An invoice is a commercial instrument issued by a supplier of goods and services as a receipt. It identifies both the supplier and the recipient involved in the transaction, the quantity, list price, description of the goods and services supplied, price of the goods and services, the tax rates and amounts, the date of invoice, the date of delivery and terms of payment (Cash or cashless mode).
Did You Know? Fake GST Invoice is not defined under the GST Laws.
What is a Fake GST Invoice?
The GST laws do not explicitly define fake GST invoices. However, a general interpretation of the GST laws will provide the scope for a definition. A fake GST invoice is an invoice that is created or used to claim GST input tax credit or to evade taxes by showing false or inflated GST charges. The invoice may be created by a business or an individual and may contain false information about the goods or services provided, the GST amount charged, or the GST registration number of the supplier. This malpractice results in
- Claiming undue excess ITC
- Showing excess turnover
- Transferring ITC from one fakely registered entity to another registered entity to suppress tax obligation.
Difference Between Correct & Fake Invoices
Due to the increasing number of fake invoices, the government made some harsh amendments to the law to prevent this from happening in the future.
Basis of Difference
A tax invoice as defined in section 31 of the CGST Act is what is meant by an invoice under the GST system. Any registered person who purchases goods or services from an unregistered party must submit both a tax invoice and a payment voucher, according to GST law.
A fake invoice is a fraudulent document that is created or used to deceive an individual or a business. It can be used for various purposes, such as to claim goods or services that were never provided, to inflate the cost of goods or services, or to obtain credit or payment for non-existent goods or services.
Legal Offence for Fake Invoice
As per sec.132 (1) of the CGST Act, 2017, whoever commits or is caused to commit and also retains the benefits arising out of the offence is liable for the following offences.
- If you provide any goods or services to a person (whether registered or not) without issuing an invoice, you're violating this Act.
- Under the Indian Penal Code, Section 471, using a forged document or electronic record, is punishable with imprisonment of any time period which may extend to seven years, and shall also be liable to a fine.
Penalty and Improvements Provided
All of the three mentioned activities constitute an offence under the GST laws for which the following penalty and improvement are provided:
- In a case of wrongful tax evasion, ITC utilization or tax refund involving up to ₹1 crore, the persons engaged in the fraudulent activity will face a minimum of 6 months imprisonment plus a fine as determined by the authorities.
- When the amount involved is between ₹1 and ₹2 crores, the maximum punishment is one year of imprisonment plus the prescribed fine.
- Where ₹2 to ₹5 crores is the maximum imprisonment of 3 years with the prescribed fine amount.
- In cases where the amount exceeds ₹5 crores, the maximum punishment is 5 years plus the prescribed amount of fine.
How to Identify a Fake GST Invoice?
There are multiple ways to identify a fake GST invoice. The contents of the invoice could be the first step. The GSTIN and other key content may be considered fake if they violate the provisions of the act and the rules.
Here are some ways to identify a fake invoice:
The Supplier Must Be Registered
Only a registered supplier can issue a tax invoice and collect the tax from the recipient to pay it off to the authorities. The following are persons who are required to be registered under GST:
- A person whose aggregate turnover exceeds ₹20 lakh (₹40 lakh in case of the supplier making the supply of goods only in the certain notified state, ₹10 lakh in case of special category state).
- A person making an interstate supply.
- E-commerce operators.
- A casual taxable person.
- A non-resident taxable person.
Besides the above categories, one can also opt for voluntary registration or sometimes opt out, unless he falls under one of the above categories.
GSTIN Should Be There on the Invoice
Every taxpayer who is registered for GST is given a unique identification number or GSTIN. Additionally, in accordance with GST rules, an e-invoice must have a valid GSTIN.
Go to the GST portal to check that the GSTIN is valid. If the GSTIN is invalid, the page will show it is invalid. Otherwise, the following details will appear on the screen:
- Trade name and the legal name of the business
- Date of registration
- State of registration
- Types of taxpayer
- GSTIN or UIN status
Check for Correct GST Rates
Occasionally, the taxpayer may charge incorrect GST rates. The store may not have correctly sorted the items, or the individual may have made a mistake when dividing the CGST and SGST.
In such circumstances, the taxpayer should consult a professional practitioner or visit the GST website to see the goods and services rates. You can use this to determine whether the provided products or services are GST-exempt.
Taxes, especially indirect taxes like GST, constitute a major portion of revenue for the government to finance the budget annually. Evading taxes heavily impacts the government's budget and cuts public spending. Making fake tax invoices and passing on ITC hurts public spending. In India, the government has set up a system to detect and take action against fake GST invoicing. This includes various measures to verify the authenticity of GST invoices and to ensure compliance with GST laws and regulations.
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