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In the wake of fake invoices, the Central Board of Indirect Taxes and Customs (CBIC) released a circular on ITC claims on fake invoices. There are several incidents of fraud where people fraudulently claim Input Tax Credit and unethical refunds. The government has addressed this issue with the help of Circular No.171/03/2022-GST.
Fake invoices are usually invoices which are raised by an entity without any supply of goods or services or any payment of Goods and Services Tax (GST).
Listed below are how fake frauds could misuse invoices in the GST regime:
The provision states that the conditions for availing input tax credit, a buyer must have an invoice on which GST has been paid, and such buyer must have received the goods or services.
In these cases, availing of ITC without receiving the goods or services is inadmissible, and utilisation of such ITC for actual regular supplies causes a loss of revenue for the government. In a nutshell, unscrupulous traders use this way to utilise the GST system for creating invoices, fake e-way bills to show the movement of goods etc. and defraud the revenue and the banking system.
Once the investigation results in the issue of a Show Cause Notice (SCN) or any other penal actions, the below-listed steps can be taken by the authorities to prevent entities to continue with the fraudulent activities:
a) An offence database module creation in the GST Application where the GSTIN of each entity that has been charged with fraud, such as fake invoices, etc., will be flagged. This will enable automatic identification of purchasers of such fake invoices from these flagged entities, and automatic alerts could be given in GST Application for further investigation.
b) The GST registration of such entities shall be cancelled, and the re-registration of such cancelled registrations is to be dealt with separately. Any application for re-registration from such entities would be flagged to alert the authorities, and there shall be no deemed registration in such cases. Further, physical verification for registration purposes would be necessary for such cases.
c) The entities that have availed input tax credit with the help of fake invoices need to be identified, and steps for recovery need to be made from them as per law. The previous transactions of such entities with other entities need to be investigated on a sample basis in view of their detected propensity.
d) Provisions contained in Section 83 of the CGST Act, 2017, relating to the provisional attachment of property, including the bank accounts, should invariably be invoked.
e) If there’s prima-facie evidence showing criminal involvement of directors to evade GST, then Section 89 of the CGST Act 2017 can be invoked
f) Blocking of the input tax credit of persons, including beneficiaries of such defrauding entities, to not allow the entities to get away with any undue input tax credit.
Quantum of tax or ITC availed or utilised
|In case the ITC availed or utilised by the taxpayer with the help of fake invoices exceeds Rs.5 Crore||For such fraudulent activity the taxpayer can face imprisonment up to 5 years and with a fine.|
|In case the ITC availed or utilised by the taxpayer with the help of fake invoices exceeds Rs.2 Cr but doesn’t exceed Rs.5 Cr.||For such fraudulent activity, the taxpayer can face imprisonment for up to 3 years and a fine.|
|In case the ITC availed or utilised by the taxpayer with the help of fake invoices exceeds Rs.1 Cr but doesn’t exceed Rs.5 Cr.||For such fraudulent activity, the taxpayer can face imprisonment for up to 3 years and a fine.|
|Commits or raises the commission of any of the offences mentioned above.||For such fraudulent activity, the taxpayer can face imprisonment for up to 6 months or a fine or both.|