February 23, 2023

GST Demand Penalty in Respect of Transactions Involving Fake Invoices

The GST regime has been implemented in India to make tax compliance easier and more transparent. However, some unscrupulous business owners have found ways to evade taxes using fake invoices. In this article, we will discuss the demand and penalty in respect of transactions involving fake invoices under the GST regime.

Fake Invoices

Fake invoices are generated to evade taxes. They do not represent any actual supply of goods or services. These invoices are created to show the movement of goods and services that never really took place. Business owners can use fake invoices to claim input tax credit (ITC) on goods and services that they did not purchase or receive.

GST Demand and Penalty

Under the GST regime, if an officer in charge of a tax audit finds that a registered person has claimed ITC on the basis of fake invoices, the officer can issue a demand notice to the person. The demand notice will specify the amount of tax that was evaded due to the use of fake invoices.

Once the demand notice is issued, the person has to pay the amount specified in the notice within 30 days. If the person does not pay the amount within 30 days, the tax authorities can initiate recovery proceedings.

In addition to the demand notice, the person can also be penalized for using fake invoices. The penalty can be up to 100% of the amount of tax evaded or Rs. 10,000, whichever is higher. If the person is found to be involved in any fraudulent activity, the penalty can be up to 200% of the amount of tax evaded.

Offences and Punishments

Under the GST regime, certain offences are considered to be non-bailable and non-cognizable. These offences include:

1. Suppression of turnover or value of supplies

2. Issuing invoices without supply of goods or services

3. Availing ITC on the basis of invoices without supply of goods or services

4. Fraudulent activities such as creating fake invoices or dummy companies

If a person is found guilty of any of these offences, he or she can be arrested without a warrant. The person can also be punished with imprisonment for a term up to 5 years and can be fined.


The GST regime has been implemented to make tax compliance easier and more transparent. However, some business owners are using fake invoices to evade taxes. The demand and penalty for such transactions can be severe, and non-compliance can lead to imprisonment and fines. It is essential for business owners to maintain accurate records and comply with the GST regime to avoid such penalties and punishments.


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