Ever since the introduction of GST, input credit has become a focus point for most tax payers. GST was supposed to have automated the process claiming credit. However, this facility has not seen light of the day. Further, confounding the problems is the recent ruling imposing input credit restrictions. In October last year GST department mandated that a tax payer will be able to claim only 10% of input credit if the vendor has not filed his returns. The Government was forced to bring in this rule as only a handful tax payers were filing GST 1 returns. Another major problem the Government is battling is that of fake GST invoices. In order to combat this problem the Government has announced penalties for using fake invoices. This penalty will be applied to both persons accepting & making the fake invoices.
Recent Budget Amendments
The Budget presented by the Finance Minister earlier this month has introduced a new Section called Section 271AAD in the Income Tax Act. This Section provides for penalty for:
- A false entry in the books of accounts
- Omitting entries in the books of accounts which are required to compute total income with an intention to evade tax
It is important to note that these penalties will be applicable from 01.04.2020. The Assessing Officer (the Income tax officer examining books & returns) is empowered to direct the tax payer to pay this penalty if he finds there are fake entries or omissions in the books of accounts.
What is the quantum of penalty?
The penalty shall be equal to the aggregate amount of such false entry or omitted entry.
What is a false entry?
False entry has been defined to include the use or intention to use:
- A false or forged document such as a false invoice or in general a false piece of documentary evidence
- An invoice for supply of goods or services where the actual goods or service has not been delivered
- Invoice from or to a person who does not exist
The definition is wide ranging one which includes even the “intention to use” and further it goes to include not just invoices but all other documentary evidence. This could include balance confirmations from vendors/customers or any other correspondence with business associates.
Who shall be liable to pay penalty?
The penalty shall be levied not only on the person using the false entry but also on the person providing such false entry.
This amendment has far reaching consequences. The Government has now synced both Income Tax and GST data bases so that there real time information sharing. If a tax payer gets found out for a false entry in an Income Tax proceeding, it is safe to assume that, he will be sent a notice under the GST law as well.
Suitable changes have been made to Section 122 & Section 132 of the IGST Act, which deal with penalties for improper invoicing and frauds. Apart from monetary fines, GST registration can also be cancelled by the authorities.
So every business owner needs to be vigilant and not indulge in unethical or fraudulent business practices. It is evident that penalties for fake invoices will be steep.