GST Evasion using Dummy Invoices
Business / Jul 06, 2020
Dummy invoices have outreached in numbers lately. GST Investigation Wing has thus released SOP to the GST council to tackle the emergence of the dummy and fake invoices. Let’s see what the government has to say about tackling them down.
Input Tax Credit
To have a better understanding of dummy invoices fraud in GST, it is important to know what input tax credit is. Input Tax Credit can be claimed by the customer/buyer on the GST paid on the purchase of the goods or services.
This Input Tax Credit can be claimed either after the processing of the goods purchased or on the resale of the same goods by the customer.
For instance, a buyer paid Rs. 250 as GST on the purchase of books from the seller. The buyer then sold the books to an end customer and received Rs. 450 as GST from the customer. In the whole process, the net GST to be paid to the government will come out to be Rs. 200 i.e. Rs. 450 minus Rs. 250. Thus, Rs. 250 is the Input Tax Credit that the buyer can claim from the Government.
Dummy Invoices
Dummy invoices or the fake invoices are a result of claiming Input Tax Credit from the government without actually paying the GST. There are various ways in which this is done:
When no GST is paid
A buyer receives a dummy invoice from the seller on the purchase of goods and services. Here, the seller doesn’t pay the GST to the government as the invoice generated was a dummy.
No actual sale of goods and services
The seller issues a dummy or fake invoice for the sale of goods and services which didn’t happen in reality. It was all just on paper to get the Input Tax Credit amount.
Invoices and goods issued to different entities
When the seller issues the invoice to one person and sells the goods to another
Routing through shell companies
Routing invoices through shell companies results in the circular movement of dummy invoices and goods to boost the turnover.
Tackling Dummy Invoices
Here is the Standard Operating Procedure adopted by the GST council to tackle the dummy invoice. Firstly, it’s important to identify the identities involved in committing the fraud. Not only the ones creating dummy invoices but also the users of the dummy invoices are responsible.
Here is how the entities can be identified:
- A person having multiple GSTIN registrations
- Incorrect or fake address offered for GST registration
- Mismatches between the volume of goods transacted and E-way bills generated
- Input Tax Credit usage abnormally high
Investigation of the premises that houses Dummy invoices
- Searching the premises to look for any signs that will clear the doubt
- Checking the water and power consumption and matching with the quantum of orders manufactured to match the feasibility of both
- Checking the space of the manufacturing unit
- Assessment of all the E-way bills produced
- Mismatch of the details produced to the Government related to the manufacturing unit and related details thereof.
Final action to be taken by the Government
The final actions to be taken by the Government once the forgery is proved
- Cancellation of the GST registration
- GSTIN of such entities are flagged under frauds and is notified to be authorities through automatic alerts when invoices are purchased in the future.
- Re-registration of such entities only after a more vigorous process than normal which may also include physical verification
- The Input Tax Credit availed from all fake invoices to be recovered.
- Even in certain cases, the Input Tax Credit can be blocked from such entities
So, these were the Tackling SOP to be adopted by the Government on the tax evasions using dummy invoices.
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