Inquiry before DGGSTI in respect of allegation of fraudulent ITC on fake invoices under GST Act

Q.1. Nodal officer is State Government SGST officer and DGGSTI is CGST officer who has a power to issue summons under the Act?

Ans:- As far as inquiry investigation is concern DGGSTI has a power to investigate the case irrespective of jurisdiction.

The proper officer under section 70 to this Act shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil procedure, 1908.

Every such inquiry referred to in sub-section (1) of section 70 shall be deemed to be a judicial proceeding “ within the meaning of section 193 and section 228 of the Indian penal code.

Q.2. Which records shall make available by the taxable person on demand?

Ans:- Every person in-charge of place shall, on demand, make available to the officer authorised or the audit party deputed by the proper officer such records as prepared or maintained by the registered person and declared to the proper officer in such manner as may be prescribed;

  • Trial balance or its equivalent;
  • Statement of annual financial accounts, duly audited, wherever required;
  • Cost audit report, if any under section 148 of the Companies Act, 2013;
  • The income-tax audit report, if any, under section 44 AB of the income-tax Act, 1961; and
  • Any other relevant record,

for the scrutiny by the officer or audit party within a period not exceeding fifteen working days from the day when such demand is made; or such further period as may be allowed by the said officer or the audit party.

Q.3. ‘A’ Registered under GST at Mumbai purchased material from X and Y both are situated at Nashik .All are registered under GST ACT.

Can ‘A’ supply the goods directly from X and Y premises without bringing such goods in A premises?

Ans: Yes A can supply goods directly from X and Y premises without bringing such goods subject to the provisions sec 10 (1)(b) of IGST Act this provision covers supply before or during the movement of goods by transfer of documents or otherwise in that case it shall be deemed that said third person has received the goods and place of supply of such goods shall be the principal place of business of such person.

Q.4. A has directly delivered goods to customer B and C from supplier premises i.e. X and Y and A do not have transport documents for movement of goods, then how the movement of goods to be proved?

Ans. Place of supply is define in IGST Act as per section 10(b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person.

X and Y will prepare the transport documents, deliver the goods as per direction given by A

In addition to above, Sec.35(1) r.w.t Rule 56 is related to accounts and records where list documents are prescribed and to be maintain to prove your claim.

1. Records of production and Manufacture of Goods

2. Inward and outward supply of goods or services or both

3. Stock of goods

4. Input tax credit availed

5. Output tax payable and paid and

6. Such other particulars as may be prescribed

As per rule 56(2) every registered person shall maintain stock accounts in respect of goods received and supplied which includes opening stock, purchases, sales, scrap and closing stock.

Further, the receipt of material or movement of materials can be established with proof by having following documents as a contrary evidence

1. Inward & Outward gate register

2. GRN (Goods Receipt Note)

3. Settlement or payment voucher

4. Purchase order copy with terms and condition

5. Vehicle Log Book

6. Freight payment details to transporters

7. Debit note / Credit note

8. Daily stock account

9. Issue slip / delivery challan

10. Details of value addition

Claimant can establish receipt of materials by producing records maintained at registered premises, gaining more importance from GST ITC point of view.

A registered person who availed ITC on goods received should pass the accounting entry in the financial books so that proper cross check can be exercised with supply records and will ensure eligibility of ITC.

In addition to the legal provision please note that if investigating officer proves any one or more following points with evidence then it will be treated as a fake invoice and ITC availed fraudulently.

1. Bogus entry in books

2. Non-existence of supplier

3. No value addition in subsequent supply

4. If evidence proved that registered dealer connived with supplier

5. Unregister supplier

6. Evidence of flow back of funds though payment made through banking channels

7. Tax invoices not recorded by supplier and not shown in return and not paid the tax.

8. If registered dealer is not having valid tax paid invoice

9. If department booked the case / fraud against supplier

10. GST returns of supplier objected by the department

Q.5. Whether Two or more e-way bill is required to be generated the first one is by X or Y in the name of A and second e-way bill in the name of recipient of the goods is it correct?

Ans: This was not correct and even was not practical. E-way bill is basically transport document indicating where goods are actually going and validity of E-way bill is determine as per road distance. If Two E-way bill are generated the time allowed for transport of goods as indicated in both E-way bills will be wrong and give absurd results the deeming provision under sec 10 (1)(b) of IGST Act can not be extended to absurd limits same has been clarified by CBIC in press release dated 23/04/2018.

Q.6. What are provisions where ITC is not allowed?

Ans: As per sec 16 following are the provision where ITC is not allowed:

1. In respect of goods or services or both on which tax has been paid u/s 10 (composition levy)

2. Any tax paid as per sec74 (suppression of facts)

3. Any tax paid as per sec 129 (detention / seizure in transit )

4. Tax paid u/s 130 (confiscation of goods)

Conditions for availing ITC as per rule 36 of CGST are

1. ITC shall be credited to the electronic credit ledger of such person.

2. He should be in possession of tax invoice as per Section 31 and debit note as per section 34 issued by registered supplier.

3. He has received goods or services or both.

4. ITC allowed subject to sec. 41 i.e. actually paid to the Government by cash or credit utilization.

5. A bill of entry or any similar document prescribed under the Customs Act,1962 or rules made thereunder for the assessment of integrated tax on imports.

6. He has furnished the return u/s 39.

Q.7. A is registered regularly filing GST returns, taxes paid, ITC availed as per provision.

Can department deny ITC on the basis of assumption without ascertaining the facts of the movement of goods?

Ans. Investigating officer has ample power under the CGST Act if he has a reason to believe he can initiate inquiry / investigation by issuing summons u/s 70 also he can issue authorisation for inspection or search in Form GST INS-1 u/r 139. He can ascertain the following facts and then only he can come to any conclusion for denying the ITC illustrative points but not exhaustive.

1. Investigation has to be carried out about whereabouts of goods if not received by A

2. Investigation has to be carried out whether A has floated a dummy firm or company

3. Investigation has to be conducted at the end of manufactures/suppliers of the goods to ascertain the facts of movement of goods

4. Investigation has to be conducted at transporter or lorry owner.

5. Investigation has to be carried out about the stock position of buyer and seller along with their returns.

6. Investigation has to be carried out about Inputs have not been received in the factory

7. When X and Y the suppliers, specifically mentioned that they have supplied the goods to A and paid the taxes.

In the absence of any contrary evidence to the above facts ITC can not be denied to the A.

Q.8. When the documents, books or things produced need to be returned by the proper officer?

Ans:- The documents, books or things or any other documents, books or things produced by a taxable person or any other persons, which have not been relied upon for the issue of notice under this Act or the rules made there under, shall be returned to such persons within a period not exceeding thirty days of the issue of the said notice.

1. The officer authorised shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box receptacle in which any goods, accounts, registers of documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied.

2. The person from whose custody any documents are seized shall be entitled to make copies there of take extracts there from in the presence of an authorised officer at such place and time as such officer may indicate in this behalf except where making such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect the investigation.

Q.9. Who has a power to arrest under the Act and what is the monitory limit for the same and which offences are punishable?

Ans:- Where the Commissioner has reasons believe that a person has committed any offence specified in sec. 132 of following clauses —

Clause (a) supply of any goods or services or both without issue of invoice.

Clause (b) issue of invoice without supply of any goods or services or both.

Clause (c) avail ITC using such invoice referred in clause (b)

Clause (d) collect any amount of tax but fails to pay to Government beyond three months.

  • Is punishable in cases where amount of tax evaded or wrong ITC availed or utilised or wrong refund taken exceed rupees five hundred lakhs with imprisonment for a term of 5 years with fine.
  • Is punishable in cases where amount of tax evaded or wrong ITC availed or utilised or wrong refund taken exceed rupees two hundred lakhs with imprisonment for a term of 3 years with fine.
  • Is punishable in cases other offence where amount of tax evaded or wrong ITC availed or utilised or wrong refund taken exceed rupees one hundred lakhs but does not exceed two hundred lakhs with imprisonment for a term of 1year with fine.

Where a person is arrested under sub- section (1) for an offence specified under subsection (5) of section 132, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty four hours.

Subject to the provisions of the Code of Criminal Procedure, 1973-,

  • Where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, shall be admitted to bail or in default of bail forwarded to the custody of the Magistrate;
  • in the case of a non –cognizable and bailable offence, the Deputy commissioner or the Assistant commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as on officer-in- charge of a police station.

Q.10. What are the provisions for demands and recovery?

Ans. As per Section 74 if input tax credit wrongly availed or utilised by reason of fraud or any willful misstatement or suppression of fact in that case order has to be issued 5 years from the due date of furnishing annual return of relevant financial year. If it is not suppression of fact then 3 years from the due date of furnishing annual return of relevant financial year under section 73.

Q.11. Which notice is to be issued for demand under section 73 & section 74?

Ans. As per Rule 142 notice electronically in Form DRC-01 and DRC-02 summery specifying the details of amount payable and if payment made with interest and penalty to be communicated electronically in Form DRC-03.

Q.12. If not agreed by the notice in DRC-01 then how to give the reply?

Ans:- Reply to DRC-01 as per rule 142(4) to be given in DRC-06 electronically and upload the supporting documents, with seeking personal hearing.

Q.13. After reply in DRC-06 what is the adjudication procedure?

Ans. Officer will call for personal hearing after reply in DRC-06 and he will issue the order in DRC-07 as per rule 142(5) specifying amount of tax, interest and penalty payable.

Q.14. What is the time limit for issuance of notice U/s 74?

Ans:- Notice U/s 74 must be issued at least 6 months prior to the time limit specified for issuance of order.

Q.15. What is the time limit for issuance of order U/s 74?

Ans:- 5 years from the due date of furnishing of annual return for the financial year to which the tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful misstatement or suppression of facts.

Q.16. What if the taxpayer pays under section 74 tax , interest amount before serving of notice or pays the tax, interest amount & 25% penalty within 30 days from the date of issuance of notice?

Ans: – 1) If the taxpayer pays the tax along with interest before service of notice, such taxpayer must inform about such payment made to the proper officer in writing, then the concerned officer will not issue further notice in respect of tax so paid.

2) If the taxpayer pays the tax & interest amount and penalty equivalent to twenty-five per cent of such tax within 30 days of issue of notice then all proceedings in respect of the said notice shall deemed to be concluded.

Q.17. Is there any provision for minimization of penalty after issuance of order?

Ans: – Yes, where any person served with an order U/s 74 pays the tax along with interest & penalty equivalent to 50% of such tax within 30 days of communication of order, all proceedings in respect of the said notice shall be deemed to be concluded.

Q.18. What is the time limit for making payment of demand raised by the officer in the order?

Ans:- Any amount payable by a taxable person in pursuance of an order passed under the Act shall be paid by such person within 3 months from the date of service of such order, if failed recovery proceedings will be initiated.

Provided assessee has filed appeal to the higher authority against such order along with full amount as admitted and 10% of remaining amount of tax in dispute.

Q.19. Whether the officer can compel to the taxpayer for payment of demand raised in duration less than of 3 months?

Ans:- Yes, If officer considers in the interest of revenue, may require said taxable person to make such payment within a period less than 3 months as specified but after giving reasons for such short duration.

Q.20. Whether a taxable person can make the payment of tax under the Act in installments?

Ans:- Yes, a per sec. 80 of CGST Act a taxable person on an application can make the payment of tax under the Act in 24 monthly installments subject to terms and conditions.

Q.21. How the recovery will be done if a taxable person fails to pay any one installment on its due date?

Ans:- If a taxable person makes a default in payment of any one installment on its due date, the whole outstanding balance payable on such date shall become due & payable forthwith without any further notice being served on person from whom recovery is to be made.

Q.22. What is the fine for failure to furnish statistics (sec. 124 )?

Ans:- As per section 124, if any person required to furnish information under section 151-

(a) Without reasonable cause fails to furnish such information or return as may be required under that section, or

(b) Willfully furnishes or causes to furnish any information or return which he knows to be false,

He shall be punishable with a fine which may extend to ten thousand rupees and in case of a continuing offence to a further fine which may extend to one hundred rupees for each day after the first day during which the offence continues subject to a maximum limit of twenty five thousand rupees.

Q.23. What are the general penalties?

Ans:- As per section 125, Any person, who contravenes any of the provisions of this Act or any rules made there under for which no penalty is separately provided for in this Act, shall be liable to a penalty for Rupees twenty five thousand.

Q.24. What is the liability of officers and certain other persons under this Act?

Ans:- As per section 133,

  • Where any person engaged in connection with the collection of statistics under section 151 or compilation or computerization thereof or if any officer of central tax having access to information specified under sub-section (1) of section 150, or if any person engaged in connection with the provision of service on the common portal or the agent of common portal, willfully discloses any information or the contents of any return furnished under this Act or rules made thereunder otherwise than in execution of his duties under the said sections or for the purposes of prosecution for an offence under this Act or under any other Act for the time being in force, he shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to twenty-five thousand rupees, or with both.
  • Any person-
    • Who is Government servant shall not be prosecuted for any offence under this section except with the previous sanction of Government;
    • Who is not a Government servant shall not be prosecuted for any offence under this section except with the previous sanction of the Commissioner.

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