GST has wrapped multiple taxes into its arm. It is very important to have rules in place to ens...
In recent years, many fraudulent cases of claiming input tax credit (ITC) are brought to the notice of GST authorities. It is seen that registered suppliers under GST follow a tendency to obtain fake invoices to claim ITC dishonestly. This is done to reduce their net GST liability.
A fake GST invoice is usually issued deceitfully by persons who do carry on any business or profession in reality. Such false invoices are prepared without the actual supply of goods or services to the registered GST supplier. As a matter of fact, the GST charged on those invoices is neither paid nor intended to be paid.
One of the most prevalent malpractices followed by taxpayers is to set up dummy entities for issuing fake invoices and creating illegal input tax credit. These practices of using a fake GST invoice cause a massive loss to the tax base of the Government.
Under the CGST Act, a tax invoice is to be issued before/at the time of the supply of goods or services. However, some taxpayers do not issue invoices for the supply of goods and services so as to avoid payment of taxes. This results in an illegal supply as the same is made without charging and paying GST. In addition, the GST Council has been noticing instances where the taxpayers skillfully exploit definitions and their interpretations to attract lower tax rates in their favor. For example, disclosing branded products as non-branded products to pay a lower tax is one such practice.
Another standard method adopted by taxpayers to reduce the tax outgo is to register bogus firms, produce fake GST invoices without any actual movement of goods and then using these invoices to claim input tax credit fraudulently. However, GST provisions contain a condition for the recipient to claim ITC, that the products or services should be actually received. Thus, claiming of ITC without actual receipt or supply of goods is not legal.
Furthermore, unregistered suppliers are also found to issue tax invoices against an invalid GSTIN and collect GST from their customers. It results in a contravention of the CGST Act since unregistered persons are not authorized to collect GST from their customers.
Some stringent provisions are invoked in the income tax and GST laws to deal with all fraudulent arrangements. These are as under:
• “Making a supply without issuing an invoice or upon issuance of a false/incorrect invoice;
• Issuing an invoice without making supply;
• Availing or utilizing credit of input tax without actual receipt of goods and/or services;
• Obtaining any fraudulent refund;
• Evasion of tax by fraudulently availing ITC or obtaining refund by an offence not covered under above clauses;
• Furnishing false information or falsification of financial records or furnishing of fake accounts/documents with an intent to evade payment of tax”
• For tax evasion exceeding Rs. 5 crore or for repeat offender with 250 lacs – 5 years imprisonment and fine
• For tax evasion between Rs. 2 crore and Rs.5 crore – 3 years imprisonment and fine
• For tax evasion between Rs.1 crore and Rs.2 crore – 1-year imprisonment and fine
• For false records, obstructing officer and tampered records – 6 months imprisonment
• A fictitious invoice or a fake piece of documentary evidence
• An invoice for supply or receipt of goods or services issued by a person without an actual supply or receipt of products or services
• An invoice for supply or receipt of goods or services to or from a non-existent person
Taxpayers exploit different loopholes in the GST system to take undue advantage of the system with an intention to evade taxes. Since the cases of issuing a fake GST invoice are increasing, it is the need of the hour for the GST authorities to trap these cases. To weed out fake GST invoices, a proper mechanism for matching of invoices is imperative. Various measures are taken by the Central Government to discourage manipulation of books of accounts done by the taxpayers under GST to fraudulently claim a wrong ITC.