Article contains view of the author relating to CBIC circular in respect of transactions involving fake invoices and applicability of demand and penalty provisions under the Central Goods and Services Tax Act, 2017

Issue No 1-

In case where a registered person “A” has issued tax invoice to another registered person “B” without any underlying supply of goods or services or both.

Clarification as per circular-

As per circular –There is only issuance of tax invoice by the registered person ‘A’ to registered person ‘B’ without supply of goods or services or both therefore such an activity does not qualify as supply as per section 7 of the CGST ACT 2017. No supply by A to B so there is no tax liability arises against ‘’A’’ for the said transaction and hence no demand & recovery u/s 73 or 74 as

Section 73 or 74 of CGST ACT 2017 deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts but A has duly paid tax and no wrongful availment of ITC so no penal action under the provisions of section 73 or section 74 is required to be taken against ‘A’ in respect of the said transaction.

Penalty to be levied on ‘’A’’- The registered person ‘A’ shall, however, be liable for penal action under section 122 (1)(ii) of the CGST Act for issuing tax invoices without actual supply of goods or services or both.

Now next question amount of penalty- As per provisions of section 122(1)- ‘’Taxpayer shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.’’

In above case though ‘’A ‘’has not evaded tax but he was involved in passing input tax credit fraudulently to ‘’B’’ so amount of penalty to be levied on ‘’A’’ not to be restricted to only Rs 10000…

What do you think readers??

Issue No 2-

A registered person “A” has issued tax invoice to another registered person “B” without any underlying supply of goods or services or both ‘’B’ avails input tax credit on the basis of the said tax invoice and utilises input tax credit for payment of tax liability for supplying goods or services to ‘’C’’…

Clarification as per circular-

Now in above case ‘’B’’ has not only availed ITC but also utilised ITC in contravention of the provisions of section 16(2)(b) of CGST Act for payment of outward tax liability so he will be liable for the demand and recovery of the said ITC, along with penal action, under the provisions of section 74 of the CGST Act along with applicable interest under provisions of section 50 of the said Act. Important point to remember- No penalty for the same act, i.e. for the said fraudulent availment or utilization of ITC, can be imposed on ‘B’ under any other provisions of CGST Act, including under section 122 of CGST ACT 2017.

Issue No 3-

A registered person ‘A’ has issued tax invoice to another registered person ‘B’ without any underlying supply of goods or services or both. ‘B’ avails input tax credit on the basis of the said tax invoice and further passes on the said input tax credit to another registered person ‘C’ by issuing invoices without underlying supply of goods or services or both.

Clarification as per circular-

Now in above case – A has issued tax invoice to B without supplying goods or services and further B passes on input tax credit to C without supplying goods or services. In above case there was no supply from A to B and then B to C so no penal action u/s 73 or 74 OF CGST ACT 2017.

However, in such cases, ‘B’ shall be liable for penal action both under section 122(1)((ii) and section 122(1)(vii) of the CGST Act, for issuing invoices without any actual supply of goods and/or services as also for taking/ utilizing input tax credit without actual receipt of goods and/or services.

Amount of penalty- According to my view- Double penalty to be levied i.e. section 122(1)((ii) and section 122(1)(vii) of the CGST Act but can amount be restricted to only Rs. 10000 …I don’t think so as B has not only availed but also utilised ITC in GSTR-3B how can we say there was no tax evasion…..Further ITC was also frequently passes on to ‘’C’’….
What do you think readers???

Queries /doubts related to above mailed at mamta0581@gmail.com

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