“Look at it from the POV of the Taxpayer”: Supreme Court in Fake GST Invoicing affecting Genuine Purchasers

The Supreme Court of India recently rapped the conduct of the Goods and Services Tax (GST) Department in failing to crack down on suppliers issuing fake invoices to purchasers, prejudicing entities who have seemingly made genuine purchases from the suppliers.

Remarking the same to be a recurrent practice, employed by fraudulent suppliers to avoid crediting due GST to the Department, the Court wondered how the liability could be ascribed to purchasers who have paid requisite price for the goods or services, inclusive of GST Amount to the suppliers.

A Bench constituted by Chief Justice of India (CJI) Sanjiv Khanna and Justice Sanjay Kumar was hearing an interlocutory application filed by the GST Department, wherein the CJI asserted that -

"This is a problem occurring in GST matters. What is happening is, people are purchasing materials. The person says- I'm giving you these bills..they make payment of those bills. The material is certainly purchased. The payment is certainly made. Now you say that the persons who have raised the bills are fictitious. How can he(purchaser) be held responsible? How much can he do?"

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Justice Khanna issued a strict note of warning to the Department, indicating an intensive probe into the functioning of the Department if the issues are not resolved proactively.

The Counsel appearing for the GST Department referred to the directives issued by the ASG (Additional Solicitor General) to the officers to devolve an online mechanism to thwart the fake invoicing, but was cut short by Justice Khanna who pointed out the unsustainability of the suggestion.

"You wanted it to be done, it was not found workable, because the system couldn't be taking those....let me put it, even if that happens, the problem will persist. Suppose the invoice is uploaded, and the person also takes it, even then, this problem will arise. Because you yourself will later on find out that the GST registration is incorrectly given.

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Allowing the withdrawal of the Interlocutory Application, the CJI advised the Department to ‘look at the issue from the point of view of the taxpayer instead of the Department’ where the purchasers receive material, make payment and issued invoice, only to find later that the payment had been made to a benamidar of others.

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