Circular No. 171/03/2022-GST [C10-5W0]

A number of cases have come to notice where the registered persons are found to be involved in issuing tax invoice, without actual supply of goods or services or both (hereinafter referred to as “fake invoices”), in order to enable the recipients of such invoices to avail and utilize input tax credit (hereinafter referred to as “ITC”) fraudulently. Representations are being received from the trade as well as the field formations seeking clarification on the issues relating to applicability of demand and penalty provisions under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), in respect of such transactions involving fake invoices. In order to clarify these issues and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby clarifies the issues detailed hereunder.

Sl. No. Issues Clarification

1. In case where a registered person “A” Since there is only been an issuance of tax has issued tax invoice to another invoice by the registered person ‘A’ to registered person “B” without any registered person ‘B’ without the underlying supply of goods or underlying supply of goods or services or services or both, whether such both, therefore, such an activity does not transaction will be covered as satisfy the criteria of “supply”, as defined “supply” under section 7 of CGST under section 7 of the CGST Act. As there Act and whether any demand and is no supply by ‘A’ to ‘B’ in respect of recovery can be made from ‘A’ in such tax invoice in terms of the provisions respect of the said transaction under of section 7 of CGST Act, no tax liability

Circular No. 171/03/2022-GST

the provisions of section 73 or section arises against ‘A’ for the said transaction,

74 of CGST Act. and accordingly, no demand and recovery Also, whether any penal action can be is required to be made against ‘A’ under taken against registered person ‘A’ in the provisions of section 73 or section 74 such cases. of CGST Act in respect of the same. Besides, no penal action under the provisions of section 73 or section 74 is required to be taken against ‘A’ in respect of the said transaction. The registered person ‘A’ shall, however, be liable for penal action under section 122 (1)(ii) of the CGST Act for issuing tax invoices without actual supply of goods or services or both.

2. A registered person “A” has issued Since the registered person ‘B’ has tax invoice to another registered availed and utilized fraudulent ITC on the person “B” without any underlying basis of the said tax invoice, without supply of goods or services or both. receiving the goods or services or both, in ‘B’ avails input tax credit on the basis contravention of the provisions of section of the said tax invoice. B further 16(2)(b) of CGST Act, he shall be liable issues invoice along with underlying for the demand and recovery of the said supply of goods or services or both to ITC, along with penal action, under the his buyers and utilizes ITC availed on provisions of section 74 of the CGST Act, the basis of the above mentioned along with applicable interest under invoices issued by ‘A’, for payment provisions of section 50 of the said Act. of his tax liability in respect of his Further, as per provisions of section said outward supplies. Whether ‘B’ 75(13) of CGST Act, if penal action for will be liable for the demand and fraudulent availment or utilization of ITC recovery of the said ITC, along with is taken against ‘B’ under section 74 of penal action, under the provisions of CGST Act, no penalty for the same act, section 73 or section 74 or any other i.e. for the said fraudulent availment or provisions of the CGST Act. utilization of ITC, can be imposed on ‘B’ under any other provisions of CGST Act, including under section 122.

3. A registered person ‘A’ has issued In this case, the input tax credit availed by tax invoice to another registered ‘B’ in his electronic credit ledger on the person ‘B’ without any underlying basis of tax invoice issued by ‘A’, without supply of goods or services or both. actual receipt of goods or services or both, ‘B’ avails input tax credit on the basis has been utilized by ‘B’ for passing on of of the said tax invoice and further input tax credit by issuing tax invoice to passes on the said input tax credit to ‘C’ without any underlying supply of

Circular No. 171/03/2022-GST

another registered person ‘C’ by goods or services or both. As there was no issuing invoices without underlying supply of goods or services or both by ‘B’ supply of goods or services or both. to ‘C’ in respect of the said transaction, no Whether ‘B’ will be liable for the tax was required to be paid by ‘B’ in demand and recovery and penal respect of the same. The input tax credit action, under the provisions of section availed by ‘B’ in his electronic credit

73 or section 74 or any other ledger on the basis of tax invoice issued provisions of the CGST Act. by ‘A’, without actual receipt of goods or services or both, is ineligible in terms of section 16 (2)(b) of the CGST Act. In this case, there was no supply of goods or services or both by ‘B’ to ‘C’ in respect of the said transaction and also no tax was required to be paid in respect of the said transaction. Therefore, in these specific cases, no demand and recovery of either input tax credit wrongly/ fraudulently availed by ‘B’ in such case or tax liability in respect of the said outward transaction by ‘B’ to ‘C’ is required to be made from ‘B’ under the provisions of section 73 or section 74 of CGST Act.

However, in such cases, ‘B’ shall be liable for penal action both under section 122(1)((ii) and section 122(1)(vii) of the CGST Act, for issuing invoices without any actual supply of goods and/or services as also for taking/ utilizing input tax credit without actual receipt of goods and/or services.

2. The fundamental principles that have been delineated in the above scenarios may be adopted to decide the nature of demand and penal action to be taken against a person for such unscrupulous activity. Actual action to be taken against a person will depend upon the specific facts and circumstances of the case which may involve complex mixture of above scenarios or even may not be covered by any of the above scenarios. Any person who has retained the benefit of transactions specified under sub-section (1A) of section 122 of CGST Act, and at whose instance such transactions are conducted, shall also be liable for penal action under the provisions of the said sub-section. It may also be noted that in such cases of wrongful/ fraudulent availment or utilization of input tax credit, or in cases of issuance of invoices without supply of goods or services or both, leading to wrongful availment or utilization of input tax credit or refund of tax, provisions of section 132 of the CGST Act may also be invokable, subject to conditions specified therein, based on facts and circumstances of each case.

Circular No. 171/03/2022-GST

3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

4. Difficulty, if any, in implementation of the above instructions may please be brought to the notice of the Board. Hindi version would follow.