Goods and Services Tax (GST) invoice, also called a GST bill, is a comprehensive record of goods dispatched or services rendered, accompanied by the corresponding payment dues. It is a mandatory document for every business registered under GST, highlighting essential details such as a valid GST Identification Number (GSTIN) and the distribution of taxes, including Integrated GST, Central GST, and State GST. Given its significance, understanding the intricacies of a GST invoice is paramount, particularly in discerning genuine invoices from counterfeit ones.
What is a Fake GST invoice?
A Fake GST Invoice is a document issued under the Goods and Services Tax (GST) regime without the actual supply of goods or payment of GST. These invoices are typically generated to facilitate activities like money laundering, evading GST, recording fictitious purchases, and converting Income Tax credits into cash, as highlighted by the Union Ministry of Finance.
How do you identify fake GST invoices?
Identifying or detecting a fake GST bill in India is crucial to prevent fraud, such as unfair refunds and false claims for Input Tax Credits (ITC). An invoice is a vital document that validates transactions and facilitates the parties’ identification. The authenticity of a GST invoice depends on its contents. The Central Board of Indirect Taxes and Customs (CBIC) has issued a circular addressing unethical ITC claims. A genuine GST invoice should include a list of items supplied or services rendered, along with the corresponding payment amounts. Additionally, it must feature a valid GST Identification Number (GSTIN) and provide a breakdown of Integrated GST, Central GST, and State GST.
Steps to verify GSTIN
Identifying fake GST invoices is crucial for maintaining integrity in financial transactions. Here are the key steps to follow:
Validating GSTIN numbers:
To ensure the authenticity of an invoice, verify the GST Identification Number (GSTIN) through the GST portal. A valid GSTIN will display essential details such as taxpayer type, registration date, location, legal name, and trade name.
Presence of GSTIN:
Legitimate invoices must include the seller’s GSTIN as mandated by GST regulations. Confirm the presence of GSTIN to ascertain the invoice’s validity.
Checking GST Rates:
Cross-reference the GST rates mentioned in the invoice with the official GST website. Any discrepancies should prompt further investigation, including consultation with a tax professional.
Verifying Registered Supplier:
Verify that the supplier is registered under the Goods and Services Tax regime. Eligibility criteria for issuing GST invoices include being a taxable person, e-commerce operator, or having an aggregate turnover exceeding Rs.20 lakh.
Search by PAN:
Utilize the GST portal to conduct a PAN-based search to verify the supplier’s payment status. Enter the PAN number to confirm compliance, noting differing turnover thresholds for notified and special category states.
Risks of using fake GST invoices
Flagging in Offence Database:
Entities issuing fake invoices will be flagged in an offense database. This triggers automatic alerts to the GST authorities for further investigation.
Identification of Input Tax Credit:
Investigating entities’ past transactions with other parties to identify availed input tax credits is crucial. Recovery measures will be initiated according to legal provisions.
Evocation of Section 89 of CGST Act 2017:
If directors are found criminally involved in GST evasion based on prima facie evidence, Section 89 of the CGST Act 2017 will be invoked.
Provisional Attachment of Property:
Under Section 83 of the CGST Act 2017, provisional attachment to property, including bank accounts, can be enforced to prevent asset dissipation.
Cancellation of GST Registration:
Suppliers caught issuing fake GST invoices face canceling their GST registration. Re-registration may be subject to physical verification in some instances.
Blocking Input Tax Credit:
Input Tax Credits will be blocked for entities involved in fake invoicing to prevent them from unlawfully claiming undue ITC benefits.
How Fake Invoices Are Utilized by Fraudsters?
Here is how fake invoices are utilized:
Issuing Invoices Without Supplying Goods or Services:
Fraudsters issue invoices without supplying goods or services, deceiving authorities and businesses.
Falsely Claiming Input Tax Credit (ITC):
By showing payment through non-existent ITC, fraudsters create fake invoices, leading to a loss of government revenue.
Transferring ITC Between Companies:
Fake invoices transfer ITC from one company to another, inflating turnover without actual supply, a violation tracked under Rule 16 of the CGST Act, 2017.
Discrepancies in Goods and Services:
Fraudsters manipulate invoices by showing discrepancies between the goods and services mentioned and those received. This allows them to utilize ITC wrongfully and claim GST refunds.
Also Read: Keep A Check: Are Your Details Being Used To Create Bogus Entities?
Conclusion
Evading taxes, particularly through creating counterfeit GST invoices and improperly claiming Input Tax Credit (ITC), significantly undermines the government’s revenue and affects public expenditure. India has established mechanisms to identify and address fake GST invoicing, employing various measures to authenticate invoices and enforce compliance with GST laws and regulations.
Also Listen: Importance of GST number verification
Frequently Asked Questions(FAQs)
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How can you prove a fake invoice?
You can establish a fake invoice through various methods, including meticulous review of invoice details, verification of vendor information and payment history, utilization of fraud detection software, and scrutiny for grammatical errors, typos, and inconsistencies.
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What happens if you make a fake invoice?
Issuing a fake GST invoice can have severe legal consequences, including criminal and civil actions, prosecution, and imprisonment. If charged with invoice fraud, it is advisable to seek legal counsel from a business attorney.
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Can I be jailed for not paying GST?
Individuals found guilty of GST evasion or fraud, including issuing fake invoices, may face arrest and imprisonment by authorized CGST/SGST officers. Non-payment of GST is considered a criminal offense under GST laws.
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How is GST fraud done?
GST fraud typically involves issuing fake invoices for a zero-rated supply of services, allowing fraudsters to claim refunds on export services without delivering the products. Exploiting GST refund mechanisms can lead to financial losses and legal consequences.
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How do I know if my invoice is original?
To verify the authenticity of an invoice, compare it against the goods receipt and authenticate the vendor’s name, address, product quantity and description, and prices listed for the products.
