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Precautions you should take against Fake Invoice

Precautions you should take against Fake Invoice

Many of your clients would have received DRC-01A with the context that either the supplier is absconding, or his registration has been cancelled retrospectively, hence your client is required to deposit GST on the said invoices. Despite the transactions being reflected in GSTR 2A, having proper tax invoices and making the payment to vendor, GST department is pushing the recipient to pay the taxes under the garb of fake invoice. But is it really a fake invoice that needs to be understood?

What is fake?

As per Black’s Legal Dictionary “Fake” means something that is not what is purports to be or to make or construct falsely. Whereas in case of a business concern, once the material has been sold which has been either consumed or further sold by the recipient, there arises no question of transaction being fake. Fake in the parlance of GST would mean that the goods were never supplied, or the facts mentioned in the invoice are false. But where there is no evidence on record which proves that goods were never supplied, muddling the recipient with the same is against the principal of natural justice.

Legal Provisions

As per Section 16(2)(c) of Central Goods and Services Tax Act 2017, the recipient is eligible to claim ITC only once it has been paid to the government. Till that time such an ITC remains provisional only. The only evidence of payment of tax with the government is filing of GSTR 3B by the supplier. In most of the cases it is found that the supplier has filed only GSTR 1 just to pass the ITC but did not file GSTR 3B. Under these circumstances, it comes to light that the tax has not been paid and hence condition u/s 16(2)(c) is violated.

Why is recipient made liable when he has paid tax to the supplier?

It is true that the recipient has paid the taxes to the supplier, but the fact remains that the same has not been deposited with the Government. As per Section 43A (6) the responsibility towards deposit of tax with the government has been fixed jointly on supplier and recipient. That would mean that tax can be recovered from either of the parties. In cases where the supplier has defrauded the department and recipient is found, the latter would be made liable to pay the tax.

How to prove that the transaction is genuine?

Our experience tells that in most of the cases despite a genuine transaction where recipient isn’t aware about the intentions of the supplier, the recipient is caught liable to pay the tax amount. Under these circumstances, it is important that in case of newly listed vendors, the taxpayer must do due diligence and ensure that documents 1. Tax Invoice 2. Eway Bill 3. Toll slips 4. Weigh measurement slips and 5. Goods Receipt Register are properly prepared and kept handy. Where all the documents are produced before the authority, the taxpayer is likely to escape the matter. Further in case of new vendors, the recipient should first call for copy of GSTR 3B filed by the vendor to ensure that taxes have been deposited with the department.

As a consultant, what Precautions you should take against Fake Invoice?

As a professional, at times we tend to enter the shoes of the client and just to make it convenient for filing of returns we usually enter our phone numbers and email in taxpayers gst account. First, kindly change the email and phone number immediately. Secondly, get the declaration signed from the client that whatever returns are being filed are as per the documents and records submitted by the client. Thirdly, abstain from attesting the documents of the client till the time you are pretty sure about the authenticity of documents. Taking these precautions would save you as a consultant.

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