CBIC issued directions on SOP for verifying taxpayers granted deemed registration

Below mentioned are the instructions issued by the Central Board of Indirect Taxes and Customs regarding the Standard Operating Procedures (SOP) for authentication of taxpayers granted deemed registration, with effect from 21.08.2020:

1. Rule 9 of the Central Goods and Services Tax (CGST) Rules, 2017 states that in cases where Aadhaar verification has either been opted out or where Aadhaar verification has failed, a physical verification of the premises is to be mandatorily initiated by the proper officer, or in cases wherein it’s difficult to perform physical verification, the proper officer may call out for additional documents (post acquiring approval from an officer not below the rank of Joint Commissioner) to carry out a thorough verification before grant of registration. Additionally, the current provisions permit for deemed registration upon termination of 21 days of application, in cases where the concerned proper officer has not issued a notice within the mentioned 21 days.

2. According to the data collected, beginning from 21st August, 2020 until 16th November, 2020 deemed registration was granted in many cases where either Aadhaar verification was not opted for or it had failed for certain reasons. Such permitted deemed registrations are required to be verified to authenticate the genuineness of business operations. And in order to do that, following instructions have been issued for immediate compliance:

3.1 The DG, Systems have circulated a list of granted registrations to the field formations. These deemed registrations were granted on approval basis, zone wise, during 21st August, 2020 to 16th November, 2020.

3.2 According to Rule 25 of the CGST Rules, physical verification of business premises is provided for in certain cases and is also included post grant of registration. All deemed registrations granted during the above mentioned time period are mandatorily subjected to post registration verification. Moreover, post such a verification, if the proper officer acquires reasons to state that the registration is liable for cancellation then the proceedings for the same should be initiated under Rule 22 of the CGST Rules.

3.3 For pending physical verifications, a notice in the FORM REG-17 can be issued in certain cases based on the below mentioned risk parameters, for the purpose of acquiring a detailed explanation from the registered business, or person, concerning the observed anomalies and differences:

• In cases where FORM GSTR-1 has been filed but FORM GSTR-3B has not been filed either for the tax month of August or September, 2020.
• The tax amount, as reported in FORM GSTR-1 and FORM GSTR-3B, shows a difference of more than Rs. 1 lakh (R1>R3B).

On receiving a reply to the sent notice, the proper officer is to complete the proceedings under Rule 22 of the CGST Rules.

3.4 All the verifications are to be concluded within 3 weeks from the date of issued instructions. The Zonal Chief commissioners have the liberty to redirect staff from one formation to another within the zone for the fulfillment of the given task. A detailed weekly status report is to be submitted to the Board in an enclosed format.

4.1 A proper officer must follow the below mentioned SOP to carry out the physical verifications of those that have been granted a deemed registration.

4.2 A physical verification should be carried out by the proper officer of business locations as mentioned in the GST registration FORM REG-01 of the concerned applicant. During such a verification, the following details, along with others, are also to be verified:

• Whether or not capital goods have been installed in cases where the registrants intend to carry out manufacturing activities;
• If electricity connection has been paid off for the relevant time period;
• Whether the size of the premises is justified for the business activities to be carried out;
• If the business property documents, regardless of whether the property is owned or rented, are thoroughly maintained. Further enquiry may be carried out by the proper officer, in case of any doubt;
• Maintained records of employment of all the employees;
• Aadhaar and PAN cards of the registrant as well as proprietor(s), partner(s), Karta, Directors, if applicable, and authorized signatories are to be thoroughly checked;
• Proof letter from bank concerning the up to date KYC.

4.3 Along with the physical verification, a preliminary financial verification of the applicants is to be carried out by the proper officer. Following are the documents to be called out for the same:

• Complete ITRs of the company/LLP, either from its date of incorporation or for the preceding three financial years, whichever is less. In some cases, the ITRs of partners, proprietors, Karta, etc. may be verified as well.
• A letter or an undertaking is to be submitted by the registrant mentioning the status of activities of all linked bank accounts, from the date of registration. Phone numbers linked to the accounts may also be acquired for a thorough verification.
• Amount of capital already employed or proposed to be employed, distinctively mentioned in the categories: Amount of Own Funds; and Amount of Loan Funds (by separately mentioning the name, entire address, PAN number and amount borrowed from each person).
• In case of Own Funds, the audited balance sheet of last financial year, if applicable, is also to be verified along with the filed ITRs.
• In case of Loan Funds, verify the proposal submitted to the concerned bank/financial institution for loan approval and the maximum loan amount permissible by the bank.

5. In cases where the registrant has not opted for Aadhaar verification or where this verification has failed, the Field Formations are not to grant deemed registration on approval basis, at any cost.

6. If any difficulties are faced in carrying out these instructions, then the same may be reported to the Board (gst-cbec@gov.in).

7. Issued with the approval of the Chairman, CBIC.