Fake invoice headache – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-opinion/fake-invoice-headache/article65212711.ece

BharatPe episode has brought this to the fore

You can never run out of things that can go wrong” — Murphy’s law. The management of BharatPe would agree with this maxim having been in the news over the last few months for all the wrong reasons. The company has been at the centre of a governance fiasco that came to light after one of its founders got into a legal tussle with a wealth management firm over not being able to secure financing to bid for the initial public offering (IPO) of Nykaa Ltd. He has taken a leave of absence which could mean anything in HR-parlance.

After a few days, the spouse of the co-founder was sacked over charges for fraud and embezzlement. The working environment in start-ups is supposed to be energetic and purpose-driven with the end-goal being obtaining the unicorn tab (a valuation of $1 billion).

The Directorate General of Goods and Services Tax Intelligence (DGGI) has widened its probe on BharatPe after its earlier investigation had found that the company had issued invoices to non-existent vendors.

Last year, the company had accepted that it had issued invoices to non-existent vendors and paid about Rs. 11 crore in GST and penalty to the Tax Department. This was based on DGGI’s finding that procurements were done by the company from non-existent vendors or those who did not operate at the principal place of business — a fact that the company management admitted. The fake invoices were generated for recruitment and other services that were neither sought nor provided.

The SOP

The Central Board of Indirect Taxes and Customs has made e-invoicing mandatory for all taxpayers with a turnover in excess of Rs. 20 crore with effect from April 1, 2022 ( the limit till this amendment was Rs. 50 crore). It is clear that CBIC wants to plug the menace of fake invoices which doesn’t seem to go away.

In 2019, the Investigation Wing of CBIC issued Standard Operating Procedures (SOP) for utilising the fake invoice issuers dataset by State GST Authorities. The most popular mode of fake invoicing is routing of invoices through a series of shell companies/dummy companies, transfer of input tax credit from one company to another in a circular fashion to increase the turnover. In such cases, there is no supply of goods or services and thereby availing of credit based on such invoices gets hit by the provisions of Rule 16 of the CGST Act, 2017. These Rules stipulate that one of the conditions to avail credit is that the buyer should have an invoice on which tax has been paid and he should have received the goods.

Availing of credit without receipt of goods is inadmissible and utilisation of such credit for actual regular supplies results in loss of revenue and financial accommodation. CBIC found unscrupulous traders utilising the GSTN System to create invoices, fake e-way bills showing movement of goods etc., to defraud the Revenue and the banking system. The perpetrators are not always easy to detect since the entities are registered across different States. Agents involved in fake invoicing are hard to catch since they are constantly on the move.

The primary reason why entities get into fake invoicing is because the system (prior to e-invoicing) permitted it. Though there are now a number of restrictions on claiming input tax credit, it is still possible to claim ITC without receipt of goods/services. Fake invoices tend to be more for services as no supporting documents such as e-way bill are needed.

It is a fact that the majority of taxpayers are being penalised for the shenanigans of a minority — a reality that GST taxpayers are slowly beginning to accept.

The writer is a chartered accountant

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