What is the Track & Trace Mechanism introduced under GST?

The Track & Trace Mechanism is a new compliance system introduced by the GST Council to prevent tax evasion. It involves applying a Unique Identification Mark (UIM) on certain high-risk products like tobacco. This secure, tamper-proof code helps authorities track every stage of the product’s journey—from manufacturing to sale.

How does the Unique ID system help in reducing tax evasion?

Each UIM captures critical information such as the product type, manufacturing date, location, production shift, quantity, and MRP. This makes it easy for tax officials to verify if the declared supply and actual movement match, leaving less room for underreporting or manipulation in GST filings.

Which products will have to use this Unique ID?

Initially, the system is being rolled out for tobacco products, which are known for high tax evasion risks. However, the GST Council may expand it to other sectors prone to under-invoicing and black-market trade, such as pan masala, soft drinks, or other sin goods.

What happens if a manufacturer or seller fails to comply?

Non-compliance with the Track & Trace Mechanism can lead to strict penalties. A business can be fined either ₹1 lakh or 10% of the tax payable—whichever amount is higher. This makes compliance legally and financially crucial for all stakeholders involved.

Is this system based on international standards?

Yes, the mechanism is inspired by the WHO's Protocol to Eliminate Illicit Trade in Tobacco Products, which promotes global tracking systems. India’s version aligns with this framework, aiming to control illegal trade, ensure fair competition, and improve overall tax transparency.

What is the Track & Trace Mechanism introduced under GST?

The Track & Trace Mechanism is a new compliance system introduced by the GST Council to prevent tax evasion. It involves applying a Unique Identification Mark (UIM) on certain high-risk products like tobacco. This secure, tamper-proof code helps authorities track every stage of the product’s journey—from manufacturing to sale.

How does the Unique ID system help in reducing tax evasion?

Each UIM captures critical information such as the product type, manufacturing date, location, production shift, quantity, and MRP. This makes it easy for tax officials to verify if the declared supply and actual movement match, leaving less room for underreporting or manipulation in GST filings.

Which products will have to use this Unique ID?

Initially, the system is being rolled out for tobacco products, which are known for high tax evasion risks. However, the GST Council may expand it to other sectors prone to under-invoicing and black-market trade, such as pan masala, soft drinks, or other sin goods.

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Track & Trace Mechanism: Unique ID Number On Selected Goods To Reduce Tax Evasion

Pragya Pathak

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Updated: 28-01-2025 at 7:33 AM

Track & Trace Mechanism: Unique ID Number On Selected Goods To Reduce Tax Evasion

The tax system is one of the most important components of an economy. It helps the country develop and grow, which directly benefits the people of the country. The government of India introduced the Goods and Service Tax (GST) in the year 2017 to organise the complicated tax system of a vast and rich country like India. It has streamlined the country's tax system and improved transparency and accountability. But still one of the biggest challenges that Goods and Service Tax faces is attempts of tax evasion by the people.

To reduce the chances of people evading taxes, the GST Council has recently introduced the Track and Trace Mechanism wherein a Unique Identification Marking (UIM) will be assigned to certain goods like Cigarettes and maybe Pan Masala later. The reason behind doing so is simply to tackle attempts of tax evasion as per the Central GST Act.

What Is The Track And Trace Mechanism?

The Chairman of the GST Council of India, SMT Nirmala Sitharaman, recently approved and announced a new system called the Track and Trace Mechanism. Under the Track and Trace Mechanism, a Unique Identification Marking (UIM) will be assigned to certain goods, such as cigarettes and maybe pan masala later to tackle attempts of tax evasion.

The Unique Identification Marking would help the government in tracking the movement of particular goods across the nation.

Why Is The Track And Trace Mechanism Introduced?

Tax evasion is not a new concept or phenomenon. People have been finding creative ways to avoid paying any taxes on certain goods and services, such as steel, tires, and the real estate sector.

The main reason for the GST Council to choose cigarettes as the first product under the Track and Trace Mechanism is the rate of smuggling. As per the Central Board of Excise and Customs, smuggled cigarettes of around 180 crore have been seized by the authorities, and every year the govt bears a loss of around 21000 crore due to illegal cigarette trading. The World Health Organisation (WHO) also has a Convention on Tobacco Control to reduce and eventually eliminate the instances of illegal cigarette trading.

The GST Council’s decision to choose cigarettes as the first product to have UIM is a clever move that will give an opportunity to firms like Honeywell and Dentsu to design some kind of technology-friendly solution to tackle attempts of tax evasion and reduce the rates of illegal cigarette trading.

Conclusion

The newly launched Track and Trace Mechanism aims to tackle tax evasion attempts and reduce the rates of illegal cigarette trading by allotting a Unique Identification Marking (UIM) to track the movement of the product across the nation.

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