The Delhi High Court has given the Centre and Delhi Police a final opportunity to devise an effective mechanism to curb fraudulent Goods and Services Tax (GST) registrations obtained by misusing the Permanent Account Number (PAN) and Aadhaar details of unsuspecting citizens.

 

A Bench of Justices Anil Khetarpal and Shail Jain passed the order while hearing two petitions, including one filed by Neha, in which allegations were made that another person had obtained a fraudulent GST registration using the petitioner’s PAN and Aadhaar details.

 

The court noted that this was the second such case before it and observed that, if the allegations were correct, there appeared to be “rampant” fraudulent GST registrations in the names of innocent persons, resulting in substantial tax liabilities being created against them.

  

Following its earlier order, the court had sought assistance from senior advocate Tarun Gulati on measures that could prevent misuse of PAN and Aadhaar particulars. Gulati subsequently placed a set of suggestions before the court.

 

Among the proposed safeguards is mandatory facial recognition of every GST registration applicant against the Aadhaar database.

 

Another suggestion is video-based verification under which an applicant would upload a 20-30-second video showing their face along with the original PAN and Aadhaar cards and read out a system-generated prompt containing their details and a unique code.

 

The suggestions also include recording and preserving the IP address and device location used to submit a GST application. This information would be retained by the GST portal and the jurisdictional authority so that it could be accessed if the identity of the person who filed the application is subsequently disputed.

 

The court was also presented with a proposal for mandatory physical verification of the proposed principal place of business before granting GST registration. Alternatively, random physical inspections of GST-registered businesses could be carried out twice a year based on a risk-evaluation system.

 

Other proposed measures include real-time data sharing between the GST and Income Tax departments, with an immediate alert to a PAN holder whenever their PAN is used for GST registration.

 

The system could also flag sudden and significant increases in turnover and cross-check whether an Aadhaar holder actually knows about the business and principal place of business being registered using their details.

 

The suggestions further include alerts through DigiLocker, creation of specific risk parameters for PAN-Aadhaar mismatches and first-time use of PAN or Aadhaar for GST registration, and requiring applicants to nominate identifiable persons who can corroborate their identity and the existence of the proposed business.

 

The Bench recorded that the respondents did not dispute that fraudulent GST registrations using the PAN and Aadhaar details of innocent citizens had been a rampant problem since the enforcement of the Central Goods and Services Tax Act, 2017.

 

The court noted that nearly nine years had passed, but the authorities had failed to curb the malpractice, which not only affected citizens with no connection to the registrations but also caused substantial revenue loss to the government.

 

The court also expressed concern that an officer deputed by the Delhi Police to assist it was unaware of the issue despite the seriousness of the problem.

 

Granting the Commissioner of CGST, Commissioner of DGST and Commissioner of Delhi Police a final opportunity to find an effective solution, the Bench warned that, failing this, it would have “no choice” but to pass appropriate and effective orders.

 

The matter has been listed for September 8.

 

Reacting to the order, Ikesh Nagpal, Lead-Indirect Tax, AKM Global, a tax and consulting firm, said, “An innocent individual could find themselves explaining tax liabilities from a business they never operated. The order is particularly significant because the Court is placing responsibility on the concerned institutions to find an effective and coordinated solution. The real opportunity is to build a system where individuals are alerted immediately when their PAN or Aadhaar is used for GST registration, and suspicious registrations are stopped before they create consequences for innocent taxpayers.”