Fraudulent Orders? GST Still Applies, Rules Gujarat AAR
Focus Keyphrase: GST on fraudulent orders
If you’re a supplier who got tricked into delivering goods through a fake order—can you avoid paying GST?
According to a recent ruling by the Gujarat Authority for Advance Ruling (GAAR), the answer is no. GST must still be paid, even if the buyer was fraudulent and no payment was received.
What Happened?
Acube Engitech, a Rajkot-based company, delivered goods based on a forged purchase order claiming to be from the Matak Autonomous Council in Assam. They received no payment. They approached GAAR to clarify: is this still considered a “supply” under GST?
GAAR’s Final View
Yes. Despite fraud, the supply took place.
Here’s why GAAR ruled against the company:
| Legal Provision | Explanation |
|---|---|
| Section 7, CGST Act | Defines what constitutes a “supply” |
| Section 12, CGST Act | Determines the time of supply |
| Section 20, IGST Act | Relates to place of supply rules |
GAAR held that the delivery of goods was a valid supply under these sections—even if it was based on a fraudulent order.
Key Highlights from the Ruling
- Supply is Supply, regardless of intent or payment.
- Fraud doesn’t eliminate GST liability.
- Law treats even illegal or fraudulent transactions as taxable (similar to income tax on illegal income).
- GAAR: “An element of fraud may vitiate a contract, but it does not exempt a transaction from being treated as supply.”
What About Precedents?
Acube cited the Devas Multimedia v. Antrix case, where fraud led to the Supreme Court ordering the company’s winding up.
But GAAR rejected the comparison, stating that contractual fraud has no bearing on the definition of “supply” under GST law.
Gujarat AAR rules that GST is payable even on fraudulent orders. Suppliers are liable once goods are delivered, irrespective of payment or fraud.
FAQs on GST for Fraudulent Transactions
Q1: If I’m cheated by a fake buyer, do I still pay GST?
Yes. As per GAAR, delivery of goods triggers GST liability, regardless of payment status.
Q2: Can I claim input tax credit on such a supply?
You may be eligible if you paid GST, but risks of denial due to fraud or fake recipient details exist.
Q3: Is there any recourse in such fraud cases?
Legal recourse exists under IPC or civil law, but no GST exemption is available under current provisions.
This ruling tightens the compliance net. Fraud or not, GST liability starts with supply. Businesses must strengthen KYC, verify all government purchase orders, and insure against fraud risks.
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