GST Liability Remains even if Order is found to be Bogus: AAR [Read Order]

In a recent ruling, the Gujarat Authority for Advance Ruling (AAR) has held that the liability to pay Goods and Services Tax (GST) remains intact even if the underlying order for goods is later found to be bogus. The decision came in response to an application filed by Acube Engitech Private Limited, which had sought clarity on its GST liability in light of a cancelled purchase order allegedly issued by Indian Oil Corporation Limited (IOCL).

The applicant had entered into a transaction wherein IOCL was stated to have issued a purchase order for the supply of industrial goods. Acting on this order, Acube Engitech proceeded with the procurement and supply of goods. Subsequently, the applicant discovered that the purchase order was fabricated and not genuinely issued by IOCL. Acube Engitech approached the AAR seeking a ruling on whether the transaction was still liable to GST in light of the discovery that the order was bogus and that the alleged recipient had no actual intention to procure the goods.

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The applicant argued that since the order was fake, there was no actual supply as defined under Section 7 of the Central Goods and Services Tax (CGST) Act, 2017, and hence no tax should be levied. It further contended that the transaction lacked the necessary ingredients of a valid supply, such as mutual agreement and intention to contract, and therefore, the GST liability could not be enforced.

However, the AAR rejected the applicant's contention and clarified that the concept of “supply” under the GST regime is based on the occurrence of a taxable event and not on the legitimacy of the underlying contract or purchase order. The authority held that the GST liability arises at the time of supply if the supplier has issued an invoice and delivered the goods, regardless of whether the recipient subsequently disowns the transaction. It noted that once goods are dispatched and tax invoices are raised, the liability to pay tax crystallises, unless the transaction is subsequently reversed with a proper credit note and other conditions under Section 34 of the CGST Act are satisfied.

The AAR observed that the intention or authenticity of the recipient’s purchase order does not absolve the supplier of tax liability, especially when the supplier has undertaken the transaction in full, including the physical movement of goods and invoicing. It stated that there is no provision under the GST law that grants exemption from tax merely because the transaction was entered into under a mistaken or fraudulent representation by the recipient.

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The ruling underscores the importance of due diligence in verifying the legitimacy of purchase orders and transactions, especially when large-scale movement of goods and financial liabilities are involved. The AAR emphasised that the remedy for the supplier lies not in evading tax but in pursuing civil or criminal action against the fraudulent party, as GST obligations are governed by objective transactional criteria, not subjective contractual disputes.

The ruling was delivered by Amit Kumar Mishra, Joint Commissioner of State Tax, and Milind Kavatkar, Joint Commissioner of Central Tax, who jointly form the bench of the Gujarat AAR.

To Read the full text of the Order CLICK HERE

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