India, like most other countries across the globe, has witnessed economic setbacks owing to the ongoing pandemic. The nation is battling a low revenue turnaround and taxation frauds have made matters only worse. At present, there are a record number of ongoing cases pertaining to the generation of fake GST invoices. These frauds have created a major dent in the government’s tax revenue. Consequently, authorities are unable to effectively allocate funds required for the country’s development.
Provisions to Curb the Issue
The government has put in place a provision that aims to manage this ongoing fraud. Union Finance Minister Nirmala Sitharaman proposed the ‘Provisional Attachment of Assets’ in the Budget speech of 2021-22. This provision applies to involved parties generating fake GST invoices of more than Rs. 2 crore.
The recently added Section 114AC of the Finance Bill, 2021, reads, “Where any person has obtained any invoice by fraud, collusion, willful misstatement, or suppression of facts to utilize input tax credit based on such invoice for discharging any duty or tax on goods that are entered for exportation under a claim of refund of such duty or tax, such a person shall be liable for a penalty not exceeding five times the refund claimed.”
The new provision is also inserted in the Customs Act under section 114AC to levy penalty in cases wherein an individual claims a tax refund or duty discharge on the export of goods. It essentially aims to control the generation of fraudulent invoices. Any person found guilty shall be liable to a penalty that does not exceed five times the refund claimed.
Other measures taken to prevent GST invoice frauds:
- Aadhaar Verification: The authorities have made it mandatory to verify the Aadhaar card. Additionally, GST registrations are only allotted post a physical verification procedure.
- Artificial Intelligence and Data Analytics: The business supply and purchase patterns are to be understood through the use of data analytics and advanced technology, such as artificial intelligence. The tools are also to be used to flag any abnormal patterns in business distribution.
What is Considered as a Fake GST Invoice?
A business registered under GST must mandatorily issue an invoice that incorporates a valid GSTIN. It must also include a break-up of the SGST, IGST, and CGST. Additionally, the invoice should include other fields as stated under the GST Invoice Rules. All the vital information pertaining to the delivery must be furnished as part of the GST invoice. A typical GST invoice that is missing all the stated factors is considered to be a fake invoice.
Instances Where a GST Invoice may be Considered Fake
- An issued invoice that does not include the GSTIN.
- A business not registered under GST but furnishes a fake GSTIN when generating an invoice. The business collects GST, but does not deposit it with the government owing to the fake GSTIN.
- A GST invoice issued without supplying the goods. Essentially, a fake transaction that is primarily made with an intention of fraud.
Common Identifiers of Fake GST Invoices
- Fake address furnished when filling the address on the GST portal.
- Multiple account registrations on a single address.
- The discrepancy between declarations made at the time of invoice generation and the volume of goods delivered.
- Incorrect details entered when generating an invoice, i.e. fake email id, mobile number, address, and authorized signatories.
Repercussions of Indulging in GST Invoice Fraud
Investigating authorities evaluate the actions and intentions of the parties involved in generating the fake invoice. If the fraud is proved, the government:
- Cancels the GST registration number
- Revokes and recovers the input tax credited through the fake invoice generation
- Flags GSTIN as belonging to a fraudulent supplier
When is a Penalty Imposed?
A penalty is imposed when the officer finds that the accounts include false entries and an omitted entry that does not sum up during computation. Any alteration made to evade tax will lead to a penalty. Secondly, not only the person who has committed the fraud, but anyone who incites the first person to make the false entry is liable to pay a penalty.
Visit Finserv MARKETS to know more about GST invoices and to stay up-to-date about the latest developments in the system.