High Court Penalises Company for Falsely Claiming GST Tax Credit

The Delhi High Court has fined a company for cheating by wrongly claiming input tax credit (ITC) under the Central Goods and Services Tax (CGST) law to avoid paying the full GST amount.

The court raised serious concerns about the misuse of this GST rule, saying that if such fraud is not stopped, it could harm the entire GST system.

The court said, “This court takes note, with some consternation, that such large-scale fraudulent availment of ITC may, if left unchecked, lead to severe damage to the GST framework itself.”

Fake invoices causing misuse of GST credit:

The GST system is designed to help people and businesses who are legally allowed to claim input tax credit (ITC) and similar benefits, said Justices Prathiba M. Singh and Rajneesh Kumar Gupta in a recent court decision.

The court noticed that some companies and traders are abusing Section 16 of the CGST Act. They first claim ITC by creating fake invoices, and when the tax department fines them, they quickly go to court to challenge the penalty.

Basically, ITC lets a business deduct the tax they already paid on goods or services from the GST they need to pay later. But the court said this system is being abused because some people are using fake invoices to make false claims, and they also misuse the court system to avoid penalties.

“This court… is exercising jurisdiction under Article 226 of the Constitution, and when there is an allegation of such large-scale fraud, to the tune of more than Rs. 56.2 crore, being committed with the involvement of a total of 527 firms, including the petitioner firm, the court has to be circumspect in the exercise of its powers,” the High Court said this while fining the private company after finding out they made fake invoices to avoid paying GST.