Though GST has been majorly successful in achieving these objectives but has also caused serious concerns relating to fraudulent transfer of Input tax credit by means of FAKE INVOICING.

FAKE INVOICE is basically a TAX INVOICE issued in such a manner that it fulfils all the basic requirements of a TAX INVOICE as specified in the GST act and rules but with the catch that there is no underline supply of goods or services.

Though GST act has adequate provisions to combat such fake invoicing it still is very difficult to catch hold of such fake invoicing for the reason that the perpetrators of such crime also take adequate care of covering their tracks. The technological infrastructure and analytical resources has helped the department unearth multiple occasions of such fake invoicing. Owing to the robust infrastructure even if a single person from the supply chain is caught then every participant to the supply chain comes to peril.

Let`s understand this with the help of an example, so let`s say there is a dealer of cement who usually sells cement bags to B2C customers and receives the consideration for such sale in cash. Now instead of showing such B2C transactions in GSTR-1 they are shown as B2B transactions thereby transferring the credit on such purported sale to a GST Registered person.

Such actions once caught will have to face the rigor of the GST act. Let’s understand multiple scenarios that can play out and how and under which section the same shall be dealt with-

S. NO.

CASE

ISSUE

CLARIFICATION

A issued tax invoice to B without any underlying supply of goods or services or both.

(a) Whether it is a supply u/s 7?

(b) Whether any demand and recovery can be made from A u/s 73 or 74?

(a) Not a supply u/s 7.

(b) As there is no supply by A to B, no tax liability arises against A, hence No Demand and Recovery u/s 73 or 74 can be made from A.

A issued tax invoice to B without any underlying supply of goods or services or both. B utilizes the ITC availed based on the fake invoice. Further, B issues tax invoice against an underlying supply to its customer

(a) Whether B liable for demand and recovery of said ITC u/s 73 or 74?

(b) Whether any penal action can be taken against B?

(a) B has utilized fraudulent ITC without receiving the goods and services, in contravention of sec 16(2)(b), so he shall be liable for demand and recovery of said ITC, along with penal action, under u/s 74 for wrongful availment of ITC and Interest u/s 50.

(b) No separate penalty for the same act u/s 122.

A issued tax invoice to B without any underlying supply of goods or services or both. B utilizes the ITC availed based on the fake invoice. Further, B issues tax invoice without an underlying supply to C.

(a) Whether B liable for demand and recovery of said ITC u/s 73 or 74?

(b) Whether any penal action can be taken against B?

a) As no tax liability arises from A, hence No Demand and Recovery u/s 73 or 74. Penal action u/s 122(1)(ii). (Case 1)

(b) B has utilized fraudulent ITC without receiving the goods and services, in contravention of sec 16(2)(b). No Recovery u/s 74 as ITC utilized against Supply.

(c) There was no supply u/s by B to C, Penal action under section 122(1)(ii) and 122(1)(vii) would be taken against B for issuance of fake invoice and utilizing ITC without actual receipt of Goods and/or services.

SECTION	PENALTY
74	15%- IF PAID BEFORE ISSUE OF SCN 30%- IF PAID WITHIN 30 DAYS FROM THE DATE OF ISSUE OF SCN 50%- IF PAID WITHIN 30 DAYS OF COMMUNICATION OF ORDER 100%- IN ANY OTHER CASE
122(1)(ii)	Penalty = Rs.10,000 or tax evaded/ITC availed/tax passed on whichever is higher
122(1)(vii)	Penalty = Rs.10,000 or tax evaded/ITC availed/tax passed on whichever is higher

CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at linkedin.com/in/capranayjain

CA Pranay Jain

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FAKE INOVICING UNDER GST AND ITS CONSEQUENCES

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