GST evasion and fake invoicing: What every taxpayer must know
With two more individuals recently arrested in a multi-crore GST evasion and fake invoicing scam, the spotlight is once again on how such frauds work — and why every taxpayer, especially small business owners and consultants, must stay alert.
The focus keyphrase “GST evasion and fake invoicing” is at the heart of rising compliance crackdowns by the CBIC. Let’s break it down in simple terms.
What is fake invoicing under GST?
Fake invoicing refers to issuing invoices without actual supply of goods or services, solely to claim fraudulent input tax credit (ITC) or inflate turnover.
Here’s how it typically works:
- A fake firm is created using bogus documents
- Invoices are issued to genuine businesses for non-existent sales
- Buyers claim ITC based on these invoices, reducing their GST outflow
What is GST evasion?
GST evasion refers to any deliberate act to avoid paying GST, such as:
- Not registering under GST despite crossing threshold
- Under-reporting turnover
- Over-reporting ITC through fake invoices
- Collecting GST but not depositing it with the government
- Using multiple fake entities to rotate invoices
Latest case: What happened?
- Operating multiple fake firms
- Issuing bogus invoices over ₹500 crore
- Passing on fake ITC exceeding ₹75 crore
- Violating Section 132(1)(b) and 132(1)(c) of the CGST Act, 2017
This falls under non-bailable offences when the amount of tax evaded exceeds ₹5 crore.
👉 Source: Press Release by CBIC on 4 July 2025
Legal consequences of fake invoicing
Under Section 132 of the CGST Act, the following applies:
| Offence | Amount Involved | Punishment |
|---|---|---|
| Fake invoice / fraudulent ITC | > ₹5 crore | Non-bailable, up to 5 years |
| Repeated offences | Any amount | Possible arrest, prosecution |
| Abetment or aiding fraud | Any role in scam | Equal penalty as main offender |
How to avoid GST non-compliance
Whether you’re a business owner or CA firm, follow these steps to avoid being linked to GST evasion and fake invoicing cases:
- Verify all vendors on GST portal (www.gst.gov.in)
- Avoid using unknown firms for purchase just to save tax
- Reconcile GSTR-2B with GSTR-3B monthly
- File returns on time to avoid scrutiny
Expert tip:
Never depend solely on invoice PDFs from suppliers. Always cross-check GSTN status, return filing behaviour, and 2B reflection before claiming ITC. One bad invoice can trigger a full audit.
Government crackdown is intensifying
CBIC and DGGI have ramped up enforcement through:
- AI-based invoice matching
- E-way bill to invoice reconciliation
- Real-time PAN/Aadhaar verification
- Integrated GSTN-DGFT-CBDT intelligence sharing
In FY 2024–25 alone, over 4,000 fake GSTINs were suspended, and ITC claims worth ₹35,000 crore were flagged.
How Efiletax can help
Efiletax offers automated GST compliance tools to help you:
- Validate supplier GSTINs
- Track input tax credit eligibility
- Stay updated on monthly GSTR obligations
- Avoid legal exposure to fake invoice networks
Need help with clean GST compliance? Talk to us at Efiletax.in
FAQs on GST evasion and fake invoicing
Q1. Is claiming ITC on a fake invoice a punishable offence?
Yes. If there’s no actual supply, claiming ITC is fraud under Section 132.
Q2. Can I be arrested for unknowingly dealing with a fake vendor?
If you failed to do due diligence, you may still be held liable. CBIC expects “reasonable care” from all taxpayers.
Q3. How can I verify if a supplier is genuine?
Check their GSTIN status on gst.gov.in, review return filing history, and confirm invoice details match with GSTR-2B.
Summary
GST evasion and fake invoicing scams are increasing, triggering arrests and ITC denial. Learn how they work, legal consequences under CGST Act, and how to protect your business with smart compliance steps and vendor checks.