The GST Council, at next week’s meeting, is likely to consider a proposal to bring more clarity on action against entities involved in claiming Input Tax Credit (ITC), which has become a major source of issuance of fake invoices.

Since November 2020, the Centre and State have together booked more than 6,700 cases and arrested over 650 persons. More than 20,000 fake GSTNs have been unearthed, and over Rs. 50,000-crore in fake ITC demand has been detected, with the recovery at Rs 2,400 crore.

Businesses and officers have sought clarification on applicability of demand and penalty provisions in respect of transactions involving fake invoices. Officials say they would provide a clarification in the form of an FAQ, as recommended by the GST Council.

According to an official, clarification could be provided in three scenarios. 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 avails of 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 – availing of ITC fraudulently and issuing fake invoice.

Experts suggest more ways to curb the menace. Tanushree Roy, Director (Indirect Taxation) with Nangia Andersen LLP, suggests identifying multiple GSTIN registrations for a given address or PAN, GSTIN using incomplete or wrong addresses, high value transactions by new assesses and substantial payment of outward liability through ITC only, mismatch between the premises declared and the volume of goods transacted, GSTIN checks for mismatch between outward supplies and the Eway-bills generated, matching the data with other tax authorities such as Custom Authorities, Income Tax Authorities, Registrar of Companies, etc. Identification of users of fake invoices is equally important, and this can be done by examining abnormal ITC utilisation (say above 95 per cent),” she said.

Prateek Bansal, Associate Partner with law firm White and Brief, feels that the govt has not taken any steps to check whether there is actually a corresponding supply of goods against an invoice. Accordingly, he suggests appropriate fields be provided in monthly GST returns for declaring details of opening and closing stocks so as to track the purchase and supply of goods. The movement of goods may be traced by integrating the E-way bill portal with the FASTag system.

“There should be a close-knit interface platform between the GST department and other government authorities (such as electricity, pollution, municipalities, etc.) to identify lack of valid clearances / licenses / permissions that are required to deal in any manner with either inputs or final products or intermediate products, input services or output services. This will assist the taxmen in red-flagging non-compliant GSTNs,” he said.