Cases of fraudulent availment of input tax credit have been noticed  after implementation of GST. To control it’s menace, Government has framed stringent provisions.

Following are two such cases recently observed by GST Department : 

1. GOVIND AGARWAL VERSUS STATE OF U.P. [2020 (35) G.S.T.L. 551 (ALL.)]:-

The case involved supply of goods worth Rs.35,02,28,642/-  by a firm which was found to be non-existent with bank account having balance of Rs. 6448/- with no transaction through the bank account worth Rs. 35,02,28,642/- during the period. The applicant filed application for anticipatory bail on the grounds that no notice was issued to the appellant before lodging FIR but this submission was rejected on the grounds that there are offence alleged to have been committed under Sections 420, 467, 468, 471, 34 and 120B of IPC also regarding which no such notice is required to be sent. It was found to be a case of economic fraud in which normal course adopted by the Courts should be not to grant stay against arrest because investigation might require custodial interrogation as well. Hence, the anticipatory bail application of the applicant was rejected. It is to be noted that the applicant has committed the offence of running business by creating a bogus firm and so the offence committed by the applicant was covered under clause 132(1)(a) and 132(1)(b) and as the amount of tax involved exceeded Rs. 5 Crores, the offence was cognizable and non-bailable.

2. ADITYA GUPTA VERSUS UNION OF INDIA [RAJASTHAN HIGH COURT]:-

The case involved fraud committed by availing input tax credit of Rs. 22 Crores by creating fictitious firms. The bail application of the applicant was again rejected in this case on the grounds of serious allegations against the applicant. The court also did not acknowledge the fact that other co-accused were on bail and rejected the bail application.

The statutory provisions and the High Court decisions indicate that the provisions regarding offences pertaining to bogus invoices or fraudulent supply of goods or services are very strict and harsh.

It may be noted that cases of fraudulent availment of input tax credit have been noticed  after implementation of GST. To control it’s menace, Government has framed stringent provisions in section 132 of the CGST Act, 2017 prescribing punishment for certain offences in GST.

Even the provison is incorporated in Income Tax Act 1961 by way of section 271AAD which makes wrong entry liable for penalty @100%.

The government has prescribed punishment for the offences considering the gravity of offence.

According to the provision contained in section 132(5) of the CGST Act, 2017, the offences specified in clause (a), or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable. Accordingly, all other offences except stated in section 132(5) shall be non-cognizable and bailable.

I is important to clarify the meaning of cognizable offence. The term cognizable offence means an offence in which a police officer has the authority to make an arrest without arrest warrant and to start an investigation with or without permission of court. The police can file a FIR only for cognizable offences. Having understood the meaning of cognizable offences, we discuss the offences which are cognizable and non-bailable under GST law.

The following offences are cognizable and non-bailable under GST Law:-

Section 132(1)Whoever commits any of the following offences, namely:—

(a) supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;

(b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;

(c) avails input tax credit using such invoice or bill referred to in clause (b);

(d) collects any amount as tax but fails to pay the same to the Government beyond aperiod of three months from the date on which such payment becomes due;

shall be punishable––

(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;

Hence, the cases where goods have been supplied without issuance of invoice or invoices have been issued without supply of goods to enable fraudulent availment of input tax credit by the recipient or fraudulent claim of refund by recipient, and the amount involved exceeds Rs. 5 Crores, the offence will be cognizable and non-bailable. Now, we hereby discuss recent decisions pronounced by High Courts on this issue.