Can a Supplier Be Liable for GST on a Fraudulent Transaction?
Yes — according to a recent ruling by the Gujarat Authority for Advance Ruling (AAR), even if a supplier is defrauded by a fake buyer, they remain liable to pay GST. This ruling has stirred concern among honest taxpayers, especially small and mid-sized suppliers who rely on online or outstation orders.
Let’s break down what this means and what steps you can take to protect your business.
What Did the Gujarat AAR Say?
The case involved a supplier of air-conditioners and TVs who delivered goods based on a fraudulent order received via WhatsApp and email. The buyer vanished without making any payment.
Despite the fraud, the Gujarat AAR ruled:
- GST liability arises on “supply of goods”, not on receipt of payment.
- Once goods are dispatched and delivery is proven, the supplier is deemed to have made a taxable supply.
- The burden of non-payment falls on the supplier, not the buyer under GST law.
📜 Legal Reference: Section 12 and 15 of the CGST Act, 2017 define time and value of supply. The ruling also aligns with Section 7, which defines “supply” broadly.
Key GST Implications for Suppliers
| Point | GST Impact |
|---|---|
| Goods Delivered? | GST is payable, even if not paid by buyer |
| Payment Received? | Irrelevant to GST liability under forward charge |
| Fraudulent Buyer? | Still taxable if supply conditions are met |
| Input Tax Credit (ITC)? | Claimable if invoice issued and supply made |
| Bad Debt Relief? | No direct GST relief; only income tax bad debt provisions may apply |
How Can Suppliers Protect Themselves?
- ✅ Verify Buyer Credentials: Always confirm GSTIN, PAN, and business address.
- ✅ Advance Payment: For new clients, demand partial/full advance.
- ✅ Use E-Way Bills Wisely: Log transport trail to prove supply conditions.
- ✅ Digital Invoicing: Keep timestamped digital proof for all orders.
- ✅ Legal Insurance: Consider credit insurance or legal rider for high-value orders.
GST Liability Is Independent of Payment
“Many MSMEs believe that if the buyer doesn’t pay, GST isn’t due. That’s a myth. Under the forward charge mechanism, tax is owed on supply — not on receipt. Businesses must factor this risk into their pricing and payment terms.”
Why This Matters More Than Ever
With the rise in digital frauds and e-commerce orders, many suppliers assume a customer relationship is genuine based on email or chat. This ruling puts the onus entirely on suppliers to verify the authenticity of the buyer — or else bear the GST and product loss themselves.
This also highlights a legal gap — GST law offers no relief for “fake order” victims, unlike the income tax law where bad debt can be claimed.
FAQs: Supplier GST Liability on Fraudulent Orders
Q1. Can I cancel the GST invoice if the buyer never paid?
➡ No. Once the goods are delivered, GST is payable, even if payment is not made.
Q2. What if I report the fraud to the police?
➡ You can file an FIR, but GST liability still remains unless the transaction is legally voided.
Q3. Can I get GST refund if buyer is untraceable?
➡ No specific refund provision exists for fraud cases unless order is reversed under valid grounds.
Summary
Gujarat AAR ruled that a supplier must pay GST even if the buyer is fraudulent and no payment is received. Liability arises once goods are delivered — not based on payment. Suppliers must verify buyers and consider advance payments to avoid tax loss.
Final Words: Don’t Let GST Law Add to Your Loss
GST law is supply-based, not payment-based. If you deliver goods—even under fraud—you’re liable to pay GST. That’s harsh, but that’s the law today.