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A large number of GST fraud cases involving the use of fake invoices for wrong availment of input tax credit (ITC) which is further used to pay GST has been detected since GST implementation.

In a number of cases booked by the GST authorities, fraudsters have been found to have created multiple dummy firms, obtained GST registrations, issued fake GST invoices of goods and services without actual supply of services, and passed on ineligible ITC accrued from the bogus invoices to clients for a commission, who subsequently used it to make GST payments. 

What is a fake GST invoice?

A fake invoice has not been defined anywhere in GST law. But in general, a fake invoice refers to an Invoice that does not comply with the provisions of the Act and Rules. 

The “Invoices” that are usually treated as ‘fake’ are those wherein the GST invoices are raised by an entity without actual supply of goods or services or payment of GST. There are three ways in which such fake invoices could be misused in the GST regime. 

i. Issue of invoices without actual supply of goods or services where payment of tax is made by way of Input Tax Credit which is not available to the issuer of invoice. In such cases, there is no receipt of goods or credit by the issuer of the invoice. He merely issues invoices and shows payment of tax by a nonexistent ITC. 

ii. Issue of invoices by persons where the invoice is issued to one person and the goods are diverted to some other person. The person who purchases invoices may utilize the credit for payment of taxes at the time of export of goods and claim a refund of the said tax paid.

iii. Routing of invoices through a series of shell companies/dummy companies and transfer of input tax credit from one company to another in a circular fashion to increase the turnover. In such cases, there is no supply of goods or services and thereby availment of credit based on such invoices gets hit by the provisions of Rule 16 of the CGST Act, 2017, which stipulates that the conditions that to avail credit, the buyer should have an invoice on which tax has been paid and he should have received the goods. 

Possible reasons for generating fake invoices

1. Evasion of GST on taxable output supplies by:

a) Availing undue ITC

b) Saving GST (cash) by payment of tax liability using undue ITC

c) Clandestine supply without invoices and without payment of taxes

2. Converting excess ITC into cash by:

a) Transferring of ITC to those who can utilize it

b) Shifting ITC from exempted supplies to taxable supplies

c) Encashment of ITC by way of IGST refund or unutilized ITC refunds

3. Inflating turnover for the purpose of:

a) Availing higher Credit Limit/ Overdraft from Banks

b) Obtaining bank loans

c) Improving valuations for IPO or sale of stake

d) Obtaining contracts including Government contracts

4. Booking fake purchases for getting Income-tax benefits by:

a) Showing reduced profit margins and higher expenses

b) Avoiding payment of Income-tax by reducing net profit

5. Cash generation/ diversion of company funds

6. Laundering of money

How to identify the generators and users of fake GST invoices?

To identify the generators and users of fake invoices, the following risk parameters can be used.

a) Multiple GSTIN registrations for a given address.

b) Multiple GSTIN for a given PAN.

c) GSTIN using incomplete or wrong addresses.

d) Taxpayers using sensitive commodities.

e) Common e-mail, common mobile numbers, common address, common authorised signatories, common promoters for multiple GSTIN.

f) Mismatch between the premises declared and the volume of goods transacted.

g) Mis-match between the quantum or transactions and the e-way bills generated. If there are no e-way bills or less e-way bills generated compared to the details of transactions as per the GST returns.

h) PAN involved in any “fake invoice” fraud or any other GST frauds appear as either in GSTR1A or GSTR 2A.

i) Abnormal ITC utilisation (for example above 95%).

fake invoices

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