Impact of Fake Invoice On GST Compliance
The problem of fake invoicing, or invoicing without actually supplying any goods or services to the customer has been a growing trend since the introduction of GST in India. This is because GST allows for accepting tax credits based on the tax of the inputs of the firm.
The Finance Ministry reported that over 29,000 fake firms have been identified and over 44000 crores of GST tax evasion detected in a nationwide drive over 7 months.
This has saved ₹4,646 crore of which ₹3,802 crore is by blocking ITC and ₹844 crore is by way of recovery. So far, 121 arrests have been made in the cases,” a finance ministry official said in a statement.
In line with this, the CBIC has shared an infographic presentation on the Twitter website about fraudulent ITC on invoices.
Impact of Fake Invoices:
A fake invoice is one that has no real supply of goods or services but is simply invoice issuance, which is used fraudulently to avail input tax credit (ITC). Unscrupulous elements misuse the identity of other persons to obtain fake/ bogus registration under GST to defraud the Government. Such fake/non-genuine registrations are used to fraudulently pass on input tax credits to unscrupulous recipients by issuing invoices without any underlying supply of goods or services or both.
Fake registrations and issuance of bogus invoices for passing off fake ITC have become a serious problem, as fraudulent people engage in dubious and complex transactions, causing revenue loss to the Government as well as unnecessary notices from the GST department.
Steps Taken by the Government:
1. Introduction of E-Invoice- The government has introduced e-invoicing to streamline the invoicing process, enhance transparency, and curb tax evasion and fraud.
2. Implementation of GST 2B Data- Leveraging GST 2B data provides users with access to purchase-related information, aiding in the verification of input tax credits and reducing the risk of fraudulent claims.
3. Updated GST Registration Process- The government has revamped the GST registration process to ensure stringent verification and authentication measures, mitigating the entry of fraudulent entities into the tax system.
4. Biometric-Based Aadhaar Authentication- Introducing biometric-based Aadhaar authentication enhances the security and integrity of taxpayer identification, minimising the risk of identity theft or impersonation-related fraud.
Precautionary Steps for Users of EaseMyGST:
1. Due Diligence at Taxpayer Level- Taxpayers should conduct thorough due diligence when engaging with other taxpayers to ensure legitimacy and credibility.
2. Vendor GSTIN Status Check- Verifying the GST Identification Number (GSTIN) of vendors is crucial to confirm their registration status and compliance with tax regulations.
Through EaseMyGST GSTIN Search option users can validate if the GSTIN status is active for a taxpayer, their GST filing status and check the place of business registration.
3. Vendor GST Filing Status Check- Users should regularly check the GST filing status of vendors to ensure they are fulfilling their tax obligations accurately and on time.
EaseMyGST Provides Bulk option to verify the vendor GSTR 3B Status which will give them a fair idea which the customer is depositing the Tax on time or not.
4. Checking IRN Number- Inspecting the Invoice Reference Number (IRN) associated with transactions can help users verify the authenticity of invoices and prevent fraudulent activities.
5. Sequential Filing of GST Returns- Following a sequential and timely filing of GST returns ensures compliance with tax regulations and reduces the likelihood of discrepancies or fraudulent claims.
6. Use of Data Analytics and Risk Parameters- Implementing data analytics and risk parameters can aid in detecting suspicious activities or irregularities in Input Tax Credit (ITC) claims, helping users identify and mitigate potential fraud.
7. Strong Reconciliation Tool- Utilising the robust reconciliation tools available in EaseMyGST enables users to match and reconcile financial data accurately, reducing the chances of errors or fraudulent transactions slipping through unnoticed.
8. Vendor Communication- Maintaining open and clear communication with vendors facilitates transparency and accountability in business transactions, allowing users to address any concerns or discrepancies promptly.
EaseMyGST provides features such as GSTIN search, an Advanced Reconciliation tool to match your purchases with GSTR 2A/2B. EaseMyGST segregates invoices or vendors whose input is missing, allowing you to communicate with vendors by sending emails along with invoice data directly from the platform. This reconciliation helps you identify fake invoices before recording them as inputs in your books.
These combined efforts by users and the government can contribute to a more robust framework for preventing and combating fraudulent activities in financial transactions, fostering a safer and more trustworthy business environment.