The Supreme Court of India has recently taken a strong stance against the failure of the Goods and Services Tax (GST) Department to address the issue of fake invoicing, which has adversely affected genuine purchasers. The Apex Court recognized the issuance of fictitious GST invoices as a recurring problem that impairs businesses that have made legitimate purchases.
Supreme Court’s Observations
In an interlocutory application filed by the GST Department, a Bench led by Chief Justice of India (CJI) Sanjiv Khanna and Justice Sanjay Kumar questioned the fairness of holding purchasers accountable for fraudulent suppliers’ actions. The Court highlighted a crucial point: if a purchaser has paid the price, including GST, for goods or services based on a valid invoice, how can they be held responsible if the supplier turns out to be fictitious?
CJI Sanjiv Khanna remarked:
“This is a problem occurring in GST matters. People are purchasing materials, making payments for bills that include GST. The material is certainly purchased, and the payment is certainly made. Now the Department says that the persons who issued the bills are fictitious. How can the purchaser be held responsible? How much can he do?”
Justice Khanna issued a stern warning to the GST Department, emphasizing the need for proactive measures and indicating the possibility of a deeper probe into the Department’s operations if the issue is not addressed effectively.
Department’s Response and Supreme Court’s Concerns
During the hearing, the Counsel representing the GST Department referred to directives from the Additional Solicitor General (ASG) to implement an online mechanism to prevent fake invoicing. However, Justice Khanna dismissed this suggestion, citing its impracticality. The Court observed that even with invoice uploads and approvals, the problem would persist if GST registrations are later found to be fraudulent.
CJI Khanna advised the Department to adopt a taxpayer-centric approach, emphasizing that purchasers who follow due procedures and pay for goods in good faith should not be penalized. The Court pointed out that genuine purchasers often end up unknowingly dealing with intermediaries who act as frontmen or benamidars for fraudulent entities.
Key Takeaways from the Supreme Court’s Judgment
- Taxpayer-Centric Approach: The GST Department should consider the perspective of honest taxpayers rather than solely focusing on revenue collection.
- Strengthening Due Diligence: Authorities should implement robust mechanisms to verify supplier authenticity before transactions occur.
- Avoiding Harassment of Purchasers: Genuine buyers should not be subjected to unnecessary scrutiny and penalties for fraudulent supplier actions.
- Enhanced Technological Solutions: While online verification systems are crucial, they must be practical and effective in detecting fraudulent registrations.
- Need for Policy Reform: The government must consider policy amendments to address the issue of fake invoicing comprehensively.
Conclusion
The Supreme Court’s ruling is a significant step toward protecting genuine taxpayers from undue hardships caused by fraudulent suppliers. It serves as a wake-up call for the GST Department to strengthen its regulatory framework and adopt a more balanced approach that considers both compliance and fairness. Moving forward, it is imperative for businesses to stay vigilant and ensure they conduct thorough due diligence before engaging with suppliers to mitigate risks associated with fake invoicing.