CURBING TAX EVASION THROUGH FAKE INVOICES

CBIC is now a days making use of IT tools, digital evidence and also collecting information from other government departments to catch the fraudsters. CBIC through its GST investigation wing has formulated Standard Operating Procedure (SOP) dated 12.05.2019 on dealing and tackling the issue of frauds arising from fake invoices.

This Article explains both these aspects of curbing tax evasion through fake invoices.

Use of Intelligence against Tax Evasion

The use of intelligence is for identification of tax evasion through the help of Artificial Intelligence and Data Analytics in order to stop the leakages in revenue collection. Its goal is to make a targeted approach to counter the leakages. It wants to ensure the process of red-flagging the tax evaders thereby making calculated steps to avoid harassment or overreach to genuine taxpayers.

CBIC officers are using latest IT tools, digital evidence and also collecting information from other government departments to catch the fraudsters. Along with legislative and procedural changes in the law, the nationwide drive has contributed to better compliance and revenue collection. During the drive, cases of fake input tax credit availment against some well-known companies were also booked.

CBIC has also decided to take the following steps in order to curb tax evasion:

1. A mechanism and machinery for disseminating inter-departmental data among various agencies like GSTC, CBDT, CBIC, FIU, DOR, DGGI and State Tax Administrations etc. in order to achieve efficiency in curbing evasion and augment revenue collection.
2. Constituting a Committee of Centre and State officers to examine and implement quick measures in a given time frame to curb fraudulent refund claims including the inverted tax structure refund claims and evasion of GST. The Committee will come out with detailed SOP within a week, which may be implemented across the country.
3. Considering fraudulent IGST refund claims, to link foreign exchange remittances with IGST refund for risky and new exporter.
4. All major cases of fake Input Tax Credit, export/import fraud and fraudulent refunds shall also be compulsorily investigated by investigation wing of the Income Tax Department.
5. MoU among CBDT, CBIC and GSTN to exchange data through API, from CBDT to GSTN and CBIC and vice-versa. This data should be shared on quarterly basis, instead of being shared on yearly basis.
6. Sharing data of cases involving evasion and fraudulent refund detected by CBIC with CBDT and vice versa, so that proper profiling of these fraudsters could also be done.
7. Verification of unmatched Input Tax Credit availed by taxpayers.

Standard Operating Procedure (SOP) on Fake Invoices

CBIC through its GST investigation wing has formulated Standard Operating Procedure (SOP) dated 12.05.2019 on dealing and tackling the issue of frauds arising from fake invoices. Accordingly, the frauds in question need to be tackled by putting in place a regime that enables to the extent possible the identification of suspect entities at the initial stage itself and in other cases the detection of GST frauds at the earliest. The former becomes especially important as the past experience is that many of such operators have a tendency to operate through impersonation in the name of dummy persons who have no real assets making it virtually impossible to recover any amounts from them, if a case is detected at a later stage.

The following safeguards are suggested as key elements of risk profiling to check such GST frauds:

1. Scrutiny/Verification of registered taxpayers through risk profiling and verification for early identification of fraudsters indulging in fake invoices.
2. Historically tax evasion prone sectors.
3. Maintenance of offence database of those figuring in frauds to prevent their re-entry in the System.
4. Some of the risk indicators of such persons or activities done by them or commodities traded by them or patterns behind their activities are as under:

1. Multiple registrations on same PAN.
2. Common email, common mobile numbers, common address, common authorised signatory, common promoters etc.
3. A person whose registration application is rejected or a person whose registration is cancelled may apply again for registration.
4. Live registration against the said PAN with the CGST jurisdiction where offence has been booked by SGST authorities.

Steps involved as per SOP

The SOP on procedure to detect and tackle 'fake invoices' frauds involves the following steps:

1. Identification
   1. Identification of entities to generate fake invoices
   2. Identification of entities who use the fake invoices
   3. Common e-mails/mobiles/addresses
   4. Use of fake (PAN) cards

1. Determination/detection

1. Search of premises
2. Physical space availability verification
3. Ascertainment of non-existent inputs/outputs
4. Lack of documentation
5. Mis-match of e-way bills
6. Fake or non-existent vehicle numbers
7. Mis-match of information amongst regulators such as Income Tax, commercial & other taxes, ROC etc.

1. Post detection

1. Issuance of Show Cause Notice (SCN)
2. Issuance of summons
3. Blocking of Input Tax Credit (ITC)
4. Cancellation of registration
5. Attachment of bank account and other assets
6. Detention and confiscation of goods and conveyance
7. Prosecution and arrest

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