How to handle the problem of fake billing in GST

GST was introduced with the intention of making it a game changer in the indirect taxation regime. It was introduced as “One nation, one tax”. We all faced a lot of difficulties while practically practicing it but the changes were kept introducing to make it simple and to solve the problems taxpayers were facing. As we all know that it was a new thing for the whole nation and everyone was struggling in implementing it but some businesses were busy finding the methods of tax evasion. They were creating fake invoices with the fake GSTN and claiming the amount as ITC so they don’t have to pay any tax liability. This leads to a huge amount of tax evasion. 

What is fake invoicing?

To understand the depth of this problem, you have to first learn the meaning of fake invoicing and how some taxpayers are practicing it even after knowing that it’s not allowed under GST law. Fake invoicing is when fake invoices are generated by the seller to the purchaser with the help of fake GSTN. So, they can avoid paying tax or can claim extra ITC. 

For example: If an unregistered seller is generating fake invoices under fake GSTN and collects GST from the recipient then it’s not legal because as per the GST law only registered taxpayers can generate invoices and collect GST from the recipient. The second situation is when any taxpayer is claiming the extra ITC only to avoid tax liability. According to the law the claim of ITC should only take place when the goods or services are actually received by the recipient and he had paid the GST while it. 

In India, a lot of incidents have taken place of fake invoicing and huge amounts of tax evasion so it was very necessary to avoid such hurdles. 

Results of fake invoicing

Because of the fake invoicing the tax evasion is happening on a very large number. It’s a loss to the government and in the case of invoicing happening with fake GSTN the registered can’t claim the ITC and at the end they had to pay the amount even after they already paid it. So, it is very dangerous for the country because if GST was introduced to overcome such problems and for it the government took some strict actions which is also leading problems for some taxpayers and the honest taxpayers are also suffering from it. The defaulters are showing the wrong financial statements for taking loans from banks and financial institutions.

Steps taken to avoid the process of fake billing

As we discussed above, the depth of this problem is deeper than we think. So, following are the steps taken to save taxpayers from such malpractice.

• Claim the limited ITC : This is a problem which is faced by all the taxpayers while filing returns, especially while paying tax. As the latest notification, you can only claim the excess 10% of the amount reflecting in your GSTR-2A even if you have all the legal invoices of the tax paid while making purchases there’s no guarantee that you claim it also as ITC. Firstly, the second party has shown it while filing their GSTR-1 with your correct GSTIN only then you claim the amount because it is reflected in your GSTR-2A. 

• Be sure about the details of the second party : You have to check GSTN and returns filed status of the second party from the portal. It is a very less time taken process and you can be sure about the second party so you don’t have to face any problem while claiming the ITC for the same transaction.

• Control with the help of e-bills : Those taxpayers who are practicing fake invoices are generating bills without any movement of goods in real, so the tax authorities can keep track of the movement of their goods with the help of e-bills.

• Necessary verification before giving the registration : There are a lot of taxpayers who are generating fake companies for issuing the fake invoices and claiming the amount. So, before approving the application of the registration the government will make sure about your true identity and make an adequate check of your place of business and nature of the business.

• Lack of knowledge : As we know that the GST was introduced a few years ago and there is a lack of knowledge about GST among taxpayers. If the government will provide the basic knowledge of it to the taxpayers so they can also help the government in stopping the generation of the fake invoices.

• Precaution while granting them loan : This is for the financial institutions and banks to don’t believe the details the taxpayer is providing while taking loan. They need to go through it and match the turnover with the help of the GST authorities.

Suman Bisht

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