust in the tax framework.

The government’s commitment to refining the GST system underscores its objective of creating a transparent and efficient indirect taxation system in India. However, businesses and tax professionals must recognize the importance of staying compliant with all regulations and remaining informed of any updates that emerge from this special drive.

In light of these developments, it is crucial for businesses to ensure their GST operations are fully aligned with the latest regulatory requirements. Staying compliant not only helps in avoiding penalties but also contributes to the overall integrity of the GST ecosystem.

For more detailed guidance on GST compliance and the latest updates, visit TaxGroww for expert consultations and in-depth articles. We are here to assist you in navigating the evolving landscape of GST law and ensure that your business stays on the right track. Stay informed, stay compliant, and take proactive steps to avoid potential pitfalls.

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