What is GST and ITC?

GST is a tax levied on the supply of goods and services at every value-added stage. To avoid double taxation on the same product or service, the system provides for ITC, under which companies can offset tax paid on purchases they have made.

What’s the Issue?

Numerous companies have been found making false invoices to fraudulently draw ITC. These invoices were presented for purchases from fictional or non-existent suppliers. No goods or services were actually delivered in reality.

A “fraudulent” taxpayer is one who furnishes GST bills without selling anything, only to assist others in availing tax credit that they are not eligible for. Others even get themselves registered in fake names or provide false particulars to abuse the system, like pretending to give refunds or generating fake e-way bills.

In previous studies, most of these companies were discovered not to be real. Their claimed tax was based on fictitious transactions, generating huge revenue losses for the government.

Examples of Misuse of a Fake Invoice

Fake Invoices Without Actual Supply:

• Businesses produce fake invoices and claim ITC, which they do not truly possess, to indicate tax payment. This leads to buyers falsely claiming credit, and revenue to the government is lost.
  

Goods Sent to Someone Else:

• An invoice is issued to one person, but the goods go to another. This lets someone else use the fake credit for tax payment or claim export refunds.
  

Fake Chains of Shell Companies:

• A group of fake companies pass invoices to each other to create a fake turnover and ITC. But no real business or goods exchange happens. The law requires that ITC can only be claimed when actual goods or services are received, so these credits are illegal.
  

Fake Registrations for Tax Evasion:

• Some fraudsters use fake names to register GST accounts and create invoices. These are then used to illegally move goods or avoid taxes. Sometimes, the people whose names are used might not even know about it.
  

Refer to the official notification for more related information