Bogus Billings, Fake Input Credit, GST Evasion and Arrests

Introduction

Let’s face it, the moment a new tax system is introduced, there’s always a group of cunning individuals plotting to dodge it. In India, the Goods and Services Tax (GST) system is no exception. From counterfeit invoices to fabricated input tax credits, the modus operandi of GST evasion in India is as diverse as it is intriguing. So, buckle up and join us as we delve into the murky realm of fake invoices, fake input under GST, arrest provisions, and the strategies employed to outsmart the taxman in India.

The Art of Deception: Fake Invoices and Fake Input

A Slippery Slope: Understanding Fake Invoices

When it comes to GST evasion, fake invoices are the bread and butter of fraudsters. These counterfeit documents are used to claim input tax credits (ITC) illegitimately, dodge taxes, and mask the real transaction trail. Here’s the lowdown on the types of fake invoices commonly used:

1. Bogus billing: The creation of phony invoices for nonexistent goods or services, solely to claim ITC.
2. Round-tripping: The act of moving goods between shell companies, using fake invoices to inflate turnover and claim ITC.
3. Over-invoicing: Inflating the value of goods or services on the invoice to claim higher ITC.

The Devil’s in the Details: Fake Input Tax Credits

With counterfeit invoices in hand, fraudsters can exploit the GST system by claiming fake input tax credits. This illicit practice undermines government revenue and creates an uneven playing field for honest businesses.

• Phantom businesses: Fraudsters create fake companies that “sell” goods or services to one another. In reality, no transactions take place, and the sole purpose is to claim ITC.
• Pass-through entities: Real businesses act as intermediaries for fake transactions, taking a cut for their participation in the scheme.

Punishment under section 132 of CGST Act

(1) 1[Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences], namely:-

(a) supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;

(b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;

(c) 2[avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;]

(d) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;

(e) evades tax 3[****]or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d);

(f) falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act;

(g) obstructs or prevents any officer in the discharge of his duties under this Act;

(h) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;

(i) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;

(j) tampers with or destroys any material evidence or documents;

(k) fails to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or

(l) attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section,

shall be punishable-

(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;

(ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine;

(iii) in the case of any other offence where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to one year and with fine;

(iv) in cases where he commits or abets the commission of an offence specified in clause (f) or clause (g) or clause (j), he shall be punishable with imprisonment for a term which may extend to six months or with fine or with both.

(2) Where any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years and with fine.

(3) The imprisonment referred to in clauses (i), (ii) and (iii) of sub-section (1) and sub-section (2) shall, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, be for a term not less than six months.

(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act, except the offences referred to in sub-section (5) shall be non- cognizable and bailable.

(5) The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable. 

(6) A person shall not be prosecuted for any offence under this section except with the previous sanction of the Commissioner.

Explanation.- For the purposes of this section, the term ” tax” shall include the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or refund wrongly taken under the provisions of this Act, the State Goods and Services Tax Act, the Integrated Goods and Services Tax Act or the Union Territory Goods and Services Tax Act and cess levied under the Goods and Services Tax (Compensation to States) Act.

* Enforced w.e.f . 1st July, 2017 .

1. Substituted vide Notification No. 92/2020-C.T., dated 22-12-2020 for ” Whoever commits any of the following offences ” by s.127 of the Finance Act, 2020 (No. 12 of 2020) – Brought into force w.e.f. 01st January, 2021.

2. Substituted vide Notification No. 92/2020-C.T., dated 22-12-2020 for ” (c) avails input tax credit using such invoice or bill referred to in clause (b); ” by s.127 of The Finance Act, 2020 (No. 12 of 2020) – Brought into force w.e.f. 01st January, 2021.

3. Omitted vide Notification No. 92/2020-C.T., dated 22-12-2020 ” , fraudulently avails input tax credit ” by s.127 of The Finance Act, 2020 (No. 12 of 2020) – Brought into force w.e.f. 01st January, 2021.

The Name of the Game: Modus Operandi to GST Evasion in India

In a cat-and-mouse game, the tricks used by fraudsters to evade GST are ever-evolving. Here are some of the most common tactics:

1. Shell companies: Setting up fictitious firms with fake addresses and directors to avoid detection.
2. Digital footprints: Using encrypted messaging apps, VPNs, and other technology to communicate and cover their tracks.
3. Cross-border transactions: Exploiting differences in tax rates between states or countries to claim ITC fraudulently.