Govt gets power to roll out ‘Track & Trace’ mechanism to curb GST evasion

With the notification of the Finance Act 2025, the government has gained enabling power to introduce a Track & Trace mechanism to curb GST evasion during the new fiscal year beginning on Tuesday. The new mechanism aims to focus more on tobacco-related products, where evasion is very high.

The Finance Act 2025 has inserted a new provision (148A) in the CGST Act 2017. Accordingly, based on the recommendation of the GST Council, the government may specify the goods and the persons or classes of persons who are in possession of or deal with such goods to which the Track & Trace mechanism will be applied. The new provision will also establish a system for enabling the affixation of unique identification markings and for the electronic storage and access of information.

This development is a follow-up to a recommendation made by the GST Council in its meeting on December 21, 2024, in Jaisalmer. The proposed amendment is based on a recommendation by the GST Council in its meeting last month. This will provide a legal framework for developing such a system and will help in the implementation of a mechanism for tracing specified commodities throughout the supply chain, the recommendation added.

The annual report of the Directorate General of GST Intelligence for 2023-24 has noted five top evasion-prone goods as iron, copper, scrap and alloys; pan masala; tobacco, cigarettes, and bidis; plywood, timber, and paper; and electronic items, marble, granite, and tiles. However, officials say the proposed amendment is likely to focus more on tobacco-related products.

The proposed mechanism is based on the World Health Organization (WHO) protocol to eliminate illicit trade in tobacco products. It is proposed that all unit packets be required to be marked with a unique identifier. “The unique identifier may be non-sequential, non-predictable, and non-repeatable and may be required to be irremovably printed or affixed, indelible, and clearly visible,” the proposal stated.

The unique identifier, in the form of a tamper-proof security feature comprising both visible and invisible elements, should enable the authorities and consumers to verify authenticity. The requirement may apply to both locally manufactured and imported goods. The identifier will contain six key pieces of information—date, place, and factory of manufacture; the machine used in manufacturing; the production shift or time of manufacture; product description; quantity and maximum retail price; the intended market of retail sale; and any other relevant information.

Mapping the movements

Relevant persons involved in the trade of products, such as manufacturers, dealers, and wholesalers, may be required to record the movement of such products. The data will be transmitted to an independent provider appointed by the government or stored on government servers. However, retailers will not be required to have this system.

The data recorded will need to be made available to enforcement authorities. All manufacturers and importers will be required to enter into a data storage contract to enable the verification of collected information with an independent third party approved by the government.

The amendment has also prescribed a penal provision. This means a violation will lead to a penalty of ₹1 lakh or 10 per cent of the tax payable on such goods, whichever is higher. Additionally, it may specify that the cost of implementing the Track & Trace system may be recovered from the person engaged in the trade through a fee or charge for the generation of a unique identifier.

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