Article Section | |||||||||||||||||||||||||||||||||
Home Articles Goods and Services Tax - GST Sunil Vengaldas Experts This |
|||||||||||||||||||||||||||||||||
Fake Invoices under GST |
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
Fake Invoices under GST |
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
Introduction Under the Indirect tax regime, the taxpayer is under obligation to collect and pay taxes to the government in the manner as prescribed. Under GST, section 59 deals about self-assessment which can be broken down as below:
Elements of Self-assessment:
Self-assessment means that taxpayer himself shall determine the output tax payable and discharge the tax after offsetting the ITC available, if any. Since the Self-assessment is in the hands of the taxpayer, he may misuse such opportunity. One such misuse is the excess claim of Input Tax Credit (hereinafter referred to as the “ITC”) and reducing the payment of tax in cash. If such excess claim is out of fake invoices, then it is an offence committed under Section 122 of the Act and shall be liable for punishment under Section 132 of the Act. Statistics and volume of Fake invoice under GST: According to the press release by the Press Bureau of India (PIB) dated 13-07-2021, the CGST zones and the Directorate General of GST Intelligence (DGGI) have booked about 8000 cases involving massive fake ITC which can be tabulated as follows
Apart from the above, the various Commissionerate from time to time are bursting the fake invoice racket to protect the interest of revenue. According to one survey, the proportion of Fake ITC to the total collection can be anywhere between 1% to 5%. From the above, it is clear that the Fake Invoice is a serious issue and needs to be curbed at the earliest. Concept & Definition of the fake invoice. One of the popular ways of generating fake invoices is setting up fake Companies and issuing the fake invoices with GST without actual supply of the goods or services to the Companies within the group or known persons for sales. By issuing an invoice, it allows the recipient to claim ITC. To put check against the creation of fake firms and passing on the benefit of bogus ITC, the CBIC has come up with stringent rules with respect to registration and makes it mandatory for Aadhar authentication or physical verification vide Notification No 62/2020 (CT) dated 20-08-2020. Fake invoice would generally involve issue of tax invoices for transactions which are not in existence merely to provide an opportunity to the recipient to avail ITC. Issuer of invoice may pay their tax liability either though fake ITC claimed without receipt of goods or services or would not file their returns. Thereby there is no flow of tax to the department. This can be understood clearly with the help of press release by the CGST Agra Commissionerate dated 19-08-2021 Synopsis:
Difference between proper Invoice, Improper invoice and fake Invoice
Characteristics of Fake Invoice:
Purpose of Fake invoice: A fake invoice is solely raised for the purpose of
Scenarios:
Implications of accounting fake invoices in Books of Accounts: The implications of fake invoices accounted in the BOA as follows:
In both the cases, it misleads intended users. Fake Invoice - an offense Provisions of the Section 122 and 132 deals with the offences and punishments for the offences committed under the Act respectively. For a limited purpose, as per the Section 122 of the Act, where any Taxable person or any other person is involved in any activity of
shall become an offence under this Act. Such person shall be liable to the penalty as determined under the section 122 of the Act. Section 132 of the Act specifies the punishments for various offences under the Act. Punishments for the offences under this Act are mutually exclusive i.e., for each and every subsequent offence under the Act shall be punishable with such punishment and further such additional punishment for subsequent offence as applicable. The section categories the offences as cognizable, non-cognizable, bailable and non bailable offence. All above-mentioned offences under section 122, are cognizable and non bailable offences under the section 132. Punishments for the offences under the section 132 are as follows:
It may be noted that the punishment under the section is in addition to the penalties or fines as applicable under the respective sections. How department can detect the fake invoices: The important tool that the department has to detect the fake invoices is that the returns furnished by the taxpayers itself. On certain parameter it is likely possible to detect the presence of fake invoices which can be explained as follows:
For example, Mr. A is involved in a business where the rate of tax is as follows
Ideally the taxpayer has to pay the tax of 6% in cash as it is the difference between input and output rate of tax. If Mr. A is paying 100% of tax through ITC, then the department may enquiry the same. It may be noted that not every 100% utilization of ITC against the tax discharge is to be doubted, however, in certain cases it is an indication.
The department has various tools and facilities to generate various reports on various parameters. For example, the department may study the trend of utilization of ITC over a particular period of time. In case, where the department has found there is a significant variance in the trend, it may proceed to enquiry further. Likewise, it may also analyze the HSN summary of the supplier and the recipient and in case of discrepancies it may proceed to enquire
One the indicating factor of fake invoices is not filing the returns properly or not at all filing. It is well known fact, that the companies issuing the fake invoices will issue the Invoices for the purpose of claiming ITC and does not file the returns. There might be another scenario, whether the companies issuing the fake invoices files the GSTR 1 but not GSTR 3B giving additional benefit to the recipient to claim ITC.
Recently the CBIC and CBDT has entered into a memorandum of understanding to share the data between themselves. Further, a significant change has been bought to the Income tax portal, where the facility of turnover declared in the GST portal can be seen in Income tax portal. Apart from this, there are many other ways like Banks, Financial statements disclosed by the companies, etc., Burden of proofAs per section 155, the burden of proof to claim the ITC shall be on such person. However, in case of fake invoices, the department should have fair enough ground to dispute the same.How to put check to fake InvoicesFake invoices are a serious threat to the revenue. By passing on the benefit of ITC, the recipient utilizes the same to discharge the ITC thereby causing the revenue loss to the government. Hence, the government has taken few steps to curb the same which are as follows:
As stated earlier, in case of fake invoices, majority of the supplier does not file the returns and does not pay the same to the government. Hence, the government has bought the amendment to registration vide Notification No 62/2020 (CT) dated 20-08-2020. As per the amended rules, the supplier needs to opt either for Aadhar Verification or Physical verification of place of business.
There might be a scenario, where the issuer of the fake invoice shall file GSTR 1 but does not the file his GSTR 3B. Hence, the government came with Rule 36(4) that places a restriction on availment of ITC that is not reflected in GSTR 2A. A taxpayer can avail only 105% of the ITC reflected in GSTR 2A or ITC available in BOA, whichever is low.
While the Rule 36(4) places the restriction on availment of ITC, Rule 86A and 86B places the restriction on utilization of ITC available which is follows
The GST Council approved the standard of e-invoice in its 37th meeting. ‘E-invoicing’ is a system authenticating electronically the B2B invoices by GSTN for further use on the common GST portal. Unlike the grammatical meaning, E-Invoice does not means generating of invoice electronically but an identification number will be issued against every invoice which is generated by the taxpayer through various accounting software by the Invoice Registration Portal (IRP) to be managed by the GST Network (GSTN). All invoice information will be transferred from this portal to both the GST portal and E- way bill portal in real-time. Conclusion:Fake invoices are major cause of loss of revenue to the government and it also results in the misuse of money of the genuine taxpayers. If the same is not curbed at the earliest, it might result in a heavy hardship to the taxpayers and the business. Few steps taken by the government may help to restrict the same, but the existence of fake invoices cannot be removed completely.
By: Sunil Vengaldas - September 6, 2021
Discussions to this article
Excellent analysis , Keep sharing more...
Can you answer my below query: Mr. A sold goods for ₹ 20 lakhs to Mr. B and issued proper tax invoice. Mr. B was involved in claiming fake ITC by other parties (but he made genuine purchase from Mr.A ) and he got summoned u/s 122. After inquiry with Mr. B, department summoned Mr. A that the party has issued fake invoices but Mr. A actually did not issue fake invoices, he made a genuine sale. How can Mr. A prove that he has made a genuine sale? The department says that the purchaser is claiming fake ITC and Mr. A also must have issued fake invoices. How can Mr. A prove that it was not a Bogus Invoice? Any Case Law relate to same?
Based on the information provided, there are two ways to prove Mr. A is innocent: 1. to prove that the business is genuine - to prove this, one can provide GSTR filed, stock records, payment of taxes in cash, E-way bill generated, confirmation from clients about receipt of goods or services 2. to prove that transaction to B is genuine - to prove this, one can produce the invoice copy, GSTR for that month, Document like E-way bill, bank statement of receipt of consideration, if any. Few important points from the following case laws may be useful; M/s. Jai Maa Jwalamukhi Iron Scrap Supplier Vs State of UP And 3 Other - 2021 (3) TMI 800 - ALLAHABAD HIGH COURT wherein it was held that “Merely because there may have been existed certain discrepancies, the transaction cannot be said to be one falling under the category of undisclosed turnover - present petition succeeds and is allowed” The claim of ITC is one that would have to be decided based on documents that are supplied by an assessee as well as material collated/available with the Assessing Officer and not by way of a cursory order, as has been done in the present case.
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||