NEW DELHI: The Central Board of Indirect Taxes and Customs or CBIC on Wednesday issued clarifications on the applicability of GST demand and penalty for transactions involving fake invoices.
As per the circular, there have been several instances when registered individuals were found to have issued tax invoices without supplying any services or products to fraudulently claim an input tax credit (ITC).
The tax department said it has received requests from the trade and field formations for clarification on the issues pertaining to demand and penalty provisions with regard to fake invoices.
“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, the penalty shall be leviable. Further, the recipient should not be penalised under different provisions of the GST law for the same offence, if a penalty has already been levied on the recipient under one provision of GST law,” Abhishek Jain, Partner, Indirect Tax, KPMG in India said. He added that with these clarifications the government has tried to ensure that the GST authorities do not go beyond the scope of the law on discovery of such fraudulent instances.
According to the circular, if a registered person issues a tax invoice to another registered person without making any underlying supplies of goods, services or both, the transaction will not be considered as “supply”. The person who issued the invoice may face a penalty for issuing fake invoices. However, no penal action or tax will be applicable on the actual transaction under section 73 or 74 of the CGST act.
Further, if a registered person issues a tax invoice to another, without any underlying supply of goods and services or both, and the latter then avails of ITC on it and also issues an invoice to his buyers so that he can use the ITC to pay off tax liabilities on the outward supply, then he will be held responsible for the demand and recovery of the ITC.