CGST Act Needs to be Amended

Yes — the evidence strongly supports a view that the CGST Act needs to be amended (or at least significantly refined) to plug the evident registration/ITC‑fraud gaps. The scale of suspected fake accounts and bogus ITC is too large to ignore. However, an amendment on its own is not sufficient; it must be accompanied by strong administrative enforcement, technological infrastructure and balanced safeguards for legitimate taxpayers. more  

Implementation matters: Even if law is amended, unless administrative capacity (verification, data analytics, enforcement) is ramped up, fraud may continue. Risk of over‑burdening small legitimate businesses: If verification becomes too onerous, it may hamper registration/start‑ups. The amendment design must calibrate risk‑based approach. Balancing rights of taxpayers: While curbing fraud, legitimate firms must have fair appeal mechanisms and non‑arbitrary treatment. Coordination between Central & State authorities: GST is a joint model — amendments must be implemented uniformly across states. Technological integration: Data analytics, e‑way bill tracking, supplier‑buyer data reconciliation systems need to keep pace. more  

Benefits if amendments are effective Reduced revenue leakage: fewer fake firms, fewer bogus ITC claims, better tax base integrity. Improved trust and fairness: legitimate taxpayers see fewer unfair competitors, less misuse of system. Better data quality: registration base becomes more accurate, which helps enforcement, policy‑making. Enhanced investment climate: as tax system becomes more credible, business confidence improves. more  

Require Aadhaar‑authentication + premises verification for registration of “high‑risk categories” (e.g., new firm, no prior history, large ITC claim). Introduce a new section: “Suspended/Probationary registration” for e.g., 12 months, during which ITC claims limited to X%. Increase minimum penalty for fraudulent ITC claim (e.g., minimum ₹X crore or double the credit claimed) and make key directors liable under criminal law. Amend Act to mandate real‑time linkage of supplier’s GSTR‑1/GSTR‑3B with buyer’s ITC claim — and deny ITC if supplier non‑filing. Enable automatic cancellation of registration if no physical verification within 90 days or flagged as zero‑return for Y months. Provide for fast‑track tribunal/appeal mechanism (building on rules for Goods and Services Tax Appellate Tribunal) so that disputed registrations or refunds don’t remain hanging. The Times of India Expand definition of “fraudulent registration” in the Act to cover use of another’s identity, shell companies, fake invoicing, etc. more  

https://www.dailypioneer.com/2025/columnists/punjab-industries-struggle-under-inverted-duty-pressure.html Monday, 06 October 2025 | AS Mittal "Punjab industries struggle under inverted duty pressure The recent rationalisation of the Goods and Services Tax (GST) slabs-removing the 12 per cent and 28per cent brackets and consolidating them into 5 per cent and 18 per cent-was widely hailed as a leap toward simplification. On paper, it promised efficiency, transparency, and predictability. Yet, for industries operating under the Inverted Duty Structure (IDS), the celebration has been short-lived. In Punjab, where several industries, including tractors, farm implements and various ancillary sectors, form the backbone of the industrial economy, the restructuring has inadvertently created a liquidity crisis that could threaten the state's much-anticipated industrial revival. The IDS Trap: Paying More, Receiving Late Under the inverted duty tax structure, industries pay a higher GST on raw materials-such as steel, rubber, plastics, and other critical inputs-while their final products attract a lower GST rate. For example, a tractor or farm implement manufacturer today pays 18per cent GST on inputs but is allowed to charge only 5per cent on the finished product. The difference is legally refundable under IDS, since otherwise the principle of tax neutrality collapses. In theory, this system ensures fairness by preventing cascading taxes. In practice, however, in Punjab, the delay in refunds-often stretching over six months-blocks working capital, throttling an industry's ability to reinvest in production, wages, and innovation. For sectors like farm machinery and others operating on thin margins, this is not just an accounting inconvenience; it is a systemic choke on cash flow. The result is twofold firstly, liquidity crunch — companies borrow at high interest to cover daily operations. Secondly, Competitiveness loss — delayed refunds raise effective costs, making Punjab's products less competitive compared to states or sectors in not caught in the IDS web. Punjab's industries are not new to this hardship. Refund delays have long been a feature of GST administration. But with the GST slab restructuring, the magnitude of the problem has grown, and unless timely intervention comes from the state, the cash crunch could deepen into an industrial slowdown. For ease of doing business, Punjab government rightly initiated consultations with stakeholders. Expectations are high that this initiative will set the tone for attracting investment and reviving Punjab's industrial spirit. Yet, if the inverted duty refund problem is not resolved, all other ease-of-doing promises may ring hollow. Timely Input Tax Credit (ITC) refunds are not a matter of largesse but of legally guaranteed entitlements. The GST framework itself recognises that IDS refunds are essential to prevent tax accumulation. Industries cannot be asked to fund the state's fiscal management by indefinitely waiting for refunds. Punjab must establish a systematic framework for timely disbursement while negotiating adjustments with the Centre separately. A state aspiring to be an industrial hub cannot afford to send the signal that its manufacturers' cash flow is hostage to bureaucratic cycles. Beyond Cash Flow Ultimately, the issue is larger than refunds. It is about trust. Investors and entrepreneurs judge a state not just by incentives on paper but by how predictably policies are implemented. If industries under IDS continue to suffer cash blockages and discriminatory exclusions, Punjab risks undermining its credibility as a manufacturing destination. Following the rationalisation of the GST slabs, its right time for Punjab to correct course. By ensuring timely refunds and eliminating unjust exclusions, the government can not only rescue its industries from a looming cash crunch but also rebuild the credibility of its industrial governance. For a state that prides itself on being India's food basket and aspires to be a manufacturing hub, nothing less will do. The Centre, recognising the problem, has recently announced its intention to streamline IDS refunds, aiming to process claims within a week once all documentation is complete. Punjab must not only welcome this reform but also complement it with state-level interventions. A comprehensive roadmap could rest on three pillars: 1. Time-Bound Refund Mechanism Under the revised GST slabs, as of from November 1, the central government aims to streamline the ITC refund within a week. Punjab should codify a statutory timeline for IDS refunds, ideally 10-15 days, with automatic approval if no queries are raised within that period. To instill accountability, penal interest should apply to refunds pending beyond 30 days. This would create certainty in cash flows and prevent industries from relying on expensive working capital loans. 2. Digital-First Processing While GST is already digital, refund applications often get stuck in multiple rounds of clarifications and document resubmissions. Punjab can introduce an "auto-validation" mechanism that cross-checks input and output GST credits seamlessly through the GSTN system. A state-level help desk, staffed with trained officers, can be dedicated solely to IDS refund issues, ensuring industry grievances are resolved without red tape. 3. Centre-State Alignment Since the Centre controls the GST pool, Punjab must proactively negotiate smooth fund adjustment for refunds. A joint working group between the state's finance department, GST administration, and industry's department could serve as a standing platform to address IDS refund backlogs, while keeping industry liquidity intact. Way forward Fixing the timely input tax credit refund to the industries operating under the inverted duty structure bottleneck is not a concession but a governance correction-one that will decide whether Punjab revives its industrial dynamism or slips deeper into stagnation. By establishing time-bound refunds, leveraging digital tools for faster processing, and aligning closely with the Centre, Punjab can demonstrate that it is serious about being a predictable, investor-friendly state. For a region that has historically fueled India's food security, ensuring timely tax refunds for its industrial backbone is the least it can do to secure its economic future." The Author is Vice-Chairman (Cabinet minister rank) of the Punjab Economic Policy and Planning Board, Chairman of ASSOCHAM Northern Region Development Council more