High court fines firm for fraudulent GST tax credit claim

NEW DELHI: Flagging concerns over the misuse of a Central Goods and Services Tax Act provision, Delhi high court has fined a private firm for fraudulently claiming input tax credit (ITC) to escape paying full GST.

“This court takes note, with some consternation, that such large-scale fraudulent availment of ITC may, if left unchecked, lead to severe damage to the GST framework itself,” HC said.

Fake invoices leading to GST credit facility misuse: HC

The GST framework is meant to encourage legally entitled persons and businesses to avail of ITC and other similar facilities, said a bench of Justices Prathiba M Singh and Rajneesh Kumar Gupta in a recent order.

HC noted Section 16 of CGST Act was being misused by companies and traders who first availed of the ITC by issuing fake invoices and, when slapped with a penalty by the department, rushed to court in writ jurisdiction.

In essence, ITC allows a tax entity or person to claim credit & deduct from payable GST on purchase of goods and/or services used in the chain of business transaction, as it has been taxed earlier. However, court noted that due to fake invoices leading to fraudulent claims by persons, the facility is being misused, along with writ jurisdiction of the court.

“This court... is exercising jurisdiction under Article 226 of the Constitution and when there is an allegation of such large-scale fraud, to the tune of more than Rs 56.2 crore, being committed with the involvement of a total of 527 firms including the petitioner firm, the court has to be circumspect in the exercise of its powers,” HC noted while imposing costs on the private entity after it emerged fake invoices were created to escape GST liability.