Unbridled powers for physical verification for gst registration

1. Before 23-03-2020, physical verification of place of business could be done only post-registration. It means physical verification of the place of business was not a pre-condition for registration.

2. W.e.f. 23-03-2020, failure of aadhar authentication before the grant of registration was declared ground for physical verification. The aadhar authentication was however put in place on 21-08-2020 and hence till 20-08-2020, the physical verification of business place before registration was not being done.
3. W.e.f. 21-08-2020, physical verification could also be made for failure to opt for aadhar authentication besides failure of aadhar authentication in spite of opting for aadhar authentication. However, if physical verification is sought for any other reason, then Rule 25 did not permit such a venture.

4. Now amendments have been made w.e.f. 22-12-2020 in cases other than relating to the failure of aadhar authentication, the physical verification can resort to pre-registration. Interestingly though such pre-registration verifications are required to be done in a manner specified in Rule 25, Rule 25 does not permit such pre-registration verification for cases other than aadhar authentication failures.

5. Before carrying out physical verification, approval of an officer not below the rank of Assistant Commissioner is required. However, an officer of the rank of Assistant Commissioner or higher in rank can grant approval for physical verification only if such approving officer is also authorized on this behalf by Commissioner.

6. No reason needs to be assigned for carrying out this pre-registration physical verification. Any case “deemed fit” for physical verification is actually fit for such verification.

7. Physical verification can be carried out within 30 days from the date of submission of application and as per Rule 8(4A), presently in vogue, the date of submission of the application in such cases shall be the date of authentication of the Aadhaar number, or fifteen days from the submission of the application in Part B of FORM GST REG-01, whichever is earlier.

8. Presence of a concerned person is necessary.

9. Besides physical verification of business premises verification of documents as the deemed fit may also be carried out by the proper officer.

10. In this regard it may be noted that SOP was issued by CBIC 27-11-2020 for cases where deemed registrations have been granted between 21-08-2020 to 16-11-2020.
SOP required that During the physical verification, the officer, among other things, would also verify the following details:

a. In case the applicant intends to carry out manufacturing activity, whether capital goods if required for the said manufacturing activity, have been installed.

b. Electricity connection, bills paid in the relevant period.

c. Size of the premises – whether it is commensurate with the activity to be carried out by the applicant.

d. Whether premises is self-owned or is rented and documents relating ownership/ registered lease of the said property. In case of doubt, the inquiry may also be made from the landlord/ owner of the property in case of rented/leased premises.

e. No of employees already employed and record of their employment

f. Aadhaar and PAN of the applicant and its proprietor, partners, Karta, Directors as the case may be, and the authorized signatories.

g. Bank’s letter for up to date KYC.

In addition to the physical verification conducted, the proper officer, in the interest of revenue, would carry out the preliminary financial verification of the registrants by seeking the following documents and carrying out its scrutiny:

a. ITRs of the company / LLP from the date of incorporation or for the last three financial years, whichever is less. ITRs of proprietor, partners, Karta, etc. may be taken in other cases.

b. The status of activity from the date of registration of all the bank account(s) linked to registration; the same may be taken through a letter/undertaking from the applicant. Phone number declared/linked to each of the bank accounts may also be obtained.
c. Quantum of capital employed/proposed to be employed.

d. Out of the amount mentioned at (c) above:
(i) Own Funds:
(ii) Loan Funds: (indicate the names, complete address, PAN, and amount borrowed from each such lender separately):

e. 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 in (a) above.

f. In case of loan funds 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.
The registration procedure could not have been made more complicated.