GST on Fraudulent Orders What Gujarat AAR Ruling Means for You
The Gujarat Authority for Advance Ruling (AAR) has clarified a crucial issue — a supplier is liable to pay GST even if the order turns out to be fraudulent. This has raised concerns among businesses across India, especially those handling online or remote transactions.
Let’s break this down and understand what this means for Indian taxpayers and businesses.
What Was the AAR Case About?
- The applicant was a supplier of goods.
- They received an online order, dispatched goods via transporter, and paid GST.
- Later, the buyer disappeared — the order was fraudulent.
- The question: Should the supplier still be liable to pay GST?
AAR Verdict:
Yes, GST liability remains even if the order was placed fraudulently.
Why Supplier Still Has to Pay GST?
The AAR based its ruling on the “time of supply” and “supply deemed complete” under GST law:
| Legal Provision | Explanation |
|---|---|
| Section 12 of CGST Act | Time of supply is when the invoice is issued or payment is received — whichever is earlier |
| Section 7 of CGST Act | Defines supply as sale, transfer, exchange, etc., even if not for consideration in some cases |
| Section 2(93) | “Recipient” includes any person liable to pay, even if fake identity is used |
So once the invoice is raised and goods are dispatched, supply is deemed to have occurred — making the supplier liable to pay GST.
Key Takeaways for Indian Businesses
- Raising invoice + dispatch = taxable event
- Even if payment is never received, GST must be paid
- Fake or non-existent buyers don’t negate the tax liability
- This makes supplier due diligence critical before dispatch
How Can You Safeguard Against GST on Fraud?
Here are some tips to reduce risk in such cases:
- Verify new buyers thoroughly before dispatch
- Avoid full dispatch before payment for high-value items
- Use e-invoicing + e-way bill for better tracking
- Record communication trail with buyer
- Include protective clauses in sale contracts
- Use advance payment terms where practical
Don’t Rely Only on Transport Proof
“Transport proof alone doesn’t protect you. Once you raise the invoice, GST law presumes the supply happened — even if the buyer is a fraud,”
Legal References
- CGST Act, 2017 – Section 7
- CGST Act, 2017 – Section 12
- Gujarat AAR: Advance Ruling No. GUJ/GAAR/R/09/2024
GST on Fraudulent Orders
Suppliers must pay GST once goods are invoiced and dispatched — even if the buyer vanishes. GST law treats it as a valid supply.
FAQs
Q1. Can I claim a refund if I’m duped?
A: No. Fraudulent sale doesn’t qualify for GST refund unless goods are returned or supply is reversed via credit note.
Q2. Is transporter record enough to show non-supply?
A: No. As per AAR, dispatch + invoice equals supply, regardless of delivery status.
Q3. What if payment was never received?
A: Payment is not a deciding factor. GST is due if invoice and dispatch are done.