Nowadays, various cases of bogus billing have been reported by the authorities, wherein, fake invoices have been used to avail ineligible Input Tax Credit. In this article let us understand that what is bogus billing? How it is triggered?, what are penalties for it under GST law? How to safeguard oneself from such bills?

Article explains What is a Tax Invoice under GST, What are the Essentials of Correct Invoice, How to claim Input Tax Credits under GST, Reason for Bogus Billing in Indian Market, What are the provisions in CGST law for fake bill or fraudulent practice, What Criminal Proceedings Fraudulent Practices can invoke and How to safeguard from such provisions of GST Law.

What is a Tax Invoice under GST?

As per sec 31 of CGST Act 2017, a registered person supplying taxable goods shall issue Tax invoice, before or at the time of —

In case of Goods:

1. Removal of goods for supply to the recipient, where the supply involves movement of goods; or

2. Delivery of goods or making available thereof to the recipient, in any other case, issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars as may be prescribed.

3. Issue of account statement/payment, where there is continuous supply

In case of supply of Services:

A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed, thus tax invoice must be issued within –

30 days from the date of supply of the service and 45 days from the date of supply of the service, where the supplier is an insurer or banking company or a financial institution

What are the Essentials of Correct Invoice?

A tax invoice is generally issued to charge the tax and pass on the input tax credit. A GST Invoice must have the following mandatory fields-

  • Invoice number and date
  • Customer name
  • Shipping and billing address
  • Customer and taxpayer’s GSTIN (if registered)
  • Place of supply
  • HSN code/ SAC code
  • Item details i.e. description, quantity (number), unit (meter, kg etc.), total value
  • Taxable value and discounts
  • Rate and amount of taxes i.e. CGST/ SGST/ IGST
  • Whether GST is payable on reverse charge basis
  • Signature of the supplier

Further, If the recipient is not registered and the value is more than Rs. 50,000 then the invoice should carry:

  • name and address of the recipient,
  • address of delivery,
  • state name and state code

How to claim Input Tax Credits under GST?

As per sec 16 of CGST Act 2017, To claim input credit under GST –

  • One must have a tax invoice(of purchase) or debit note issued by registered dealer
  • One have received the goods/services

Note: Where recipient does not pay the value of service or tax thereon within 180 days of issue of invoice and he has already availed input credit based on the invoice, the said credit will be added to his output tax liability along with interest.

  • The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit
  • Supplier has filed GST returns

Reason for Bogus Billing in Indian Market

At the time of implementation of GST, it was expected that true and fair records will be uploaded and GST era will be technology driven, whereas, GSTR-2 and 3 was never implemented which leads to leakages in the system. Thus, under fake billing, there are three type of senarios:-

1. Some cases where actual goods are not received or short received. Entry has been made in books of accounts based on GST invoice and thereafter, ITC has been claimed.

2. Goods are sold in cash to the unregistered dealer or those who do not want to avail ITC and GST bill is given to the supplier who wants to reduce his GST liability by availing the credit without receiving the goods.

3. Sometimes a genuine buyer who is a registered dealer is unaware of the intentions of the seller that how the later will disburse the GST liability so collected or sometimes the buyer is unaware that whether the supplier has the purchase of material in which he is trading or not.

In 2018-19, the central GST authorities registered over 1,600 cases involving an amount of Rs 11,251 crore, as against 5 cases involving an amount of Rs 13 crore in the nine months ending 31 March 2018, CBIC data showed. Until November 2019, over 6,000 cases were filed by the authorities, showing the increasing enforcement action being taken. Thus, GST is a good law but its bad implementation leads to increase in cases of bogus/fake billing.

Further, Government has made amendments in law to curb this fake billing but the strict actions brings the innocent taxpayers into difficulty. The harassment by the department on these bonafide taxpayer.

What are the provisions in CGST law for fake bill or fraudulent practice?

Section 122 of CGST Act, 2017, deals with the various offences under which a person shall be liable to penalty of an amount specified in this section, the relevant clauses with respect to fake invoices are stated below:-

  • Supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;
  • Issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made there under
  • Takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made there under;
  • Takes or distributes input tax credit in contravention of section 20, or the rules made there under

Effect of above stated provision: Supplier of any supplies on which any tax has not been paid or short-paid or wrongly refunded, or ITC has been wrongly availed or utilized shall be liable to a penalty equal to:

Involving fraud or willful misstatement or suppression of facts to evade tax Higher of 10,000 or the tax due
Other cases Higher of 10,000 or 10% of the tax due

Penalty up to Rs.25,000 shall be paid if a person:

  • Aids or abets any of the offences specified 122(1)
  • Possesses, transports, stores, supplies , purchases etc. goods which he knows or believes are liable to confiscation
  • Receives or deals with supply of services which he knows or believes are in contravention of any provisions
  • Fails to appear before the officer of central tax when summoned
  • Fails to issue invoice as per provisions or invoice is not accounted in the books

Section 132 of CGST Act, 2017, deals with the punishment for certain offences. It states as under:-

(1) Whoever commits any of the following offences, namely:-

1. supplies any goods or services or both without issue of any invoice

2. issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilization of input tax credit or refund of tax

3. avails input tax credit using such invoice or bill referred to in clause (b).

4. evades tax, fraudulently avails input tax credit or…….

5. falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act.

Effect of above stated provision:

Tax evaded or ITC wrongly availed or refund wrongly taken exceeds Fine &/or imprisonment up to
500 lakh 5 years
200 lakh 3 years
100 lakh 1 year
Person who commits or abets commission of following offences shall be punishable with imprisonment up to 6 months or with fine or both:

  • Falsifies financial records, accounts or documents or furnishes false information
  • Obstructs or prevents any officer in the discharge of his duties
  • Tampers with or destroys any material evidence or documents

Rule 86A: CBIC vide notification no.75/2019 C.T dated 26th December 2019 had inserted which empowers:

  • the commissioner or any other officer authorised by him not below Assistant commissioner(herein referred as “Proper Officer”) having Reason To Believe that ITC has been availed Fraudulently or Ineligible in as much as

1. Credit availed on invoices issued by registered person who found to be nonexistence or not conducting any business from the registered place of business or without receipt of goods or services or both

2. Credit availed on invoices where the tax charged in respect of which has not been paid to the Government;

3. Person availing credit found to be non-existent or not to be conducting any business from the registered place of business

4. Availment of credit without any documents prescribed under section 16 w.r.t. rule 36;

may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.(i.e. Blocking the ITC in Electronic Credit Ledger)

(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.( i.e. the registered person has to prove that the conditions aforementioned do not exist to the proper officer)

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.

Effect of above stated provision

1. This give department right to and powers / authority to stop a registered person from availing and utilising the credit under the law. However, they may recover, deny the refund of availment of ineligible credit through the proceedings prescribed under the law.

2. The amendment fails to provide the procedure to be followed by the proper officer for enforcing his powers conferred under the newly inserted rule which may create havoc in the trade & industry.

3. This right of departmental blocking of credit is unjust to the honest taxpayers. Proper mechanism should be issued by the law to check the intention of malafide or bonafide taxpayer before blocking of ITC.

Fraudulent Practices can invoke other Criminal Proceedings

In case necessary elements of an offence of cheating is clear by submitting false information and documents then FIR can be lodged under the provisions of the Code of Criminal Procedure under section 420 (fraud), 463, 464, 465, 467, 468, 471 (all related to forgery), and 120B (being party to a criminal conspiracy).

Further, Offences dealing with non-payment of tax or forgery of up to Rs 2 crore would be made bailable.

How to safeguard from such provisions of GST Law?

We have read above that there are strict provisions for fraud under CGST Act, 2017. It’s a fact that precaution is better than cure. Thus, its high time for the taxpayers to take safeguard measures to protect themselves from such law by following the below measures: –

1. Taxpayer should be aware of GST Law and he should take all possible steps to adhere with the provisions of law.

2. Taxpayer should maintain proper reconciliation of books of Accounts and GSTR-2A. Thus, whatever invoices which are reflected in 2A becomes eligible for the credit provided taxpayer has duly performed its duty while booking the tax invoice.

3. Proper reconciliation should be made with books of accounts and E-waybills, as e-waybills plays a very important role of delivery of goods. Matching of E-waybills with Outwards sales is very essential.

4. He should keep vigilance on the credibility of the vendor. In GST, it’s the utmost important step on the part of buyer that he should make a background check of its vendor specially those one which involve huge transactions or credit.

5. In case of any deficiency found by the buyer in any transaction with the vendor then an extreme step would that an intimation should be send to the department of any fraud found by the taxpayer.

6. As book keeping is very important along with that we need to ensure that proper E-mail communications are made. In today’s E-communications Era, E-mails plays an important role, so proper trails of email should be maintained either with Vendor or any customer.

Conclusion

Since the GST was rolled out, the CBIC has come across many modus operandi to evade taxes. The strict actions laid down by CBIC without realizing the ground realities of the officers and the fact that honest taxpayer would be harassed though the intention of government is bonafide. This disrupt the working of businesses and leads to slowdown of economy growth.

There should be more clarity and awareness among the assesses about the type of tax evasion. This would help the taxpayer to be more cautious and vigilant while doing any transaction.

Further, an honest taxpayer should be aware of his duties towards compliance of GST law and he should take all possible steps to keep himself away from any such loopholes of the law and he should adhere to the provisions of law.

Author Bio

Qualification: CA in Practice
Company: Banbros Consulting Private Limited
Location: New Delhi, IN
Member Since: 14 Nov 2019 | Total Posts: 3

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2 Comments

  1. J sudhakar says:

    A registered dealer issued tax invoices to assistant director of agriculture without supplying goods and availed Govt subsidy amount from agriculture department, this practice is continuously going since 2015-16. The complaint also given to Gst authorities but no action is taken. Suggest what to do

  2. Parameswaran TK says:

    I made some purchase from a GST regd.dealer in April 2018 and paid the bill through bank transfer. He uploaded his GSTR1 for this month only in June 2019 , as verified with GST App, and that invoice is not appearing in my GSTR2A. I did avail ITC in May 2018. What will be the repercussions for availing this ITC. I sent an e mail to him to notify this mistake and he has not responded yet.
    My enterprise avail the service of India Mart for business promotion and they charge IGST @18% for the service. Can I avail ITC for this service charge. Wrote to them about this and they have not responded so far

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