The fake invoices usually don’t have any corresponding supply of goods/services, nor do they involve payment of GST.
The indirect tax department has developed a risk-based index to identify entities likely to indulge in generating ‘fake invoices’ to evade tax and is strengthening the legal and administrative framework to curb the menace. These steps could potentially lead to additional goods and services tax (GST) collection of Rs 50,000 crore a year, according to the department’s internal estimate.
The fake invoices usually don’t have any corresponding supply of goods/services, nor do they involve payment
of GST. These are used by the entities concerned to claim undeserved input tax credit (ITC) and use them to meet
the GST liability on their outward supplies.
The entire chain also involves defrauding banks by exaggerating turnovers and money laundering. Sources said ‘risky
entities’ could be identified by “following the footprints” of the companies and persons involved, but refused to elaborate for obvious reasons. Further, a database could be created of frauds in the erstwhile indirect tax regime to identify potential wrongdoers, the sources said. The new sophisticated risk profiling would also help the taxman identify entities that have evaded detection thus far.
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The taxman would keep a close watch on firms that quote common addresses, PANs, emails, mobile numbers or authorised signatories. Firms that consistently show mismatch in reported transactions and e-way bills (EWB) would also be seen as being ‘risky’.
Entities using abnormally high portions of ITC could be seen as potential frauds. The taxpayers who are irregular filers of income tax returns and consistently report less than Rs 2.5 lakh income would be monitored. Further, the exporters who deal with commodities subjected to high integrated GST and often claim IGST refund of over Rs 10 lakh would also be treated with suspicion.
The GST Council approval for integration of EWB and FASTag — which are mechanisms to identify movement of vehicles on the road — in its last meeting was aimed at curbing misuse of EWB mechanism. This would be fortified further when Vahan database is accessible directly through EWB and FASTag platforms, the sources said.
Further, the department is considering including offences related to issue of fake invoices under the Prevention of Money Laundering Act (PMLA), 2002 and introducing the provision of blocking ITC for fake invoice issuer as well as user. The efforts could be fur0ther strengthened by ensuring that a proceeding under the Indian Penal Code are also undertaken along with departmental actions.
Since GST was rolled out in July, 2017, the department has detected generation of fake invoices to the tune of over Rs 15,000 crore. This includes such invoices that were issued and those used for availing ITC. However, sources say the amount of such fraud detected could well be 10-30% of actual fake invoices circulating in the system.
The department has also identified root of the problem, and as expected the inability of the system to implement invoice-matching as envisaged in its original design has led to the proliferation of the menace. This prevents verification of ITC claimed, ITC availed and IGST refunds sought from the supplier’s end, which makes it harder to detect wrongdoing timely.
Further, lax provisions governing KYC verification — implemented to allow ease of registration for taxpayers — has also contributed to entities with dubious financial standing, the sources said.