The GST Fake invoices frauds are largely carried out by the non-existent taxpayers & by using a network of firms set up to usurp ITC.
Gaurav Mohan, Richa Jain
There are numerous fraud cases involving GST Fake Invoicing which implies claiming Input Tax Credit (ITC) fraudulently and unscrupulous refund claimants. The issue of fake invoicing may not have a serious impact on the economy in the short run, but it has an impact in the long run unquestionably. Generally, the GST Fake invoices frauds are largely carried out by the non-existent taxpayers & by using a network of firms set up to usurp (illegally) ITC.
At a time when the government is already struggling with low revenue collection due to the COVID-19 Pandemic Virus, cases of GST Fake invoicing fraud are making a further dent in the government’s pocket and its ability to spend. According to the Finance Ministry sources, the Directorate General of GST Intelligence (DGGI) & CGST Commissionerate has so far arrested 48 persons including one woman and 3 Chartered Accountants, and have booked 648 cases besides identifying 2385 entities, in just ten days of the nationwide drive against GST Fake invoicing frauds.
The very attempt of this article is to aware the taxpayers of the consequences of “Generating Fake invoices & Indulging in the related frauds”. On the same side, the actions/measures suggested by the Law committee of the GST Council to curb these cases, are also conversed here.
Firstly, it is very imperative to know the exact meaning of “Fake Invoice”. When a registered person issue a tax invoice without actual supply of goods or services or payment of GST then such invoices are presumed to be “Fake Invoices”. And this act of the taxpayers would imply “Fake invoicing fraud”. After the nationwide drive against the GST Fake Invoicing Frauds through which various defaulters came into the eye of GST authorities, the main course observed is that GST Fake invoices are not issued only to pass & avail the Fake input but also used for nefarious activities leading to tax evasion & massive bank loan fraud.
The manifold objective/purpose of the taxpayers behind issuance of fake invoicing may involves:
- Availment of the undue input tax credit on fake invoices by the recipient.
- Evade Goods & Services Tax & Income tax & then Divert funds from companies.
- To show non-existent transactions to hike figures on the books to obtain loans from banks and to siphon off funds.
- To claim GST refunds for exporters.
- To conduct hawala transactions (money transfer without money movement).
GST Council has also adopted few standard operating procedures for “how to detect and tackle the fake invoices”. It is very important to identify the generators and users of fake invoices and check the authenticity of the invoice. Not only the ones who generate fake invoices but also those who use fake invoices are responsible for leading to these kinds of frauds.
For identification of generator and user of fake invoices following steps can be used:
- Multiple registrations for single address and single PAN
- Common Registration details like email, mobile no’s, address, authorized signatories, promoters for multiple GSTIN
- Incorrect or fake address given on GST portal while taking registration
- The mismatch between premises declared and volume of goods delivered to them at the time of physical verification
- The mismatch between the volume of goods transacted and e-way bill generated
After identification of generator and user of fake invoices, investigation of premises is to be established for analyzing the occurrence of the actual supply of goods or services by the supplier and gather information in respect to the fake invoices. Following steps can be followed for investigation:
- Searching all the premises to look for any signs that will clear the doubt about the creation of fake invoices
- Any other indicator that shows a mismatch with quantity declared and consumption of electricity or water etc
- Valid licenses, permission or clearance from any other authorities is received or not for dealing with either inputs or final product or input service or output services
- Agreements between buyer and supplier
- Assessment of any mismatch between e-way bills produced concerning the invoices generated
- Mismatch with the details supplied to any other agencies of Government like Income tax, Registrar of companies.
Final action to be taken by the Government after investigating the genuineness of the supplier who generated the fake invoice and buyer who used that invoices for the taking unnecessary tax benefit. Once the forgery is proved then the following steps to be taken as below:
- Cancellation of GST registration
- Re-registration of such entities under GST law is differently dealt with than normal registration. No deemed registration should be done in this case and physical verification by the officer must include before allowing re-registration
- GSTIN of Such supplier are flagged for generating fake invoices or for any other frauds and this will indicate those buyers who take credit on behalf of fake invoices and automatic alert for further verification by the officer
- Input tax credit availed on behalf of fake invoices to be recovered as per the provision under the law
- Even in certain cases, the input tax credit may be blocked from such persons so that no one can get the undue advantage of credit
Two-pronged measures are suggested by the GST Law committee to Curb GST Fake invoicing frauds:
1. New registration applicants in which registration process has to undergo various verification like live photo, use of biometrics, Compulsory physical verification, and so on. The government may also seek for conditional registration for the applicant those are not “trustworthy”.
2. Weeding out of existing fake dealers from the systems- The Law Committee also proposed Business Intelligence and Fraud Analytics (BIFA) tool for precise identification of riskier dealers
There are about 600,000 dormant registrants in GST. About 35,000 such dealers who were given registration in 2018-19 and 2019-20, having annual GST liability of more than INR 50 lakh, 99% of which is paid through ITC have no credential in income tax (did not pay income tax even of Rs 1 lakh in last three years. Since GST fraud has become an increasing problem both in terms of the number of cases reported and the scale for the amount being involved under this.
Hence, control measures are needed to mitigate and minimize fraud that’s why the Government took a wonderful step to avoid frauds i.e. implementation of e-invoicing and planning to introduce new returns in the upcoming fiscal that will help in curbing evasion. Further, an honest taxpayer should be aware of his duties and compliance provision of GST law and should take all possible steps to stay away from any frauds of GST law.
Gaurav Mohan is CEO and Richa Jain is Manager at AMRG & Associates. Views expressed are the authors’ personal.