CBIC's Major Bust on Fake Input Tax Credit in FY 2023-24

The Central Board of Indirect Taxes and Customs (CBIC) has made significant strides in identifying and tackling fake Input Tax Credit (ITC) fraud. In the Financial Year (FY) 2023-24, CBIC detected fraudulent ITC claims amounting to Rs. 36,374 crore across 9,190 cases. This information was shared by Union Minister of State for Finance, Shri Pankaj Chaudhary, in a written response to the Lok Sabha.

Detailed Overview of Fake ITC Cases

A comparative analysis of the detected fake ITC cases over recent fiscal years reveals a troubling increase:

Additionally, the number of cases booked from FY 2021-22 to 2023-24 shows a clear upward trend:

Government Initiatives to Curb ITC Fraud

To effectively combat the rising menace of fake ITC, the government has rolled out several measures:

1. Biometric-Based Aadhaar Authentication: Introducing risk-based biometric Aadhaar authentication for new GST registrations flagged as high-risk through data analytics.
2. Enhanced Physical Verification: Implementing physical verification for high-risk cases, even if Aadhaar authentication has been completed.
3. Stringent Bank Account Verification: Mandating the provision of a bank account linked with PAN and Aadhaar for proprietorships, ensuring the account is in the name of the registered person.
4. Controlled ITC Claims: Restricting ITC claims to invoices and debit notes reported by the supplier in their outward supplies statement.
5. Sequential Filing Mandate: Enforcing the filing of GSTR-1 before GSTR-3B to maintain proper transaction records.
6. Penal Actions for Beneficial Owners: Extending penalties and prosecution to beneficial owners involved in fraudulent ITC activities, similar to actual suppliers or recipients.
7. Provisional Attachment of Property: Allowing provisional attachment of properties belonging to any person benefiting from fraudulent transactions.
8. E-way Bill Generation Restrictions: Imposing restrictions on e-way bill generation by non-compliant taxpayers.
9. Lowered E-invoice Threshold: Reducing the e-invoice threshold for B2B transactions from Rs. 10 crore to Rs. 5 crore from August 1, 2023, to enhance compliance.
10. Data Analytics for Risk Identification: Regular use of data analytics to identify and track risky GST registrations, aiding in the detection of tax evasion.

These proactive measures aim to enhance compliance, curb ITC fraud, and protect government revenue, ensuring a fair and transparent tax environment for all businesses.

Understanding Fake Input Tax Credit (ITC) in GST

What is Input Tax Credit (ITC)?

Input Tax Credit (ITC) is a fundamental component of the Goods and Services Tax (GST) system. It allows businesses to claim credit for the tax paid on purchases and inputs used in the production of goods or services. This mechanism helps reduce the overall tax burden, ensuring that tax is paid only on the value addition at each stage of the supply chain.

Defining Fake Input Tax Credit (ITC)

Fake Input Tax Credit (ITC) refers to the fraudulent practice of claiming ITC on the basis of non-existent or falsified transactions. This typically involves:

1. Fake Invoices: Creating invoices for transactions that never took place.
2. Bogus Suppliers: Claiming ITC from shell companies or entities that do not conduct real business.
3. Inflated Purchase Values: Overstating the value of purchases to claim more ITC than legitimately due.

Impact of Fake ITC

Fake ITC has serious repercussions on the economy and the integrity of the tax system:

1. Loss of Government Revenue: The government loses substantial revenue due to fraudulent ITC claims, which affects public welfare and infrastructure projects.
2. Unfair Market Competition: Fraudulent businesses gain an unfair advantage over compliant ones, leading to distorted market dynamics.
3. Legal and Financial Penalties: Businesses involved in fake ITC face heavy penalties, legal action, and damage to their reputation.

Government Strategies to Prevent Fake ITC

To tackle fake ITC, the government has implemented several strategies:

1. Aadhaar Authentication: Biometric-based Aadhaar authentication for high-risk GST registrations.
2. Physical Verification: Conducting physical verification of business premises for high-risk cases.
3. Bank Account Verification: Ensuring bank accounts are linked with PAN and Aadhaar, and are in the name of the registered person.
4. ITC Claim Restrictions: Limiting ITC claims to verified invoices and debit notes.
5. Sequential Filing: Enforcing the proper sequence of GSTR-1 and GSTR-3B filings.
6. Penalties for Beneficial Owners: Holding beneficial owners accountable with penalties and prosecution.
7. Provisional Attachment: Allowing provisional attachment of properties involved in fraudulent transactions.
8. E-way Bill Restrictions: Restricting e-way bill generation for non-compliant taxpayers.
9. Lowered E-invoice Threshold: Reducing the e-invoice threshold to increase compliance.
10. Data Analytics: Utilizing data analytics to identify and monitor risky GST registrations.

By implementing these robust measures, the government aims to eliminate fraudulent practices, safeguard revenue, and ensure a level playing field for all businesses. These efforts contribute to a more transparent and trustworthy GST system, benefiting both the economy and compliant taxpayers.

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