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INTRODUCTION

The GST Law got introduced on 1st July 2017 as per 101 constitution amendment act and it was promised that there would be seamless flow of credit and object was NO cascading of taxes but if we look at GST as on date you will find most litigative issue which is coming up under GST is ITC. In this article we will study about Fake Invoice that what is Fake Invoice and how can a Taxpayer safeguard against such fake invoicing or if his supplier has not paid his tax and department is demanding tax from him.

But unfortunately as per Section 16(2)(aa) notified now w.e.f 1st January 2022 we are bound to take ITC as per GSTR 2B we cannot claim 105% as per Rule 36(4) which earlier states to we can take ITC upto 105% of eligible credit but now this Rule 36(4) has been amended and 105% has been amended and GSTR 2B has been inserted prospectively which means likely to be taken w.e.f 1st January 2022 not before that.

WHAT IS TAX INVOICE

Section 2(66) defines ‘invoice’ or ‘tax invoice’ means the tax invoice referred to in section 31

Section 31 states

(1) A registered person supplying taxable goods shall, before or at the time of,—

(a) removal of goods for supply to the recipient, where the supply involves movement of goods; or (b) 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:

Provided that the Government may, on the recommendations of the Council, by notification, specify the categories of goods or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed.

(2) 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:

Provided that the Government may, on the recommendations of the Council, by notification and subject to such conditions as may be mentioned therein, specify the categories of services in respect of which—

(a) any other document issued in relation to the supply shall be deemed to be a tax invoice; or

(b) tax invoice may not be issued.

WHAT IS FAKE INVOICE

The invoices are called as fake where the GST invoices are raised by an entity without actual supply of goods or services or payment of GST. Fake invoices are raised for the following purposes:

I. Claiming undue excess ITC.

II. For showing excess Turnover.

III. Transferring credit from one registration to another without any actual supply.

DIFFERENCE BETWEEN CORRECT & FAKE INVOICE

Particular

Correct Invoice

Fake Invoice

Meaning

Under the GST regime, an invoice means the tax invoice referred to in section 31 of the CGST Act. The GST law mandates that any registered person buying goods or services from an unregistered person needs to issue a payment voucher as well as a tax invoice.

An invoice that does not relate to a real sale or payment and is used to get money dishonestly.

Intention

Good Intention

Fraudulent intention

HOW TO IDENTIFY FAKE INVOICE

a) If there is Large Amount involved and if it is supplied with

b) E-way Bill but without GSTIN

All About Fake Invoice under GST

PENALTY OF FAKE INVOICE

Section 132 (1) states whoever commits, causes to commit and also retains the benefit arising out of the offences are liable for any of the following offences, namely:—

(a) Supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax; (CASH SALES)

(b) 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; (FAKE INVOICE)

(c) Avails input tax credit using such invoice or bill referred to in clause (b);

(d) Collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due

Tax evaded or ITC wrongly availed or refund wrongly taken exceeds

Fine &/or Imprisonment upto

Above 5 Crore

5 years Imprisonment + Fine

2 Crore – 5 Crore

3 Years Imprisonment + Fine

1 Crore – 2 Crore

1 Year Imprisonment + Fine

Below 1 Crore

Minimum 6 months Imprisonment + Fine

Explanation through Example

“A” a registered taxpayer in Some State say “S” has purchased goods from another registered person “B” in some other state say “P”.

a) He has Tax invoice amount of Rs 10 Crore and E-Way Bill was generated,

b) payment was made through banking route

c) “A” is filing his regular GST returns

d) “B” has also paid the taxes to the Department.

Now the Department came for search at the premise of “A” and stated that “A” has availed the wrong credit which is called Fake Credit on the basis of Fake Invoice hence this credit is not available as the amount is more than 5 Crore and we are going to arrest you so you must deposit this money. Now the hidden transaction is “A” purchased goods from “B” and “B” purchased goods from “C”. Now “C” was only issuing the Invoice and not dispatching the goods Filling his GSTR 1 but no payment to the Department through GSTR 3B. Now the Credit coming in GSTR 2A of “B” and “B” is using the same credit for his sale and filing his returns and transferring credit to “A” using the same Fake credit which “B” has purchased from “C”.

Now the argument would be given to the department how could “A” would know that credit flowing to “B” has not been deposited. “A” can only check his immediate supplier i.e “B” though “A” can only check his GSTR 1 & GSTR 3B but “A” cannot go beyond “B” and “A” is having no information from GSTIN Portal so that he can cross check preceding to “B”. So “A” can always say before the department Doctrine of Impossibility – LEX NON COGIT AD IMPOSSIBILIA. “A” can only check “B” that he has filed his GSTR 1 and deposited the Tax through GSTR 3B. “A” didn’t know that from where “B” has purchased. So we can say that “A” is not in the position unless he is having the information. Now the department is demanding reversal from “A”, “B”, and “C” also. Now the question comes that the same transaction can have triple tax.

Arguments before Department to be provided

I. “A” cannot go beyond “B”

II. Whatever “C” or “B” has paid you must give “A” net off and then demand tax from “A” reversal you cannot demand the same tax from all 3 parties.

III. “A” can pay the tax in installments under Section 80 in 24 installments Commissioner has the power to do so other than Self Assessed Tax under Section 39 which is GSTR 3B

LIST OF DOCUMENTS TO PROVE VALID TRANSACTION

i. Valid Tax Invoice

ii. E-Way Bill (if required)

iii. Payment through Valid Channels

iv. Consignment Note (Bilti)

How Department analyze Fake Credit

i. Artificial Intelligence/ Machine Learning (AI/ML)

ii. Number of GSTIN cancelled

Judgment in Favor of Taxpayer

M/S Anmol Industries Limited & ors. v/s Union of India & ors. – Calcutta High Court {WPA No. 10776 of 2021} dated 13/12/2021

In this court stated that ITC cannot be denied to Genuine Buyer on the fact that Supplier is Fake. The petitioner with their due diligence has verified the genuineness and identity of the supplier as registered taxable person available at the government portal. The petitioner could not be faulted if they appear to be fake later on. Petitioner further submit that they have paid the amount of the purchases and petitioner is helpless if at some point of time after the transactions were over, if the respondents concerned finds on enquiry that the aforesaid supplier were fake and bogus and on the basis petitioner could not be penalized unless the department/respondent establish with concrete materials. If it is found upon considering the relevant documents that all the purchases and transactions in question are genuine and supported by valid documents and transactions in question were made before the cancellation of registration of those suppliers. The petitioner shall be given the benefit of Input Tax Credit.

AUTHOR VIEW

In my view government should take necessary actions against the taxpayers who are dealing with Fake Invoices as many provisions has been made effective from 1st January 2022 which can be harsh for the Genuine Taxpayer such as Widening Power of Provisional Attachment of the property, Imposing penalty on E-Way Bill mistakes to 200%, If going for an appeal against any order need to deposit 25% of the disputed amount, the most dangerous Amendment which department has made i.e GSTR 1 v/s GSTR 3B difference now they can visit premises without any Show Cause Notice of any Taxpayer. The Burden of Proof lies on the Taxpayer to his genuineness and whether he is eligible for input tax credit under Section 155. The Genuine Taxpayer is in favor of giving proper taxes to the department in return he just want not to be penalized for his genuineness and should not be harassed by the department.

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Disclaimer: The views expressed in this article are those of individual author’s writing in his individual capability only. The information provided in this article does not intend to constitute legal advice, instead all the information, content, and all the materials available in this article are for general purpose only. Readers of this article should contact their attorney to obtain advice with respect to any particular legal matter.

Author Bio

Qualification: MBA
Company: GST Solutions
Location: Saharanpur, Uttar Pradesh, India
Member Since: 01 Aug 2021 | Total Posts: 5
Author has done MBA from IIPM Delhi in Finance & Marketing and has a work experience of 3+ years in Indirect Taxation. He is constantly and still continuing to be GST Advisor for Indian Industries Association (IIA) & Saharanpur Hosiery Manufacturers Association. View Full Profile

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