Several cases of fraud have occurred, with people fraudulently claiming Input Tax Credit and unethical refunds. Be careful before generating a fake invoice.
Introduction
The GST Act went into effect on July 1, 2017, with the goal of reducing tax evasion, facilitating the flow of credit, and eliminating the cascading effect of taxes. However, when we look today, we find that the most litigious issue is ITC. GST authorities discovered that some registered persons were involved in issuing tax invoices without actual supply of goods or services or both (fake invoices), allowing the recipients of such invoices to claim input tax credit (ITC) fraudulently and unscrupulously.
Understand Fake Invoice
Fake invoices are typically issued by an entity without any supply of goods or services or payment of Goods and Services Tax (GST).
The taxpayers primary motivation for issuing fake invoices could be any of the following:
GST evasion on taxable output supply
Excess ITC is converted into cash.
Showing excess Turnover
Making fake purchases in order to maximize income tax benefits
Misuse of company money
Laundering of funds
Respective Sections of Default/Penalty:
Under Section 74
Any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud, or any willful-misstatement or suppression of facts to evade tax.
Before Issuance of SCN | 15% of the total tax amount |
Within 30 days after the issuance of SCN | 25% of the total tax amount |
Within 30 days from the date of communication of order | 50% of the total tax amount |
In any other case | 100% of the total tax amount |
Under Section 122(1)(ii)
Issues any invoice or bill in violation of the provisions of this Act or the rules made thereunder without the supply of goods or services, or both
Penalty of Rs.10,000 or tax evaded/ITC availed/tax passed on whichever is higher
Under Section 122(1)(vii)
Where any taxable person takes or uses input tax credit without actually receiving goods or services, or both, in violation of the provisions of this Act or the rules made thereunder.
Penalty of Rs.10,000 or tax evaded/ITC availed/tax passed on whichever is higher.
We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.
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