GST on Fraudulent Order What Gujarat AAR Ruled & Why It Matters
A recent ruling by the Gujarat Authority for Advance Rulings (AAR) has stirred concern among Indian businesses: even if a supplier is cheated by a fake buyer, GST liability remains. Let’s break down what happened, what the law says, and how to safeguard your business from such tax risks.
What Was the Case About?
A supplier received a fraudulent purchase order and issued a tax invoice. But after dispatch, they discovered the buyer was fake and the goods were never delivered. The question was simple:
Should GST still be paid on such an undelivered, fraudulent transaction?
Gujarat AAR’s Answer: Yes, GST must be paid.
Legal Basis for the Ruling
Here’s what the AAR considered:
- Section 12 of CGST Act: Time of supply is determined based on invoice date or payment date — not actual delivery.
- Rule 46 of CGST Rules: Mandates invoice issuance for supply of goods.
- Section 2(83) defines ‘outward supply’ which includes sales whether or not for consideration, as long as it is in the course of business.
So, once an invoice is raised, even if delivery doesn’t happen, tax is deemed payable — unless the transaction is reversed legally.
Key Implications for Businesses
This ruling sets a precedent. Here’s what it means:
| Risk | Explanation |
|---|---|
| GST Payable Even if Cheated | You are liable once invoice is raised, even if delivery fails. |
| No Exception for Fraudulent Orders | GST law does not excuse fraud unless proven & reversed formally. |
| Burden of Proof Lies on Supplier | You must prove non-supply and reverse the invoice legally. |
| Fake Buyers = Real Tax Liability | GST is transaction-based, not buyer-authenticity based. |
Expert Tip: How to Protect Your Business
Practical tip by CA R. Desai (Ahmedabad-based GST practitioner):
“Always verify buyers, especially for first-time high-value orders. Ensure proof of delivery and acceptance before issuing a GST invoice. Use e-Way Bill systems smartly to track supply legitimacy.”
What Can You Do If You’re Cheated?
Here’s a step-by-step guide:
- File Police Complaint – Mark it as fraud with a CSR copy.
- Reverse Invoice – Issue a credit note as per Section 34 of CGST Act.
- Amend GST Returns – Adjust in GSTR-1 and GSTR-3B of the same financial year.
- Keep All Proofs – Emails, complaint copies, tracking records etc.
- Consult a GST Expert – Consider advance ruling or filing grievance to GSTN.
Can GST Be Reversed After Filing?
Yes, but only within the same FY or before September following the year of supply, whichever is earlier. Refer: Section 34(2), CGST Act.
Summary
GST on fraudulent order still payable: Gujarat AAR rules that once invoice is raised, supplier must pay GST—even if buyer is fake and delivery didn’t occur. Know the law, stay safe.
FAQ Section
Q1. Can I avoid GST if goods were never delivered?
Only if you issue a credit note and reverse the invoice legally.
Q2. What if the buyer disappears after raising PO?
You still remain liable until formal reversal is filed.
Q3. Is this ruling binding across India?
AAR rulings apply to the applicant, but may be considered persuasive in similar cases.
Final Note
If you’re unsure how to handle such GST issues or need help amending returns or credit notes — talk to our team at Efiletax today. We help you stay compliant, protect your business, and avoid costly mistakes.