Track and Trace Mechanism under GST!

During the 55th meeting of the GST Council, Union Finance Minister Nirmala Sitharaman proposed an amendment to the Central Goods and Services Tax (CGST) Act, 2017, by introducing Section 148A. This provision aims to empower the government to enforce the Track and Trace Mechanism for specified commodities prone to tax evasion. By implementing this system, the government seeks to enhance transparency, curb tax leakage, and ensure better compliance within the GST framework.

Let’s dive deep into this!

What is the Track and Trace Mechanism (TTM)?

The Track and Trace mechanism involves monitoring goods and services through the entire supply chain from manufacturer to end consumer using digital records and technological tools. Under GST, this system tracks the movement of goods via e-way bills, e-invoicing, and real-time tax filing, allowing tax authorities to detect discrepancies and ensure compliance.

What is newly introduced section 148A?

To implement the initiative of TTM, the Union Budget 2025-26 proposed inserting Section 148A into the Central Goods and Services Tax Act, 2017. This provision grants the government the authority to specify persons or goods for which a Unique Identification Marking system may be applied. The system would involve encoding specific information within the marking, allowing for electronic storage and access to enhance traceability. Entities covered under this scheme would be required to affix these markings on goods or packaging, maintain records, provide details of installed machinery and its capacity, and fulfill other compliance requirements. Additionally, corresponding amendments to GST laws—including defining key terms and introducing penalties for non-compliance—have been proposed to ensure effective implementation and enforcement of the scheme.

Key Components of the Track and Trace Mechanism:

1. E-Way Bills:
   
   • Mandatory for the transportation of goods worth over a specified value.
   • Ensures goods are moved with proper documentation, reducing the risk of tax evasion.
   • Allows authorities to track the real-time movement of goods.
2. E-Invoicing:
   
   • Standardized invoicing for businesses exceeding a prescribed turnover threshold.
   • Invoices are reported to the Invoice Registration Portal (IRP) and validated with a unique IRN (Invoice Reference Number).
   • Ensures that only genuine invoices are used for ITC claims.
3. GST Returns (GSTR-1, GSTR-2A, GSTR-3B):
   
   • Real-time matching of supplier and buyer data to prevent fraudulent ITC claims.
   • Cross-verification of sales, purchases, and tax payments through return filings.
4. QR Codes and Digital Authentication:
   
   • QR codes on B2C invoices for businesses with high turnover.
   • Enhances invoice authenticity and simplifies tracking for consumers and authorities.

Objectives of the Track and Trace System

1. Curbing Tax Evasion: Real-time tracking helps prevent practices like fake invoices, underreporting of turnover, and misrepresentation of transactions.

2. Enhancing Transparency: Ensures every transaction is visible and validated, keeping the supply chain accountable.

3. Improving ITC Management: Verifies the legitimacy of input tax credit claims by matching purchases and sales data.

4. Streamlining Compliance: Reduces the paperwork burden by promoting digital documentation and automation.

5. Reducing Audit and Reconciliation Time: Digital records make compliance checks and audits faster and more efficient.

Impact on Different Sectors

1. Manufacturing: Tracks the movement of raw materials and finished goods efficiently.
2. Retail Chains: Ensures proper ITC distribution across multiple locations.
3. E-Commerce: Tracks high-volume digital transactions with increased accuracy.
4. IT and Consulting Firms: Ensures proper invoicing and ITC for services rendered across states.
5. Logistics: Facilitates efficient tracking of consignment movement with e-way bills.

Conclusion

The Track and Trace mechanism under GST represents a transformative step toward building a more transparent, efficient, and accountable tax system. By integrating digital tools like e-way bills, e-invoicing, and real-time tax return matching, this system minimizes tax evasion and ensures the authenticity of transactions across the supply chain. It simplifies compliance for businesses, enhances the accuracy of input tax credit claims, and reduces audit complexities. As industries like manufacturing, retail, e-commerce, and logistics adopt this mechanism, it fosters a culture of fair tax practices and strengthens the overall integrity of the GST framework. 

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