February 23, 2023

Clarification on demand  penalty on FAKE INVOICES under GST

The Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax that is levied on every value addition made to a product or service. Since its implementation on July 1, 2017, it has played a crucial role in transforming the Indian taxation system.

While GST has simplified the tax structure by merging various indirect taxes into one, it has also led to the emergence of fake invoices. Fake invoices are generated to claim input tax credit (ITC) and evade taxes. In order to counter this menace, the government has introduced stringent measures to crack down on fake invoices and punish those who generate them.

Demand for payment of tax

As per Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act), if any person fails to pay any tax or short-pays any tax or erroneously refunds any tax, the proper officer may serve a notice on such person requiring him to pay the amount of tax or short-paid tax or the erroneously refunded tax within a specified period of time.

However, in the case of a fraudulent input tax credit claim, the proper officer may serve a notice for payment of the tax involved, as well as interest and penalty, without providing an opportunity to furnish a reply to the notice.

Penalty for fake invoices

Section 122 of the CGST Act provides for the penalty for certain offences, including the issuance of fake invoices. If any person issues an invoice or a bill without the supply of goods or services in violation of the provisions of the Act, then he shall be liable to pay a penalty equivalent to the tax involved in the invoice or the bill.

Further, Section 132 of the CGST Act provides for punishment for certain offences, including the issuance of fake invoices. If any person issues an invoice or a document containing false details, with an intention to evade tax or claim refund of tax that has not been paid, then he shall be punishable with imprisonment for a term that may extend to five years and a fine.


The government has taken several steps to curb the menace of fake invoices, including the introduction of the e-invoicing system, mandatory e-way bill generation, and the implementation of the Goods and Services Tax Network (GSTN). It is important for businesses to comply with the GST rules and regulations, maintain proper documentation, and avoid any fraudulent activities that may lead to penalties or imprisonment.


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