The Central Board of Indirect Taxes & Custom (CBIC) has come out with a mechanism for clearer framework to curb fake invoices. This will help officials in determining demand and penalty in respect of transactions involving fake invoice much more effectively.
The new circular, based on decision taken by the GST Council last week, prescribes three scenarios and action in each one of them. First, what happens when there is an issuance of tax invoice by one registered person to another without any underlying supply of goods or services? As there is no supply, no demand for tax and recovery can be made, but the person issuing the invoice would be liable for penal action.
In the second scenario, a registered entity gets a fake invoice without any underlying supply, but gets ITC on the basis of that invoice. In this situation, the said business could be liable for demand and recovery of the said ITC, along with penal action and interest.
The third scenario involves issuance of a fake invoice by one registered entity to another and further passes on the said input tax credit to another registered entity. In such a situation, the second entity could be held liable for penal action on two counts – getting ITC fraudulently and issuing fake invoice.
The circular clarified that actual action to be taken against a person will depend upon the specific acts and circumstances of the case which may involve complex mixture of above scenarios or even may not be covered by any of the above scenarios.
“Any person who has retained the benefit of transactions specified under sub-section (1A) of section 122 of CGST Act, and at whose instance such transactions are conducted, shall also be liable for penal action under the provisions of the said sub-section,” the circular said.
Abhishek Jain, Partner (Indirect Tax), KPMG in India, says the government has clarified that in case of fake invoicing, no GST can be recovered from the supplier as no supply of goods/services was involved, however, penalty shall be leviable. Further, the recipient should not be penalised under different provisions of the GST law for the same offence, if penalty has already been levied on the recipient under one provision of GST law. “With these clarifications the Government has tried to ensure that the GST authorities do not go beyond the scope of law on discovery of such fraudulent instances,” he said.
CBIC has also come out with some other circulars too to implement decisions taken by GST Council. For example one circular says GST payable as a consequence of any proceeding Instituted under the provisions of GST laws, can be paid by utilization of the amount available in the electronic credit ledger of a registered person. Then another circular talks about transaction(s) between related parties are subject to GST levy even if made without a consideration. Further, employers and employees are deemed related under GST, while any consideration payable to an employee by the employer in the course of employment was kept outside GST purview.