Standard Operating Procedure (SOP) for verification of taxpayers granted deemed registration

CBEC recently issues SOPs for verification of taxpayers where GST registration has been granted on deemed registration basis. As per revised procedure, at the time of filing of application of GST registration, Aadhar Authentication should be done for Authorised signatory. For this purpose, Aadhar Number is used as a common Unique Identification number which helps in linking statutory information available on different portals such as Income tax department, Bank Accounts etc.

To ease the GST registration and fasten the GST registration process, With effect from 21st August, 2020, a mandatory feature of “Aadhar Authentication” has been added for GST registration. 

As per Rule 9 of Central Goods and Service Tax Rules, 2017, in cases where Aadhar Authentication is not done or failed then:

1. GST registration is granted post physical verification of place of business of the applicant; or
2. In cases where it is difficult to verify the place of business, then registration can be granted after collecting certain additional documents subject to approval of officer not below the rank of Joint Commissioner.

However, if no notice is issued by concerned officer within 21 days of filing of application for registration, then a deemed GST registration is granted to the applicant.

As per GST database data, during the period of 21st August, 2020 to 16th November, 2020, various GST registrations were granted on deemed approval basis where Aadhar Authentication was not done or failed. Therefore, a physical verification is required of the place of business of all such registrations to ensure that any business activity is being carried out at these premises or proposed to be carried out.

For the purpose of completing verification process of deemed registration, Central Board of Indirect Taxes and Customs (“CBIC”) has issued a Standard Operating Procedure (“SOP”) on 27th November, 2020 vide Instruction No. 4/3/2020-GST

Gist of procedure issued under SOP is as follows:

1. Zone wise List of all registration approved on deemed basis has been circulated to all field formations by the DG, systems.

2. Rule 25 contains provisions related to physical verification including verification after granting registration. CBIC has directed that in all deemed approval, it is mandatory to carry out post registration verification. On verification, if the proper officer has reasons to believe then he may proceed for cancellation of such registration certificate.

3. Pending physical verification, a notice shall be issued in form GST REG-17-”Issue a notice requiring to show cause that why GST registration should not be cancelled” in following cases:

4. Where the taxpayer has filed GSTR-1. However, GSTR-3B is not filed either for the month of August or September, 2020;
5. Where difference tax amount reported in GSTR-1 is higher than tax amount reported in GSTR-3B and where difference in such tax amount is more than INR 1 Lacs
6. Upon submission of reasons for difference and anomalies, the proper officer shall handle the proceedings as per Rule 22 of CGST Rules

1. Procedure for carrying out verification

1. All verification shall get completed within 3 weeks from date of issue of these instructions according to Standard Operating Procedure issued.

2. Proper officer shall conduct the physical verification at principal place of business and wherever possible, at additional place of business, as given in GST registration Certificate (GST REG-01) itself. During physical verification, in addition to other things, the officer shall the following points mandatorily.
3. Where assessee is engaged in manufacturing activity, whether capital Goods required for the purpose of manufacturing have been installed at place of business.
4. Electricity bills have been paid for the relevant period or not.
5. Does the size of premises is in accordance with the activity carried out by the applicant.
6. Whether the premises is self-owned or rented and whether all documents related to ownership and registered lease are complete for such property. In case of doubt, further verification can be made from the Landlord or owner of the premises.
7. Number of employees working and data of employees as per records. Whether both data are same and in case of any difference, reason for such difference.
8. PAN and Aadhar Card of the applicant and its Proprietor, partners, karta, directors and authorised signatory, as the case may be.
9. Bank’s letter for upto date KYC.
10. For the interest of revenue, in addition to physical verification, the proper officer shall carry out the preliminary financial verification of the registrants by collecting following information and documents and carrying out initial scrutiny of the same:
11. ITRs of the company/LLP from the date of incorporation or for last three financial years, whichever is less. 
12. In cases of Proprietorship concern or HUF or Partnership firm,, ITRs of proprietor, partners, Karta, etc. may be taken.
13. The status of activity from the date of registration of all the bank account(s) linked to registration.  Such information may be taken through a letter/undertaking from the applicant. Phone number declared/linked to each of the bank accounts may also be obtained.
14. Quantum of capital employed/proposed to be employed.
15. Bifurcation of total capital employed in following amounts:
    1. Own funds or
    2. Borrowed Funds
16. In case of borrowed funds, additional details should be obtained of names, complete address, PAN and amount borrowed of all lenders separately.
17. In case of own funds, also check the audited balance sheet for the previous financial year, where available, in addition to the Income Tax Returns mentioned.
18. In case of loan, also check the proposal submitted to the Bank/FI for approval of the loan and the maximum permissible bank finance as per such proposal, where the amount is proposed to be borrowed from a Bank and/or FI.
19. Therefore, all Field formations are advised that in cases where the applicant has not opted for Aadhaar authentication or where such authentication has failed, there should not be any case where registration is granted on deemed approval basis.